Articles

The Court of Appeal in The Hague: the bank did not obtain a right of pledge on moveable assets subject to a retention of title (eigendomsvoorbehoud) because the pledgor went bankrupt prior to satisfaction of its obligation to pay the purchase price for those assets

The Court of Appeal in The Hague: the bank did not obtain a right of pledge on moveable assets subject to a retention of title (eigendomsvoorbehoud) because the pledgor went bankrupt prior to satisfaction of its obligation to pay the purchase price for those assets

The Court of Appeal in The Hague: the bank did not obtain a right of pledge on moveable assets subject to a retention of title (eigendomsvoorbehoud) because the pledgor went bankrupt prior to satisfaction of its obligation to pay the purchase price for those assets

30.04.2015 NL law

In its judgment dated 2 September 2014, the Court of Appeal in The Hague ruled that moveable assets obtained subject to a retention of title (eigendomsvoorbehoud) should be considered future assets, and that ownership of such assets will be acquired after satisfaction of the relevant condition precedent (typically, full payment of the purchase price). A right of pledge over future assets created in advance will not be valid if the pledgor goes bankrupt before acquiring ownership of such assets.

Court of Appeal in The Hague 2 September 2014 (ECLI:NL:GHDHA:2014:4352)

As security for its obligations under a credit facility agreement with a bank, a Dutch pledgor had pledged all of its assets in favour of the bank, including a moveable asset which it had acquired subject to a retention of title. Some time later, the pledgor was declared bankrupt. On the date of its bankruptcy, the pledgor had not paid the full purchase price for the moveable asset. The bank paid the outstanding amount after the bankruptcy of the pledgor. When the bankruptcy administrator sold the business (including the moveable asset) to a third party, the bank and the bankruptcy administrator both claimed to be entitled to the proceeds from the sale of the moveable asset. The legal dispute hinged on whether the pledgor had created a valid right of pledge on the moveable asset.

The bank took the position that the pledgor had acquired a conditional right of ownership of the moveable asset. According to the bank, the pledgor was able to dispose of such conditional right of ownership, e.g. create a right of pledge over the conditional right of ownership in favour of a third party. However, the Court of Appeal in The Hague held that Dutch law does not provide for a concept of a conditional right of ownership which is capable of being disposed of as an independent right. Although Dutch law provides the purchaser of moveable assets which are subject to a retention of title with a strong position, the purchaser does not acquire any right of ownership or any other right in rem in respect of such assets until the retention conditions have been satisfied in full. The Court of Appeal ruled that a moveable asset acquired subject to a right of retention qualifies as a future asset until satisfaction of the condition precedent (payment in full of the purchase price). A right of pledge over future assets created in advance will not be valid if the pledgor goes bankrupt before having acquired ownership of such assets.

This ruling is important for retail companies with high inventory levels. This is because suppliers often negotiate a so-called extended retention of title (i.e. ownership of moveable assets sold is retained until the purchase price of those assets as well as the purchase price for assets sold before that time has been paid in full). Typically, the vast majority of the inventory of a retail company is acquired subject to a retention of title for the benefit of its suppliers. It follows from the judgment of the Court of Appeal in The Hague that assets acquired under retention of title are not capable of serving as bankruptcy-proof collateral. This could potentially result in a situation in which companies with high inventory levels will not be able to fund (part of) their inventory with bank credit.

Related news

21.07.2020 NL law
Financiële sector moet klimaatrisico’s bespreken met klanten

Short Reads - Financiële instellingen moeten in gesprekken met klanten aandacht besteden aan klimaatrisico’s. Bij zakelijke klanten met name over de mogelijke impact van klimaatrisico’s op hun bedrijfsvoering en bij hypotheekeigenaren bijvoorbeeld over de verduurzaming van hun woning. Ook in het licht van het Klimaatcommitment van de financiële sector is dit van belang. Dit blijkt uit een bloemlezing van acht Nederlandse financiële instellingen, verenigd onder het Platform voor Duurzame financiering.

Read more

29.06.2020 NL law
European Banking Federation Guidance on testing of Cloud Exit Strategy

Short Reads - Financial institutions may outsource critical or important functions to cloud service providers (“CSPs”). On 25 February 2019 the European Banking Authority (“EBA”) provided guidelines (the “EBA Guidelines”) laying out the framework for outsourcing arrangements. The EBA Guidelines require institutions to have a comprehensive, documented and sufficiently tested exit strategy (including a mandatory exit plan) when they outsource critical or important functions.

Read more

29.06.2020 NL law
Nieuwe publicaties van het netwerk van centrale banken en toezichthouders

Short Reads - Het Network for Greening the Financial System (NGFS) benadrukt opnieuw het toenemende belang van klimaatverandering voor centrale banken en toezichthouders. Klimaatverandering leidt tot financiële risico’s en dat betekent dat centrale banken en toezichthouders klimaat- en milieugerelateerde risico’s in hun beleid en toezicht moeten integreren.

Read more

26.06.2020 EU law
E-book: 'Practical implications of ESG disclosure regulations'

Articles - As of 10 March 2021, many financial market participants and financial advisers will be subject to new disclosure obligations following the entry into force of the EU Sustainable Finance Disclosure Regulation (SFDR) on 29 December 2019. The SFDR sets rules on transparency with a view to promoting both the integration of sustainability risks into investment processes and disclosures to investors.

Read more