Dutch right of lien on claim lapsed because of collection by first pledge holder?

Multiple pledging of one and the same property is a regular occurrence in the Netherlands, the holder of the first pledge takes precedence above the second pledge holder. If the first pledge holder proceeds to redemption, then the second pledge holder is entitled to lay claim only if the first pledge holder’s claim is fully paid. But what happens if the pledging party goes bankrupt in the meantime? To whom does any surplus redound – the second pledge holder or to the liquidator? Dutch debt collections attorney Thomas van Vugt discusses a recent Dutch ruling on a right of lien on claims.

Undisclosed lien on a claim permitted with registration

In this case, the Dutch bank had a primary right of lien on the claims of the issuer of the pledge. In connection with a subsequent loan, the issuer had placed a second right of lien on the claims for the benefit of Bontrup BV. These were “undisclosed” rights of lien: the debtors were unaware that the claims had been pledged. This is permitted as long as the writs of lien are registered with the tax authority, which had been done in this case.

Release payment to pledge holder

The Dutch bank publicised its right of lien on the claims in early 2014. Starting from the moment of publication, the debtors can make release payments only to the bank. To prevent confusion, the bank and Bontrup BV decided that Bontrup BV would not publicise its (second) right of lien as well. The bank took care of the entire collection of the receivables pledged to it. Once its claim on the issuer of the pledge had been paid completely with the revenues, Bontrup would use the surplus for repayment of its loan.

Dutch right of lien lapsed because of collection?

This happened. And the bank ultimately had a surplus of nearly €2 million after collection. In the meantime, the issuer of the pledge went bankrupt and the receiver laid claim to the surplus. In his view, Bontrup’s right of lien was obviated because of the bank’s collection (after all, there were no longer any claims). Bontrup would not be able to recover the surplus beyond the estate.

Second pledge holder’s right to surplus

The Dutch court made short shrift of the liquidator’s point of view. Article 3:253 of the (Dutch) Civil Code regulates what must happen when a pledge holder authorised to make collections collects receivables pledged to it and a surplus remains after it has been satisfied by the revenues collected, while at the same time there are also other pledge holders whose rights of lien lapse because of the collection. In such a case, the pledge holder must distribute the surplus to the other (previous) pledge holders.

Distribution of surplus takes place outside the estate

In addition to the collecting pledge holder, the liquidator for the issuer of the pledge has a claim to any remaining assets The assets of a Dutch company reflect the value of all that the company possesses
» Meer over assets
only after the stakeholders present have been satisfied from the receivables collected in accordance with their rank. In this manner, the distribution takes place “outside the estate”. Therefore, Bontrup BV may recover its claim from the surplus and need not submit its claim to the liquidator. A big advantage for Bontrup BV was that it didn’t have to contribute to the bankruptcy costs in this manner.