Alain Verbeke*

* Professor Ordinarius of Private and Comparative Law at the Universities of Leuven, Tilburg and Antwerp.

E X E C U T I O N OFFICERS AS A BALANCE WHEEL

IN INSOLVENCY CASES

1 PROBLEM

T h e problem under consideration here is a conflict arising out of one of the most frequent and universal legal problems: insolvency, i.e. non pay- ment of debts or non execution of obligations. In this conflict, both oppos- ing parties, debtor and creditor, besides duties, enjoy several fundamental rights. Therefore, there is a clash of diametrically opposing rights.

As for all legal problems, the solution is to be found in a sound and objective balancing of these conflicting interests. However, in the daily practice as we can find it in several legal systems, it seems that a balanced equilibrium between debtors' and creditors' rights is a goal not easily and not always achieved.

In this short contribution, I would like to suggest some reflections in search of obtaining a more satisfying compromise between the interests involved.

2 OPPOSED RIGHTS

2.1 Debtors' rights: humanity and privacy

Besides the duty to fulfil his contractual obligations, and e.g. to pay his debts, any debtor, even the one who is insolvent, enjoys several fundamen- tal rights. They can be summarised in two words: humanity and privacy.

Both rights are basic and are guaranteed by several international, European and national treaties, documents and rules. This applies for both

the basic rights to lead a humane life, as well as for the right to privacy.' 1 Furthermore, most national legal systems have increased their rules to protect debtors, e.g. expanding the assets that are immune of execution, or even introducing rules of remitting debts in order to allow the debtor a "fresh start".

2.2 Creditors ' rights: efficient recovery

Creditors have the right to be paid. If they are so unfortunate that payment does not occur spontaneously, they are forced into a long journey of debt collection and recovery.

For some creditors, the damage will be limited: if they have a sufficient security mechanism such as a mortgage or a pledge, they might recover the entire debt thanks to the asset upon which they are privileged. For the sake of my argument, I will further ignore the latter creditors.

For other creditors, however, the final conclusion often is much less positive. Nevertheless, it is evident that each creditor, whether he has securities or not, is entitled to recovery. And he is even entitled to more than that. He should be able to recover his debt efficiently, in due time and at a reasonable c o s t 2

Article 6, 1 of the European Human Rights Treaty3 confirms the fundamental right to a fair and public treatment of one's case involving civil rights and obligations, within a reasonable time by an independent and impartial court. The Court in Strassbourg interpreted this rule to include also the execution of a court judgment.4 This implies that the creditor can claim a right not only to a recovery within a reasonable time, but also that the procedures for recovery and seizure should be adequate and efficient.

I See E. Leroy, L'eff icacite des procedures judiciaires au sein de l 'Union Europeenne et les garanties des droits de la defense transparence patrimoniale, in L'EFFICACITT DE LA JUSTICE CFVH-E EN EUROPE. (Larcier, Brussels, 2000), p. 275- 289 (humanity) and p. 289-304 (privacy).

2 See my articles De gerechtsdeurwaarder: motor en garantie voor een effectieve executie, TUDSCHRIFT VOOR BELGISCH BURGERUJK RECHT/REVUE GENERALE DE

DROIT CiviL BELGE, 1999, p. 106-111 and also Information sur le patrimoine. Necessite d 'un droit d'execution dquilibr6, in LE ROLE SOCIAL ET ECONOMIQUE DE L'HUISSIER DE JUSTICE (Story-Scientia, Brussels, 2000) p. 161-195.

3 Treaty of Rome of 4 November 1950 regarding Protection of Human Rights and Fundamental Liberties.

' See E. Krings, Ge delai raisonnable a la lumiere de la jurisprudence de la Cour de Strasbourg. Vers un droit substantiel a I'execution des decisions de justice, in L'EFFICACITE DE LA JUSTICE CIVILE EN EUROPE, (Larcier, Brussels, 2000) p. 221- 245.

This last point then implies, among others, the availability of all necessary means and information to realise such efficient recovery in due time. Thus, debtor patrimonial transparency and asset information constitute a funda- mental right (under article 6, 1 of the Treaty) for each creditor.

One might add, in support of this argument, the first article of the First Additional Protocol of 20 March 1952 to the European Human Rights Treaty, warranting each person the right to an undisturbed enjoyment of his property and ownership.5 Since a creditor's claim is a valuable patrimonial asset, the creditor has a fundamental right to an undisturbed enjoyment of this asset. This certainly implies the right to an efficient recovery of such claim.

