In its judgment dated 2 September 2014, the Court of Appeal in The Hague ruled that moveable assets obtained subject to retention of title should be considered as future assets, and that ownership over such assets is expected to 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 pledger goes bankrupt before acquiring ownership of such assets.
As security for its obligations under a 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 retention of title. Sometime 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 remaining amount at a later stage. When the bankruptcy receiver sold the business (including the moveable asset) to a third party, the bank and the bankruptcy receiver both claimed to be entitled to the proceeds relating to 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 on the moveable asset. According to the bank, the pledgor would be able to dispose of such conditional right of ownership. However, the Court of Appeal in The Hague held that Dutch law does not provide for a concept of conditional ownership which is subject to disposal. Although Dutch law provides the purchaser of moveable assets under retention of title with a strong position, there is no immediate right of ownership or any other right in rem in respect of such assets. The Court of Appeal ruled that a moveable asset acquired subject to a right of retention qualifies as a future good 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 stock levels. This is because suppliers often negotiate a so-called extended retention of title or a so-called credit retention in respect of assets distributed to such companies. Typically, the vast majority of the stock position of a retail company is acquired subject to retention of title for the benefit of its suppliers. It follows from the judgment 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 stock levels will not be able to fund a portion of their stock with bank credit.