On June 11, 2024, the Dutch House of Representative (Tweede Kamer) approved the draft bill (wetsvoorstel) on the abolishment of transfer and pledge restrictions (Wet opheffing verpandingsverboden). The draft bill has been submitted to the Dutch Senate (Eerste Kamer) for adoption and is scheduled for written report by the Senate committee in September of this year. Although the draft bill is only three pages, it has a history dating back to an internet consultation in August 2018. A first draft of the bill was submitted to the House of Representatives in June 2020.
Why?
Under currently applicable Dutch law, the transferability of (and the possibility to pledge) a claim can be excluded by an agreement to that effect between the debtor and the creditor. Depending on the exact wording of such a provision, such agreement can have an ‘in rem effect’ (goederenrechtelijke werking), meaning that it is legally impossible to validly transfer (cederen) or pledge (verpanden) such claim. An example of such a clause can be found in clause 24 of the Dutch general banking conditions (algemene bankvoorwaarden).
There is substantial case law of the Dutch Supreme Court (Hoge Raad) on this topic. In the Rabobank/Ten Berge case (2022), the Supreme Court ruled that if a creditor and a debtor agree (with ‘in rem effect’) that a claim cannot be transferred, a right of pledge cannot be created on such claim either. It fully depends on the wording of the relevant agreement and intention of the parties what the legal consequences are. For instance, in the Oryx/Van Eesteren case (2003), the Supreme Court ruled that parties can exclude the possibility to create a right of pledge on the claim, while the possibility to transfer the claim remains intact. The Coface/Intergamma case (2014) made it clear that the intention of the parties needs to be determined very carefully and that it is a matter of interpretation whether the parties have intended to attribute an ‘in rem effect’ to such a provision. The Supreme Court decided that, at first, it should be assumed in relation to a contractual restriction on transferability of a claim, that the parties only intend a contractual provision, unless it can be derived from the wording of the restriction that an ‘in rem effect’ was intended. If it is successfully argued that parties did not intend such an ‘in rem effect’, a legally valid transfer of the claim is possible. However, in such case the creditor would breach its contractual obligation (wanprestatie).
The Rabobank/Ten Berge case in particular made it clear that it is important to clearly define the scope of any restriction on transferability in a contract. In practice, the contractual terms of an agreement are usually dictated by the party having the most leverage. If a company has a sizeable counterparty and is not on equal footing with such counterparty (which is not seldom the case for small and midsize companies), the counterparty will stipulate the terms and conditions of the contract and such terms usually include a provision that any claim held against such counterparty cannot be transferred or pledged. This often leaves companies with a problem with regard to liquidity (in particular when such counterparty has also negotiated an extensive payment term) and the possibility to obtain financing (through receivables financing or otherwise). The draft bill aims to improve the finance possibilities for companies by banning transferability and pledge restrictions and, as a consequence, stimulate investments, innovation and growth across the Dutch market.
How?
Main rule
The draft bill (primarily) provides for an amendment of Book 3 of the Dutch Civil Code (Boek 3 Burgerlijk Wetboek). More specifically, changes are envisaged in relation to article 3:83, 3:94 and 3:239 of the Dutch Civil Code.
According to the draft bill, a restriction on transferability or the possibility to create a right of pledge on a claim is not possible if (i) it relates to a receivable (geldvordering op naam) (ii) which results from the conduct of business or profession (uitoefening van beroep of bedrijf). Any such provision is null and void (nietig). The prohibition is aimed at claims arising in the conduct of business. According to the Explanatory Memorandum (Memorie van Toelichting) of the draft bill, it is not required that both parties to the agreement act in such capacity. Claims held against individuals (particulieren) are also within the scope of the prohibition if such claims are held by a party acting in the conduct of business or profession. However, (i) claims held by individuals (particulieren, not acting in the conduct of business or profession) and (ii) claims not relating to payment obligations are not captured by the draft bill. The legislator indicates there is no reason to interfere with the freedom of contract in such cases.