Some additional arguments may be put forward in furtherance of the creditor's basic right for an efficient recovery within a reasonable time, implying patrimonial transparency on the debtor's side.

First of all, such right can be considered in a way to be an implied power of the creditor. Since it is a general and mostly explicit rule that a creditor may recover his claims from the entire estate of the debtor, it should be implied that he is equally entitled to information regarding that estate. How could he otherwise know where to recover?

Moreover, one might argue that a lack of patrimonial information, or any other inefficiency, leading to the impossibility to obtain execution of a court judgment, should be considered as "contempt of court". What respect does a society (or legislator) have for its own judicial system, if it makes it impossible for decisions of its judiciary to be executed?

Finally, it would be highly unfair and unbalanced to, on the one hand, humanise to a large extent the law of insolvency without, on the other hand, acknowledging the legitimate interests and rights of a creditor. This brings us to the issue of balancing and searching for an acceptable equilib- rium.

3 BALANCING THE CONFLICT OF INTERESTS

3.1 The clash between humanity and efficient recovery - Humanity wins

The fundamental right of each debtor for a humane treatment includes three major aspects.

5 S e e r e c e n t l y M . HARTWIG, DER EIGENTUMSSCHUTZ NACH ART. 1 DES 1. ZUSATZPROTOKOLLS ZUR E M R K , Rabe l s 1999, P. 561-579 .

• First of all, the debtor must be able to lead a minimal hu-

mane life. This includes the debtor's right to obtain a suffi- cient minimum of income and revenues, the right to have a roof above his head, the right to have at his disposal all essential daily household goods, the right not to be pursued by creditors for the rest of his life.

• Secondly, the humanity principle implies the protection of the debtor against a manifestly abusive execution or recov- ery procedure.

• Finally, human dignity also encompasses the right of the debtor to an efficient and discrete procedure, limiting the damage to his social status and position as much as possi- ble.

One could argue that this (existential) value of humanity and dignity of a debtor cannot be in conflict with the creditor's right of recovery, since the former invariably is a superior right. Put that way, there will be no conflict, nor will there be any balancing needed. A person's insolvency can never be an excuse to injure his humanity and dignity. The latter is such an essential right that it can never be violated. Therefore, the basic right of human dignity constitutes the very minimum of protection for each debtor. No creditor, how legitimate, fair or strong his claim may be, can ever impose recovery or seizure of his claim in a way that the human dignity of the debtor would be abridged.

However, a legitimate discussion may arise around the determina- tion of such minimum standard. It is one thing to state theoretically that the debtor's humanity cannot be infringed, it is another thing to define con- cretely how this concept of humanity should be understood. Here, a balanc- ing exercise is needed, e.g. to determine what part of a debtor's income cannot be attached.

The result of this balancing act may be found in numerous concrete legal rules and principles. As examples of the concrete realisation of the objective of guaranteeing a minimal humane life, one can cite the rule that several assets and income are incapable of attachment, or the regulations regarding expulsion out of ones domicile. The same goal has led several jurisdictions to provide, in some exceptional cases, for procedures that might eventually require the creditor to accept that the debtor has his debt remitted. Sometimes, in cases of bankruptcy, it is accepted that, in the interest of humanity and the fresh start doctrine, a debt may be mandatory excused, as imposed by a court judgment.

The goal of setting up an efficient and discrete procedure, in protection of the debtor, can be found in several rules ensuring that the debtor be offered sufficient chances to pay back, eventually through a scheme of periodical instalments. The same for rules that impose an attempt to reach a settlement before a procedure of attachment can even start.

3.2 The clash between privacy and efficient recovery - Recovery should win

An entirely different picture arises if one looks at the clash between privacy rights of the debtor and the creditor's right to be paid. There certainly is a conflict here, between two fundamental rights.

3.2.1 Where is the debtor?

One first very essential issue for a creditor may be to locate the debtor. It happens that one cannot find him. Debtors sometimes seem to master the art of invisibility. No doubt, the creditor must have the possibility to find his debtor through consultation of registers or questioning of third parties, such as an employer.

It is a fundamental and undeniable right for a creditor to obtain such essential information. The concrete realisation of this right must, of course, be proportionate. Therefore, this right should not be executed by the creditor personally, but through the office of a neutral and objective third party (see further sub 4).

3.2.2 Where are the assets?

Even if the creditor can locate the debtor, his nightmare is not over yet. He then must find attachable assets.

