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Dutch Supreme Court confirms enforceability of security surplus arrangements (overwaarde-arrangementen)

Dutch Supreme Court confirms enforceability of security surplus arrangements (overwaarde-arrangementen)

Dutch Supreme Court confirms enforceability of security surplus arrangements (overwaarde-arrangementen)

22.12.2015 NL law

In a ruling dated 16 October 2015, the Dutch Supreme Court has confirmed the enforceability of security surplus arrangements in the event a security provider is declared bankrupt.

 In addition, the Dutch Supreme Court has confirmed that, unlike statutory recourse claims (regresrechten), contractual recourse claims can be construed in such a manner that they come into existence (as conditional claims) before payment by the guarantor of the debt owed by the debtor, after which they become unconditional. The latter confirmation is relevant for finance transactions in which recourse rights are subordinated or made subject to a right of pledge.

 

Dutch Supreme Court 16 October 2015 (ECLI:NL:HR:2015:3023)

 

A security surplus arrangement (overwaarde-arrangement) is an instrument frequently used in the Dutch loan finance market, whereby two or more creditors of one and the same debtor are granted a mutual right of recourse to any surplus proceeds realised from the enforcement of security rights over the assets of the debtor by one of those creditors. The mutual right of recourse typically arises as a result of a structure whereby each creditor (a "Creditor Guarantor") guarantees the payment of the debtor's debt owed to the other creditors by means of suretyship (borgtocht). This means that each of such other creditors is entitled to claim payment from the Creditor Guarantor in the event the debtor does not satisfy in full the debt owed to that other creditor. The total liability of the Creditor Guarantor under the suretyship is contractually limited to an amount equal to any surplus proceeds resulting from enforcement of the Creditor Guarantor's security rights over the assets of the debtor. Upon payment by the Creditor Guarantor under the suretyship of the debt (or part thereof) owed by the debtor to any of the other creditors, the Creditor Guarantor will have a recourse claim (regresrecht) against the debtor. The essence of security surplus arrangements is that such a recourse claim is secured by the security rights held by the Creditor Guarantor. As a result, the Creditor Guarantor can satisfy its recourse claim from the surplus proceeds resulting from the enforcement of its security rights.

In its well-known 2004 Bannenberg q.q./NMB Heller ruling the Dutch Supreme Court had already confirmed the enforceability of security surplus arrangements. However, doubts arose after the 2012 ASR/Achmea ruling, in which the Dutch Supreme Court held that recourse claims are future claims that only come into existence after the Creditor Guarantor has paid the debt owed by the debtor. As a result, it became uncertain whether recourse claims coming into existence after bankruptcy of the debtor could be validly secured in the context of a security surplus arrangement. Since then several bankruptcy receivers (faillissementscuratoren) have attempted to contest the enforceability of security surplus arrangements, one of which resulted in the present ruling.

The Dutch Supreme Court was requested to issue a ruling in respect of two preliminary questions (prejudiciële vragen) about the enforceability of security surplus arrangements in bankruptcy of the debtor. In its ruling the Dutch Supreme Court held that security surplus arrangements are in principle enforceable, whether or not the recourse claims have come into existence after the debtor's bankruptcy, but only if the debtor has become a party to the surety agreement. Whether or not a debtor has become a party to the security agreement must be assessed on the basis of the interpretation of the statements and actions of the parties involved.

In addition, the Dutch Supreme Court confirmed that a contractual recourse claim can be construed in a manner that such claims come into existence prior to payment by the surety (borg) of the debt owed to another creditor, until which they are conditional. This is important for Dutch finance practice, in which it is more or less standard that recourse claims of the debtor (against other debtors) are made subject to subordination or a right of pledge for the benefit of the lenders. As a statutory recourse claim does not come into existence before payment of the debt has occurred, it cannot be validly made subject to security or subordination if payment has occurred in bankruptcy of the debtor. The Dutch Supreme Court has now clarified that contractual recourse claims can exist alongside statutory recourse claims. Because the parties can stipulate that such recourse claims can come into existence before payment of the debt, the debtor's bankruptcy will not generally affect the enforceability of security or subordination arrangements in respect of such recourse claims.

This article was published in the Banking and Finance Update of December 2015.

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