The Supreme Court provides more clarity about the possibility of realisation by the pledgee of the security interests connected to a pledged receivable

Introduction

Pursuant to section 3:246 paragraph 1 of the Dutch Civil Code, pledgees are permitted to enforce a right of pledge on a receivable by demanding payment of that receivable. This includes the right to enforce security interests attached to the pledged receivable. This has been confirmed in a judgment of the Supreme Court of 18 December 2015 (ABN AMRO/Marell).

Scope of enforcement rights of pledgee

The main question submitted to the Supreme Court was whether the pledgee of a disclosed right of pledge on a receivable is authorized to enforce a right of pledge attached to the pledged receivable. In other words: what is the scope of the enforcement right of the pledgee in respect of right of pledge on a receivable?

To answer this question, the Supreme Court reasoned by analogy with the arguments in its judgment of 11 March 2005 (Rabobank/Stormpolder) in which a similar question has been answered in respect of attachments. The Supreme Court considered there that ‘3.6 (…) it is consistent with the (…) legal system, (…) that the garnishee (…) benefits from the mortgage priority attached to the attached receivable’. Although advocate-general Wissink still refers to the ‘legal system’ in his conclusion in respect of the ABN AMRO/Marell-case, the Supreme Court simply considers in paragraph 3.5.2 that ‘ABN AMRO was therefore also entitled by virtue of the right of collection arising from its right of pledge to exercise the right of pledge of Pegas on the receivables of Marell-old on third parties’. 

With regard to rights of pledge – and thus also for rights of mortgage – it has now been confirmed that these rights can be enforced by the pledgee that has a right of pledge on a receivable which receivable, in turn, is secured by one of these two forms of security. With regard to personal or other security interests such as joint and several liability, retention of title or set-off, there is currently still a debate as to whether a pledgee can also enforce these personal or other security interests.

Consequences in practice

Pledgees are advised to verify whether security interests have been provided in respect of the receivables that are pledged to it. If this is the case, such receivables offer more security now that those pledgees can also enforce those security interests in that case. This information can be included in the (risk)valuation for a debtor.