Businesses to benefit from loosening of Dutch pledging prohibitions

However, businesses must check the terms and conditions of their financial agreements, as Dutch banks may maintain pledging prohibitions as part of their general terms and conditions.

Every party that has been engaged in a financing transaction with a Dutch borrower or guarantor will have faced prohibitions on pledging. These prohibitions appear not only in the general terms and conditions of Dutch banks, but also in private agreements. Pledging prohibitions prevent the transfer or pledge of financial and other claims under Dutch law and therefore hinder a proper security position in financing transactions.

Background

On 29 May 2020, the Dutch government submitted a legislative proposal – the Act on the abolition of pledge prohibitions (‘Wet opheffing verpandingsverboden’, the Act). This was approved by the Dutch Lower House four years later, on 11 July 2024, and is now subject to approval by the Dutch Senate (Upper House) which is scheduled for late September.

The new law only applies to financial claims: the situation for other claims – for example, claims for certain performance under an agreement, other than financial performance – remains unaffected. The rationale here is that for non-financial claims, the identity of the debtor – for example, under a building contract – is likely to be crucial for the performance of an agreement, which is not the case with financial claims.

Changes to the law

Currently, the Dutch Civil Code (‘Burgerlijk Wetboek’) stipulates that parties to a contract can exclude transfer and pledging of claims by agreement. While such clauses impact on the contractual relationship between the parties and lead to a contractual remedy, they can also have ‘in rem’ effect, meaning that the stipulation has third party effect and any act contrary to the stipulation will be null and void.

In practice, this means that financial claims cannot be applied for granting security in financing transactions. A consequence of this is that it limits the possibility for small and medium sized companies in particular to provide proper collateral, and thus attract financing.

Once the changes are in force, section 3:83 of the Dutch Civil Code will be extended with the provision that the assignment or pledging of financial claims cannot be contractually excluded insofar it concerns financial claims that originate in the course of business or profession (that is, between enterprises or companies).

However, some financial claims are excluded. The new provision does not apply to:

• financial claims under current accounts or savings accounts;
• financial claims arising out of credit agreements or loan agreements concluded with multiple lenders (e.g. LMA documentation);
• financial claims from clearing houses, central counterparties or central banks; and
• financial claims arising from a bank account (‘G-Account’) held by virtue of the Dutch Collection of State Taxes Act for payment of taxes under vicarious tax liability and hirer’s liability.

Any notification to a debtor of the transfer or pledging of a claim must be done in writing, other than in respect of these excluded categories of claim.

Transitional provisions

Typically, in Dutch law, newly introduced legislation will not affect existing agreements. However, here the legislator has decided differently. The new rules will apply to existing agreements, taking into account a transitional period of three months after the new law has come into effect.

Practical consequences

The new legislation will enhance the opportunity for small and medium-sized businesses in particular to attract financing by providing financial claims as collateral. However, the exclusion of current accounts and savings accounts means that banks may still invoke pledging prohibitions and pledging of Dutch bank account receivables will remain as difficult as it currently is.

Currently, most Dutch banks’ general terms and conditions (‘algemene voorwaarden’) contain transfer or pledging prohibitions. To create a right of pledge, the bank must consent or waive its pledging prohibition. In practice, this often acts as a barrier.