3.2.3 Collective liquidation

In case of bankruptcy and all other situations of collective liquidation of the entire patrimony through an organised legal procedure of settlement and liquidation, it is quite evident that the debtor's privacy right must bow the head for the rights of the mass of creditors. Management of the entire estate is taken out of the hands of the debtor and is entrusted to an execution or

liquidation officer (curator), normally appointed by the court and therefore acting under the guidance and supervision of a judicial mandate.

Since this liquidation officer takes over the ship, it is quite normal

that he receives all information regarding the estate and that he can make all necessary inquiries. His professional ethics and duty of secrecy, in combi- nation with the court's supervision, offer an acceptable justification for this infringement on the debtor's privacy. The creditors' right to patrimonial information and efficient recovery is harming the debtor's privacy, but not more than necessary and as adequately as possible.

This is realised by entrusting all of these creditors' rights to one single person, an official appointed and controlled by the court. Not the creditors in person come to know all of the debtor's affairs and things, but a person appointed to act neutrally, objectively and impartially. This liquida- tion officer, as an agent of the court, must see to it that the liquidation of the estate is realised as efficiently as possible with as few injury as possible for the debtor and his privacy.

3.2.4 lndividual seizure or attachment

We can conclude that in cases of collective liquidation of the entire estate, the right of recovery prevails, under some conditions and limits, over the right of privacy.

Why is it that this is not generally accepted in case of individual seizure or attachment? If a creditor is looking for recovery of his claim through seizure of individual assets, all of a sudden, for some people the privacy right of the debtor seems, to a certain extent, to become sacred and to prevail.

For a creditor without securities, looking for assets to be attached, it is often very hard just to find such assets. It normally is not so difficult to situate immovable property, if any. Unfortunately, if the debtor owns immovable property, it often is mortgaged in favour of several creditors, mostly banks, who will prevail. For an ordinary creditor then, it is no big success to find that immovable property. Furthermore, the toughest assets to even locate are often the most valuable, such as bank accounts, stocks and shares.

A brief comparative analysis reveals a wide variety of possibilities and means for a creditor to find assets of his debtor.6

In most legal systems, the creditor, or the execution officer (bailifflhuissier de justicelGerichtsvollzieherlgerechtsdeurwaarder) acting for him, may consult a wide variety of public registers, containing relevant but very incomplete information. Usually, there are registers with informa-

6 T h e f o l l o w i n g is b a s e d o n A. VERBEKE � M . - T . CAUPAIN (EDS.) , LA TRANSPARENCE PATRIMONIALE. CONDITION NÉCESSAIRE ET INSUFFISANTE DU TRFRE

CONSERVATOIRE EUROPEEN? (Paris , Quercy , 2001 ) p. 23-74.

tion on immovable property. Often, these registers are not centralised, but spread all over the country, which does not make the creditor's task easier. Most of the time, registers regarding valuable movable assets are very limited. One notorious exception is Sweden where the patrimonial transpar- ency through registers is extremely large. But in most cases, the informa- tion obtained by consulting registers is incomplete and often insufficient as a basis on which to recover.

There are some additional possibilities to find information about the debtor's assets or income. There seems to grow a consensus at a Euro- pean level that a general rule regarding an enforceable duty for a debtor to give a declaration of property should be established.7

In Germany there is, if needed, the obligation for a debtor to give, under oath, an inventory of his entire patrimony, which is then registered in a public court register.8 A declaration of patrimony has recently been introduced in Spain in the new Code of Civil Procedure. Here the debtor must only reveal assets or income to enable recovery of the claim con- cerned.9 According to article 475g of the Dutch Code of Civil Procedure, the debtor must submit to the execution officer his sources of income. In

Belgium, such declaration is required in the context of the special proce- dure of collective debt settlement, but not in case of a normal individual seizure.

Furthermore, sometimes and under certain conditions, a third party may be required to give information about income or assets of a debtor. In Austria, a creditor can, subject to court authorization, obtain patrimonial information from third parties. Should this be insufficient, the debtor can be required to give an inventory of his entire patrimony.(' In France, the execution officer may request the Procureur de la Ripublique to provide him with the address of the debtor and to indicate the banks and financial

institutions where the debtor has opened an account. However, in practice this system does not seem to work efficiently. In the Netherlands, the cited article of the Code of Civil Procedure entitles the execution officer to ask

information from third parties regarding the fact whether such third party is

7 Communication de la commission au Conseil et au Parlement europien. Vers une efficacite accrue dans I'obtention et 1execution des decisions au sein de l'Union europeenne, p. 18, n° 54.

