When a debtor rejects an inheritance to the detriment of a creditor | In Principle

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When a debtor rejects an inheritance to the detriment of a creditor

Seeking to evade their obligations, debtors may take various actions in connection with their possible right to inheritance from a third party. A debtor might attempt to conceal the elements or value of the estate. They might even reject the inheritance before the court or a notary, but the creditor is not defenceless in that situation. The purpose of this article is to introduce readers to a legal instrument protecting the creditors’ interests in a situation where the debtor rejects an inheritance.

Setting aside the debtor’s rejection of the estate

This instrument is closely related to a fraudulent transfer claim against a third party (regulated in Art. 527–534 of the Polish Civil Code). This instrument is regulated in Art. 1024 of the Civil Code, according to which, if an heir rejects an inheritance to the detriment of creditors, any creditor whose claim existed at the time of rejection of the inheritance may demand that the rejection of the succession be deemed ineffective in relation to the creditor, in accordance with the provisions on fraudulent transfer claims against a third party.

Under Art. 1024 of the Civil Code, protection of the creditors’ interests also applies to a specific bequest. Pursuant to Art. 9851 of the Civil Code, the provisions on the title to an inheritance, acceptance and rejection of the inheritance, capacity to inherit, and unworthiness, apply to specific bequests as relevant. In a situation where a transferor is appointed by the original testator as an heir and simultaneously as the legatee of a specific bequest, there are two statements of acceptance or rejection. If the debtor accepts the succession, but rejects the specific bequest, this opens up the possibility for applying Art. 1024 in the part concerning the rejection of the specific bequest.

Basis for the creditor’s protection

For a creditor to benefit from the protection of Art. 1024 of the Civil Code, they must fulfil two main prerequisites:

  • First, the element of detriment to the creditor
  • Second, the existence of the claim at the time of rejection of the inheritance.

In the simplest meaning, on the basis of Art. 1024, detriment to creditors consists in avoiding a situation of complete insolvency, or a greater degree of insolvency, by not accepting the succession, i.e. rejecting potential assets from which the creditors could obtain satisfaction. Despite this difference in the cause of insolvency (in comparison with a “classic” fraudulent transfer claim against a third party), the effect is the same, i.e. the detriment to creditors through an impact on the asset position of the heir which ultimately leads to a state of insolvency of the debtor and detriment to creditors.

As discussed, the claim must exist at the time the inheritance is rejected. The claim must be contestable, but whether it is due and payable is irrelevant. The requirement of existence of a claim introduced in Art. 1024 unfortunately excludes the protection of future claims (provided for in Civil Code Art. 530 in fraudulent transfer claims against a third party). Therefore, only a person whose claim against the heir existed at the time of rejection of the inheritance has standing to bring an action under Civil Code Art. 1024.

However, that the heir acted with knowledge of the detriment to creditors is not a necessary condition for seeking to set aside the rejection of inheritance. It is recognised in the case law that it is not necessary that the debtor rejecting the inheritance acted with consciousness of harming creditors (Civil Code Art. 527 §1), as the entire factual situation required for application of Art. 1024 is specified in that provision. This view is justified by the argument that introducing further prerequisites would limit the creditor’s rights, which is not warranted by the nature of rejection of inheritance or the wording of Art. 1024. Nor is it a prerequisite for a legal action that the heir assuming the rights of the heir who rejected the inheritance was aware that the rejection would injure creditors of the original heir. The heir’s awareness is irrelevant, and the presumption under Civil Code Art. 528 does not apply. Further, for an action under Art. 1024 to be effective, the state of awareness of the heirs who have been appointed to succession and assumed the rights of the heir who rejected the succession, that the action was performed to the detriment of creditors, is also irrelevant (e.g. Poznań Regional Court judgment of 30 May 2014, case no. XII C 982/13, LEX no. 1892858).

Beware the statute of limitations!

A creditor may request that the rejection of an inheritance be declared ineffective within six months of becoming aware of the rejection, but not later than three years after the rejection. We must stress that when seeking to set aside the rejection of an inheritance, the introduction of these time limits in Art. 1024 of the Civil Code excludes the application of Art. 534 of the code, which provides a five-year period (from performance of the fraudulent act) in the case of a fraudulent transfer claim against a third party. Among other reasons, this is why it is vital for creditors to pay attention to the debtor’s situation and behaviour as a potential heir.

Effects of setting aside the rejection of an inheritance

If the court grants a claim under Art. 1024 of the Civil Code, the debtor’s rejection of the succession is deemed ineffective against that creditor, which translates into the creditor’s ability to obtain satisfaction out of the estate which, due to the rejection, was not used to pay the creditor.

The case law holds that setting aside of the heir’s rejection of the inheritance results in “relative ineffectiveness,” i.e. producing legal effects only in relation to the creditor who challenged the rejection of the inheritance (e.g. Katowice Court of Appeal judgment of 20 February 2015, case no. I ACa 973/14, LEX no. 1661164). In such a situation, pursuant to Civil Code Art. 532, the creditor against whom the debtor’s legal act has been set aside may, with priority before the final heir’s creditors, claim satisfaction from property which, as a result of the act that was set aside, was not used to pay the creditor. Under Civil Code Art. 1024 in conjunction with Art. 532, priority of satisfaction will not be possible in a case where the claims of the heir’s creditors have been secured by a mortgage. In our opinion, a creditor who wins a case under Art. 1024 also has no priority in satisfaction over creditors of the estate (against whom the debt was “inherited” from a third party).

The relief sought

As in the case of the fraudulent transfer claim against a third party, when formulating a claim under Art. 1024 of the Civil Code, special care should be taken to precisely determine the type, time of origin, and amount of the claim for which the protection is being sought.

Adam Studziński, adwokat, Franciszek Wiącek, Dispute Resolution & Arbitration practice, Wardyński & Partners