The right of retention, which has been accepted as a convenient instrument to get paid, was not given a legal basis until 2018 since the new Law on Pledges has entered into force. Recently, the Supreme Court gave the right of retention a helping hand.
The right of retention is a useful tool for creditors who didn’t get paid and therefore are in possession of an asset of their debtor.
The right of retention gives each creditor (the "retentor") the right to suspend the restitution of an asset that was handed over to him by his debtor or that at least is intended for him, as long as the debtor has not paid the claim relating to that asset.
This is a right that can be used in a lot of circumstances.
A simple example is the garage owner who refuses to return his customer's vehicle as long as the customer has not paid for its repair. But there are many other circumstances in which the right of retention can be used to obtain payment of your invoices.
The right of retention has been used for a long time and it was also widely accepted. But it is only since the introduction of the Law on Pledges in 2018 that the right of retention has acquired a legal basis.
The Law on Pledges confirms both the objectionable nature of the right of retention and the fact that the creditor, exercising the right of retention, has the right to be paid before the other creditors from the withheld assets.
This means that he is a secured creditor to all other creditors in the event of bankruptcy or attachment. However, he is not entitled to sell the assets himself (or to have them sold) as a fully-fledged pledgee.
The Law on Pledges expressly provides for this:
- The right of retention relating to a movable tangible asset is enforceable against other creditors of the debtor and against third parties who have acquired a right to the asset after the creditor has acquired actual control over the asset;
- The right of retention relating to a movable tangible asset shall also be enforceable against third parties with an earlier right, provided that the creditor was entitled to assume that the debtor had the power to subject the asset to a right of retention when he took possession of the asset.
2. The right of retention supported by the Supreme Court
In a judgement of 16 January 2020, the Supreme Court confirmed that the right of retention cannot be ignored even in the event of bankruptcy.
A creditor exercised his right of retention on the assets of a debtor who was declared bankrupt.
The curators and liquidators agreed to sell the goods. Part of the proceeds, which corresponded to the amount of the uncontested invoices, was paid to the creditor-retentor. The balance corresponding to the amount disputed was placed on a blocked account pending resolution of the dispute between the creditor and the curators.
However, during the bankruptcy the creditor-retentor failed to file a declaration of credit in time.
The curators took advantage of this to claim, as a result they could not be obliged to release the blocked funds to the creditor/retentor.
Right of retention as a fully-fledged and independent security right
The Antwerp Court of Appeal ruled that the legality and effectiveness of the exercised right of retention does not depend on the declaration of the claim in the liabilities of the bankruptcy by the creditor invoking the right of retention.
The Supreme Court also ruled that the exercise of the right of retention after bankruptcy does not depend on the declaration of the claim in the bankruptcy. The right of retention is enforceable against other creditors of the debtor and, more specifically, against concurrent creditors after the bankruptcy of the debtor.
The Court also confirmed that the liquidator and the creditor may agree to sell the asset subject to the retention and that the creditor may exercise his rights to the agreed amounts.
The question can then be asked whether a retentor must make a declaration of claim for the amounts that may exceed the amount of the sale of the goods on which he has exercised the right of retention.
Once again, we can conclude that the right of retention must be regarded as a fully-fledged and independent security right on which far too little is demanded.
If you, as a creditor, are in possession of an asset belonging to a person or company that does not pay their invoices, you would do well, before returning that asset, to demand payment or at least to check whether the debtor is indeed able to pay his debt.
This is important because once the asset has been surrendered, the right of retention ends and does not exist anymore.