8 For some other examples, see G. de Leval and F. Georges, La saisie- a r r i t bancaire dans l'Unis Europeenne, in L'EFFICACITE DE LA JUSTICE EN EUROPE, p. 188-189, referring also to the disclosure orders and Anton Pillers orders in English law.

9 See Correa in A. Verbeke � M.-T. Caupain (eds.), o.c., p. 51-52.

10 See Hess in A. Verbeke � M.-T. Caupain (eds.), o.c., p. 46.

due periodical payments to the debtor. The same is possible in Belgium, but only in application of an expensive procedure of attachment (serving the third party with a garnishment order), or by court order." Under certain conditions the Belgian execution officer can obtain information from the social security database (Banque-carrefour de la securite sociale).

In most countries, there is one notable exception. This is the tax administration, which is in a privileged position, with a very far-reaching right of inquiry and examination.

Although there are several ways to find patrimonial information, in a large number of countries the situation is incoherent and sometimes even chaotic. The differences between European countries are substantial. Obviously, some systems do offer a larger patrimonial transparency than others. However, no jurisdiction seems to present the right balance.

3.2.5 Recovery agencies

Witness thereof is the simple fact that all over Europe, obscure recovery agencies have been established, proudly advertising their "unorthodox" methods, offering the creditor a quick recovery on a no cure no pay basis. One should bear in mind that the market always acts in an economically efficient way. If the regular public recovery method does not work, a parallel private network, not controlled nor regulated by the legal system, will offer its services.

Since there is no control, it is quite obvious that these agencies will act entirely in their own interest, with a quick recovery as the only objec- tive, not taking into account legitimate interests of the debtor, nor guaran- teeing him a human treatment. It is well known that these agencies do not hesitate to apply unacceptable techniques such as stalking and intimidation.

3.3 Conclusion

Therefore, I dare say that the lack of patrimonial transparency in the regular recovery and execution system leads to less privacy and humanity for the debtor. Indeed, the inefficiency of the public system drives creditors to private agencies, operating in a dark or grey area, while constantly infring- ing the debtor's fundamental rights.

Thus, the need for (balanced and controlled) patrimonial transpar- ency in execution law is not only required for the sake of the creditor, but equally in the interest of protecting the debtor. It is an urgent duty for

" See P. Van Leynseele and M. Dal, Pour un modele Belge de la procedure de discovery?, JOURNAL DES TRIBUNAUX, 1997, p. 225-232.

national and European authorities to provide its execution officers with the arms and means for an efficient recovery.

The following is a proposition that may enable the regular execu- tion procedure to regain its efficiency and to (re)-install a fair balance between debtor and creditor.

4 FUNDAMENTAL RIGHT OF EFFICIENT RECOVERY AND PATRIMONIAL

INF_ORMATION - PROPORTIONALITY GUARANTEED BY EXECUTION OFFICERS

We can thus formulate, as a principle that the creditor's right of efficient recovery should prevail over the privacy of the debtor, if some conditions are met.

Indeed, the creditor's entitlements should be realised in such a way that the infringement on the debtor's privacy is limited as much as possible. Good balancing means that the infringement on one fundamental right (privacy) because of another fundamental right (efficient recovery) is only justified if the infringement is based on an explicit legal norm and if the infringement is in proportion with the goal to be achieved.

Therefore, we need a (European) legal norm establishing the creditor's fundamental right to efficient recovery. This rule should include the principle that such right of the creditor will prevail over privacy to get necessary patrimonial information. Secondly, we need a system of obtain- ing such information and a procedure of recovery, with respect for the principle of proportionality, which is at the very essence of the issue here.

For the infringement on privacy to be acceptable, it should not only be legal (based on a concrete legal norm), but also proportionate, only going so far as necessary in furtherance of the execution of a valid and recognised claim, established in an (enforceable) title.

This seems to be accepted in cases of collective liquidation such as bankruptcy. The curator is a trusted execution officer, acting under the supervision of the court, offering sufficient guarantees that the infringement on privacy meets the proportionality test (see above).

In my view, the same should apply in cases of individual attach- ment or seizure. Here the principle of proportionality can be impersonated by the execution officer (bailiffl huissier de justicel Gerichtsvollzieherl gerechtsdeurwaarder), who would then be, comparable to the liquidation officer in a collective settlement and liquidation procedure, the balance wheel in an efficient recovery procedure. The execution officer would be the "arm of the judge" who has decided that a claim is valid and enforce-

able. This aid or arm of the judge operates "in the field" and ensures the judge and the entire legal system that what has been decided, really will be executed.

