In its judgment dated 2 September 2014, the Court of Appeal in The Hague ruled that moveable assets obtained subject to a retention of title (eigendomsvoorbehoud) should be considered future assets, and that ownership of such assets will be acquired after satisfaction of the relevant condition precedent (typically, full payment of the purchase price). A right of pledge over future assets created in advance will not be valid if the pledgor goes bankrupt before acquiring ownership of such assets.

Court of Appeal in The Hague 2 September 2014 (ECLI:NL:GHDHA:2014:4352)

As security for its obligations under a credit facility agreement with a bank, a Dutch pledgor had pledged all of its assets in favour of the bank, including a moveable asset which it had acquired subject to a retention of title. Some time later, the pledgor was declared bankrupt. On the date of its bankruptcy, the pledgor had not paid the full purchase price for the moveable asset. The bank paid the outstanding amount after the bankruptcy of the pledgor. When the bankruptcy administrator sold the business (including the moveable asset) to a third party, the bank and the bankruptcy administrator both claimed to be entitled to the proceeds from the sale of the moveable asset. The legal dispute hinged on whether the pledgor had created a valid right of pledge on the moveable asset.

The bank took the position that the pledgor had acquired a conditional right of ownership of the moveable asset. According to the bank, the pledgor was able to dispose of such conditional right of ownership, e.g. create a right of pledge over the conditional right of ownership in favour of a third party. However, the Court of Appeal in The Hague held that Dutch law does not provide for a concept of a conditional right of ownership which is capable of being disposed of as an independent right. Although Dutch law provides the purchaser of moveable assets which are subject to a retention of title with a strong position, the purchaser does not acquire any right of ownership or any other right in rem in respect of such assets until the retention conditions have been satisfied in full. The Court of Appeal ruled that a moveable asset acquired subject to a right of retention qualifies as a future asset until satisfaction of the condition precedent (payment in full of the purchase price). A right of pledge over future assets created in advance will not be valid if the pledgor goes bankrupt before having acquired ownership of such assets.

This ruling is important for retail companies with high inventory levels. This is because suppliers often negotiate a so-called extended retention of title (i.e. ownership of moveable assets sold is retained until the purchase price of those assets as well as the purchase price for assets sold before that time has been paid in full). Typically, the vast majority of the inventory of a retail company is acquired subject to a retention of title for the benefit of its suppliers. It follows from the judgment of the Court of Appeal in The Hague that assets acquired under retention of title are not capable of serving as bankruptcy-proof collateral. This could potentially result in a situation in which companies with high inventory levels will not be able to fund (part of) their inventory with bank credit.