The Dutch Supreme Court has recently provided a ruling confirming the entitlement of the pledgee to enforce security attached to a receivable pledged to it.

The Dutch Supreme Court 18 December 2015 (ECLI:NL:HR:2015:3619)

This ruling addresses a question which is of great relevance to the Dutch finance practice: is the holder of a disclosed right of pledge over a receivable entitled to enforce a right of pledge over other receivables which was created as security for the receivable pledged to it? The Supreme Court ruled that in such a case, the entitlement of the pledgee to collect the receivable pledged to it also comprises the entitlement to enforce the security rights attached to that receivable. According to the Advocate General at the Supreme Court, although the above question has been widely answered affirmatively in legal literature, the ruling has provided welcome confirmation.

In this case, Marell had created a right of pledge over certain receivables owed to it by its debtors for the benefit of Pegas. Pegas had created a right of pledge over certain receivables owed to it by its debtors (including Marell) for the benefit of its financing bank. The bank had informed certain debtors of Marell that they could only discharge the receivables owed by them to Marell by making payment to the bank. Marell initiated interim relief proceedings against the bank, claiming that the bank must inform Marell's debtors that they can only discharge the receivables owed by them to Marell by making payment to Marell.

The question before the Supreme Court was whether the bank was entitled to collect the receivables owed by Marell's debtors to Marell which were subject to the right of pledge created by Marell for the benefit of Pegas. Previously, the Amsterdam Court of Appeal had ruled that the bank was precluded from collecting the receivables owed by Marell's debtors to Marell on the basis that repledging (herverpanding) is prohibited according to section 3:242 Dutch Civil Code, which sets out that a pledgee is not entitled to repledge the property pledged to him, unless this power has been unequivocally granted to him.

In view of the bank's entitlement to collect the receivables pledged to it, the Supreme Court ruled that the bank was also entitled to enforce any rights of pledge created over receivables owed by debtors of the pledgor to the pledgor as security for the receivables pledged to the bank. In practice, after having informed the debtors of the pledgor of the rights of pledge created over the receivables owed by those debtors to the pledgor, the bank was entitled to collect such receivables up to the amount of the receivables owed to it by the pledgor.

The Supreme Court succinctly dealt with the approach of the Court of Appeal regarding the prohibition on repledging and ruled that such prohibition relates to situations in which a pledgee conducts an act of disposition (beschikkingshandeling) in respect of property pledged to it by creating a right of pledge over such property. According to the Supreme Court, no such situation applies in the dispute between Marell and the bank. Pegas had not created a right of pledge over the receivables pledged to it by Marell. Instead Pegas had created a right of pledge over receivables owed to it by its debtors, including Marell. A right of pledge (created by Marell over certain receivables owed to Marell by Marell's debtors) was indeed attached to the receivables owed by Marell to Pegas, but this is not the same as the creation of a right of repledge (herverpanding) by Pegas over receivables owed to Marell by Marell's debtors which were pledged to Pegas.

This judgment is relevant for the Dutch finance practice because it further removes uncertainty about the status of rights of pledge on secured receivables. If a pledgee is entitled to enforce its right of pledge on receivables, it is also entitled to enforce security attached to such receivables.