Therefore:

If a creditor is in possession of a final enforceable title, the execution officer acting in execution of such title, should have the utmost power to effectuate an efficient recovery,

which implies that if this execution officer:

• Verifies that all possible mechanisms of protection of the debtor are applied and are exhausted;

• Verifies that there is no chance whatsoever to obtain an

arrangement or settlement;

• Consults and exhausts all possible registers or public mech- anisms of patrimonial information;

he then must have a general and unlimited power of inquiry and examina- tion of the patrimony and income of the debtor, giving him the power, without court authorisation but under the condition that the debtor can at

any time oppose any abusive action of the execution officer before the court (judge of execution), to:

• Require from the debtor to point out assets or income to the extent needed for the recovery of the claim;

• Require, informally and at minimum cost (i.e. not using a formal seizure or attachment procedure ) from any third party such information; be it a bank, attorney or notary public, who cannot invoke against him any professional secret; be it even the tax administration;

• Require before the court that the debtor, if none of this would lead to a result, would deliver an inventory of his entire patrimony, under oath, subject to penal sanction.

It is through this intervention of the execution officer that the proportional- ity test can be met and secured. Indeed, no information is given to the

creditor in person, but only to a neutral and objective third party, which is the execution officer. In addition, no more information than needed for the

purpose of recovering a specific claim is used and revealed. The execution officer can only use the information in furtherance of the recovery of an enforceable title, be it the one presented to him or to a colleague. He cannot use it for any other purpose.

Therefore, this technique meets the needs of proportionality and protects the privacy of the debtor in a better way and to a larger extent than in a system of declaration of the entire patrimony by the debtor.'2 Indeed, in the latter system, as applied e.g. in Germany, the debtor must reveal all his assets and income, regardless the amount of the claim (not so in Spain: see above). Moreover, this declaration is made public in a register. In my proposal, these two serious flaws and violations of the principle of propor- tionality are solved. Firstly, the information is not made public but remains with the professional who is bound by a duty of secrecy. Secondly, this officer will only use the information to the extent needed for the recovery of the claim concerned.

As indicated, it must be possible that the execution officer shares information that he has obtained, with a colleague acting in furtherance of another enforceable title against the same debtor, if all prerequisites men- tioned above are met for this latter title. Thus, a shared professional secret must be accepted, for that may highly improve the goal of efficient recov- ery, which serves the interests of all parties involved, including the debtor.

The proposed system should be applied internationally, eventually leading to co-operation and exchange of information between execution officers of different countries. Obviously this can only be envisaged be- tween countries both guaranteeing an acceptable procedure of obtaining an enforceable title and an office of execution officers meeting very high standards of professional competence and conduct.

Indeed, it is of extreme importance that the execution officer be a trustworthy public officer of very high reputation and professional integrity, bound by a strict professional secret and ethical code. The bailiff or "huissier de justice", as known in several countries such as the Netherlands, Belgium or France, probably meets this test. However, it is recommendable and even necessary that still some adaptations be made to the disciplinary

12 In this sense also Hess in A. VERBEKE � M.-T. CAUPAIN, o.c., p. 45-46.

law, which does not seem to be as stern as it should be.'3 The strict and high standard of the professional ethics of an execution officer necessarily requires rigid rules on professional conduct. Abuses in the function of such important office should be sanctioned rigorously, both disciplinary and penal.

CONCLUSION

It is my hope that national and European authorities will effectively recog- nise the urgent need for re-installing the balance between creditor and debtor. Not in words and speeches anymore, but in concrete initiatives. The time has really come now to give a creditor all reasonable means he needs to recover his claim in a fair and efficient manner. These means include

patrimonial transparency. It is also my hope that such patrimonial transparency will be

realised in a balanced way, with respect for the principle of proportionality. Therefore, I hope that the idea of automatically imposing a declaration of the entire patrimony on the debtor will be dropped for a system where a trustworthy execution officer can act as balance wheel, as described above. It is then this officer who will obtain and select the information needed in

order to make sure that the creditor is paid without unnecessary side-effects for the debtor.

Only a strong, and preferably European, initiative in this sense will be able to stop the dramatic negative evolution of uncontrolled and aggres- sively operating recovery agencies. One should not forget that this phenom- enon is a huge threat not only to the debtor's privacy but also to the very essence of the rule of law itself.

13 See e.g. my lecture Judicial Offcers anno 2001 at the National Congress of Belgian Judicial Officers in Brussels, on 18 November 2000 to be published in the book of the Congress, Brussels, Story-Scientia, 2001 and my lecture at the Na- tional Congress of French Judicial Officers in Paris (Joumées de Paris), on 14 December 2000.