A right of pledge after bankruptcy on goods that are delivered subject to retention of title
On 3 June 2016, the Supreme Court ruled that a valid right of pledge can be established on goods that are delivered subject to retention of title (of ownership). If the buyer is declared bankrupt, the conditional ownership can become an unconditional ownership if the condition precedent is fulfilled (mostly full payment of the purchase price). Next to the buyer, the pledgee can also fulfil this condition. As a consequence, these goods are not part of the bankrupt estate, so that the pledgee can take recourse against these goods.
The case at hand
Meteor Systems B.V. (Meteor) delivered a cultivation system to Kwekerij Revadap B.V. (Revadap), whereby the ownership of the cultivation system would be transferred to Revadap at the moment that the purchase price is fully paid by Revadap to Meteor. Subsequently, Revadap concluded a finance agreement with Rabobank and provided Rabobank a number of security rights, including rights of pledge on supplied goods to Revadap that were subject to retention of ownership title (condition precedent) such as the cultivation system.
Revadap was declared bankrupt in 2009. After consulting the liquidator (curator), Rabobank paid the remaining amount of the purchase price of the cultivation system to Meteor with interest. In return, Meteor gave a full and final discharge and waived her retention of title. The liquidator approved Rabobank’s actions on the condition that the bankrupt estate is entitled to the surplus value of the cultivation system (selling price of the cultivation system after liquidation minus the amount paid to Meteor), which did not happen.
The liquidator claimed payment from Rabobank for the surplus value of the cultivation system, because in its view, it became part of the bankrupt estate after the retention of title was waived by Meteor. Additionally, the liquidator stated that Rabobank was not entitled to enforce the right of pledge on the cultivation system.
Court of appeal
The court of appeal confirmed the judgment of the court, wherein Rabobank was ordered to pay the surplus value. The court of appeal dismissed the position of Rabobank that the right of ownership is divided in the sellers’ retained right of ownership subject to a condition subsequent and on the other hand the acquirers’ granted right of ownership that is subject to a condition subsequent of full payment of the outstanding amount. According to the court of appeal the law does not provide for such a division. In addition, Revadap could only acquire the right of ownership of the cultivation system after fulfilment of the condition subsequent. The court of appeal determined that the cultivation system was therefore a future property. Although the court of appeal acknowledged that future properties can be pledged, the pledgee would have to fulfil the condition precedent. The bankrupt pledgor no longer has the power of disposal. After it went bankrupt, a right of pledge that has been established in advance on the ‘future’ property is therefore not ‘completed’ according to the court of appeal. Therefore, the court of appeal determined that the cultivation system was part of the bankrupt estate together with the established right of pledge as a result of which Rabobank could no longer invoke the right of pledge.
The Supreme Court set aside the judgments of the court in first instance and the court of appeal.
Rabobank stated that it acquired a legally valid unconditional right of pledge on the conditional ownership of the cultivation system. The ‘promotion’ of this right of pledge to a right of pledge on the non-conditional ownership does not require additional acts of disposal or establishment from the (bankrupt) pledgor. According to Rabobank this means that by paying the outstanding amount to Meteor and thus fulfilling the condition precedent, Rabobank acquired a right of pledge on the unconditional ownership of the cultivation system.
The Supreme Court confirmed Rabobank’s view and ruled that a right of pledge that has been established in advance on a conditional right of ownership, does not require any additional acts of disposal or establishment. The right of pledge on the conditional right of ownership becomes a right of pledge on the unconditional right of ownership through fulfilment of the condition.
The Supreme Court ruled that with regard to the conditional right of ownership the transferor as well as the transferee are conditional owners: the transferor under a condition subsequent and the transferee under a condition precedent. The promotion from a conditional to an unconditional right of ownership depends only on the fulfilment of the condition precedent, in this case paying the outstanding purchase price. This means that both the transferor and the transferee have a conditional right of ownership and that they can thus conditionally transfer the property.
Since there are no further acts of transfer required from Revadap (for which it needs a right of disposal), article 35 of the Bankruptcy Act is not applicable.
With this judgment a long discussion has ended with regard to the question whether the establishment of a right of pledge on a good that is delivered subject to retention of ownership title gets obstructed by article 35 of the Bankruptcy Act, when the condition precedent is fulfilled after bankruptcy.
As a consequence of the judgment, the liquidator does not have an advantage with paying the outstanding amount of the purchase price in case goods are delivered subject to retention of title. The outstanding amount of the purchase price can be paid by the pledgee, after which it can enforce its right of pledge on the good(s).
With respect to this judgment, the expectation is that banks are sooner inclined to finance companies with large inventories that have been delivered subject to retention of title, as banks and other financiers can establish a legally valid right of pledge on the conditional right of ownership of this inventory. Moreover, they can in case of bankruptcy relatively simple enforce their right of pledge on these goods on which a right of pledge has been established.