Exceptions
However, there are some important exceptions. The aforementioned prohibition does not apply to claims:
- resulting from a bank account (note that under Dutch law, any credit amount administered in a bank account is considered to be a claim of the account holder against the account bank);
- resulting from a credit agreement whereby multiple parties act or will be acting on the lender side (i.e. syndicated loans);
- held against or held by clearing institutions (clearing instellingen) as referred to in the Dutch Act on Financial Supervision (Wet op het financieel toezicht), central counterparties (centrale tegenpartijen), settlement agencies (afwikkelende instanties), set off institutions (verrekeningsinstituten) or central banks (all as referred to in the Dutch Act on Insolvency (Faillssementswet)); and
- relating to payment of certain taxes (i.e. labour tax, VAT and social security premia) on a bank account held for the purpose of payment of such taxes.
The Explanatory Memorandum clarifies that the exception in relation to bank accounts was included to ensure unimpeded and continuous payment transactions. It should be clear to the account bank at all times who is entitled to any credit amount administered in the bank account. In addition, and in the interest of legal certainty and transparency of payment transactions, account banks should be able to adequately administer their obligations towards account holders.
The exception for syndicated loans was included given the fact that it is common to include in the conditions of such credit facilities that a transfer of commitment by a lender is only permitted after consent by the borrower (save for certain circumstances, such as an event of default). The standard documentation of the Loan Market Association (LMA) provides for this option. It is remarkable that the exception does not apply to bilateral loans. The Explanatory Memorandum does not adequately clarify the reason for the distinction between syndicated loans and bilateral loans, other than that the reason for the exception applicable to syndicated loans is that the legislator wants to avoid that Dutch law deviates from international market practice in this respect. This means that if a credit facility is offered on a bilateral basis (and there is no intention or contractual possibility for other lenders to accede – note the addition ‘or will be acting’ (‘zullen zijn’) in the relevant provision of the draft bill, which seems to aim at secondary syndication and/or future accession of additional lenders), the lender will be able to freely transfer its commitment without consent of the borrower.
What about claims held by the Borrower?
Interestingly however, this also seems to work the other way around: a borrower can also have a claim against the lender under a bilateral financing, for instance if it has submitted a utilization request in accordance with the requirements of the credit agreement (a lender usually requires a couple of business days to disburse the loan proceeds). Credit agreements typically include a provision stating that the borrower is not entitled to transfer or assign any of its rights under the credit agreement (or finance documents). The question is whether such a provision remains legally valid in relation to Dutch bilateral credit agreements after the draft bill enters into effect. In certain circumstances, it could be argued that if the borrower is a company and the purpose of the loan is to apply proceeds towards the financing of its business and working capital etcetera, the claim of the borrower against the lender arises in the conduct of business of the borrower. There is no reference to this situation in the Explanatory Memorandum. However, the main question is if conduct of business could also entail obtaining financing. This seems unlikely at first, but there may be circumstances in which a borrower could argue this is the case, for instance if a group of companies is financed through a holding company which has no other purpose than obtaining financing for the group (and holding shares in its subsidiaries). Although this seems a remote risk, it could potentially lead to difficult situations for a lender (e.g. from ‘know your customer’ perspective). In view thereof, it may be advisable to include a representation in the credit agreement pursuant to which the borrower represents and warrants towards the lender that any claim it may have under the credit agreement (or finance documents) against the lender does not qualify as a claim arising in the conduct of business of the borrower.
Other
In relation to the exceptions referred to under paragraph 3 and 4 above, reference is made to the explanatory notes in relation thereto in the Explantory Memorandum. For the purpose of this publication, it is briefly noted that the institutions referred to under paragraph 3 should be able to include transfer restrictions to ensure swift and efficient payment and securities transactions. The exception in paragraph 4 is aimed at ‘G-accounts’ (G-rekeningen), which are blocked accounts to be used solely for the payment of certain taxes.
Written disclosure
Furthermore, the legislator has recognized that by prohibiting the possibility to agree on transfer and pledge restrictions, uncertainty may arise for debtors as it may not always be clear to which party it can fulfill its payment obligations. To mitigate this risk for debtors, the draft bill provides for the requirement that any disclosed transfer (openbare cessie) or disclosed right of pledge (openbaar pandrecht) of claims which result from the conduct of business or profession, can only be effected by means of a written notice to the debtor. Under current Dutch law, such notice does not have any requirements (i.e. a notification can also be made orally (mondeling)), but in practice, a written notice is already customary in the Dutch market for the purpose of creating evidence.
When?
At the moment, it is not certain when the draft bill will enter into effect. However, if and when it does, there will be a transition period of three months in relation to existing provisions (which conflict with the transfer and pledge restriction prohibition) before such provisions will be considered null and void.
