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Position of creditors

Forms of security

What are the main forms of security over moveable and immoveable property and how are they given legal effect?

The main types of security right under Dutch law are a right of mortgage and a right of pledge, each of which cover specific types of property. These security rights are unaffected by insolvency proceedings against the debtor (or, as the case may be, against the third party providing the security in case of a third-party security right). Generic security interests without specific pre-defined collateral (eg, floating charges) do not exist in the Netherlands.

A right of mortgage is the only form of security that can be created over immovable property, registered ships and aircraft. A mortgage creates a security interest in favour of the lender. A right of mortgage is created by means of a deed passed by a Dutch civil law notary and subsequent registration in the relevant public register.

Pledges over moveable assets can be created either as a non-possessory or possessory pledge – the latter of which requires the pledgee to take possession of the pledged assets. Both types of pledge require a deed to be executed before a Dutch civil law notary or a privately executed deed of pledge, followed by the pledgee taking possession of the pledged assets in the case of a possessory pledge or, in the case of a non-possessory pledge, by registration with the Dutch tax authorities for date stamping purposes only. Moveable assets not yet obtained by the pledgor may be pledged in advance.

A right of pledge over non-bearer shares is created by the execution of a deed before a Dutch civil law notary. The company’s articles of association may prohibit the creation of a right of pledge over its shares. The deed of pledge may state that the voting rights on the pledged shares are transferred to the pledgee, but voting rights typically remain with the shareholder or pledgor until the (impending) event of default, followed by a voting right notification issued by the pledgee. A right of pledge over bearer shares is created in the same manner as a right of pledge over movable assets.

A right of pledge over receivables can be either a disclosed or non-disclosed right of pledge. The first is created by way of a private deed and giving notice to the debtor of the pledged receivable and the latter is created by a notarial deed or a private deed to be registered with the Dutch tax authorities – again for date stamping purposes only.

An undisclosed right of pledge over receivables encompasses only the pledgor’s existing receivables and its receivables that originate from legal relationships already in existence when the undisclosed right of pledge was created. Consequently, receivables that the debtor will obtain in the future do not fall within the scope of an undisclosed right of pledge. In practice, this restriction is circumvented by the Dutch loan market by including an obligation for the pledgor to pledge its future receivables, combined with a proxy given by the pledgor to the pledgee to register supplemental documents, which is done by professional lenders on a daily basis. The Supreme Court decisively punished this practice in 2012 and 2013. 

Ranking of creditors

How are creditors’ claims ranked in insolvency proceedings?

As a rule, secured claims take priority in respect of the proceeds of the secured assets and can be separated from the debtor’s estate. However, certain specific claims may take priority over secured claims. The most important example of this is the preference that is granted to the Dutch tax authorities to take a non-possessory right of pledge over movable assets that are located on the premises of the pledgor. This fiscal preference pertains only to certain categories of movable asset, such as machinery, equipment and furniture. It does not take priority over a non-possessory right of pledge over the pledgor’s trading stock.

In insolvency proceedings, the debts of the bankrupt estate itself rank first, comprising statutory debts of the estate (eg, the bankruptcy trustee’s remuneration and rent payable after the date of bankruptcy until the end of the statutory notice period) and debts incurred by the receiver.

All (non-subordinated) unsecured creditors rank equally in a bankruptcy or moratorium unless the creditor has been granted statutory preferential rights (eg, tax and social security claims).

Can this ranking be amended in any way?

First and lower-ranking mortgagees may validly agree on a change in the priority of their security rights under Section 3:262 of the Civil Code. In relation to pledgees, the priority of rights may also be changed by way of an intercreditor agreement. Further, subordination of debt is possible on a contractual basis.

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