On June 11, 2024, the House of Representatives adopted the Bill to Remove Pledge Prohibitions. As a result of the proposed regulation, it will no longer be possible to agree that receivables cannot be transferred or pledged. This article explains the proposed regulation.
Transferability claims
Virtually all claims are subject to assignment and pledge. There are some exceptions to this. In some cases, because of the nature of the claim, it is assumed that transfer is not possible. This is the case, for example, with a claim which the trustee in bankruptcy has against a director pursuant to Article 2:248 of the Dutch Civil Code regarding improper management.
Appointment exclusion portability
Under current law, parties may agree that a claim is nontransferable. For example, a party may state in purchase conditions that claims against that party are not assignable.
In a judgment dated July 1, 2022, the Supreme Court considered that it also follows from a clause to the effect that a claim is non-transferable that the claim cannot be pledged. In doing so, the Supreme Court referred to the law, which stipulates that a pledge can only be established on goods susceptible to transfer (Art. 3:228 BW).
It may be convenient for a party if a claim against him cannot be transferred or pledged. In that case, it is always clear to whom payment can be made and there is also no reason to change payment information in the records. In addition, the party with whom the contract is made is well informed about the situation, whereas an outsider (such as a factoring company) is usually less well informed.
It is important for lenders to obtain ample coverage for the credit extended through collateral provided. The more collateral that can be provided, the more credit can be obtained. In practice, pledging receivables is an important form of security. However, if two parties doing business with each other agree that assignment (and/or pledging) is not possible, then no pledge will be established.
Background bill lifting pledge bans
The restrictions imposed by the agreements on non-transferability and non-pledgeability of claims are seen by legislators as undesirable economic side effects. Added to this is the fact that in our neighboring countries the possibilities to limit transferability have already been abolished or further restricted. The rationale behind the bill is that by abolishing nontransferability and non-pawnability, there will be a significant widening of credit potential for business. This could then prevent unnecessary liquidity problems and provide more room for investment and innovation.
Consequences of bill to lift pledge bans
The bill contains a new provision. According to this provision, exclusion of transferability or pledgeability is not possible if it concerns a registered monetary claim arising from the exercise of a profession or business. Nevertheless, if it is agreed between creditor and debtor that such monetary claim is nontransferable or cannot be pledged, that agreement is void. This means that such an agreement has no legal effect.
An agreement aimed at preventing alienation or pledging is also void. This might, for example, be an agreement to the effect that the creditor is prohibited from assigning the claim and/or a penalty becomes payable if the creditor does so.
The provision therefore shows that it only concerns monetary claims arising from the exercise of a profession or business. Suppose someone provides a money loan from a private capacity, then it may be agreed that the claim for repayment is non-transferable.
There are additionally some exceptional cases mentioned in the bill. One example is the claim from a checking or savings account. If one has a positive balance in a bank account, this is considered a claim of the account holder against the bank. Banks may still stipulate that such claims are not transferable and cannot be pledged.
Written notice to debtor about assignment of claim
The bill provides that if a monetary claim (registered and arising from the exercise of a profession or business) is transferred, notice must be given to the debtor of the claim. This notice must be given in writing. Only after the notice has been given will the debtor have to pay to the new creditor. In this way, the legislature hopes to accommodate the debtor’s interest in having clarity about the payment address.
Effective date and effect on existing contractual non-transferability agreements
For now, the law will not take effect yet. First, the bill still has to pass the Senate. Once the law enters into force, it will also affect clauses in contracts concluded prior to the entry into force of the law. Three months after the entry into force of the law, clauses contrary to the law will become null and void.
Negative pledge still possible
A negative pledge clause means that the borrower promises to the lender not to create security interests in property owned by the borrower in favor of other creditors. For example, in liens on receivables, banks stipulate that the borrower/pawnbroker will not create liens on receivables in favor of others. Such agreements will still be permitted even after the new law comes into effect. The new law refers only to stipulations “between creditor and debtor.
Resuming Act on Lifting Pledge Bans.
After the Act on the Abolition of Prohibitions of Pledge takes effect, stipulations between creditors and debtors regarding the non-transferability and non-pledgeability of claims will no longer be legally valid. Whether this will actually have a significant positive economic effect will have to be seen in practice.
Looking for an attorney in the field of securities?
If you have questions about pledging, collateral and assignment of claims, please contact Peter de Graaf of LVH Lawyers.
