Legislative proposal for Act on prohibition of restrictions on transferability and pledgeability of receivables : a follow-up
23 June 2020
Banking & Finance
After the legislative proposal for the Act on prohibition of restrictions on transferability and pledgeability of receivables (Wetsvoorstel ophefffing verpandingsverboden (the Bill)) was published for consultation in 2018, there was a long period of silence. This silence ended on 29 May 2020 with the submission of the Bill to the Dutch Parliament. The consultation of the Bill has led to a number of amendments. We will elaborate on some of the most important amendments hereafter.
Freedom of contract is one of the cornerstones of our society and our economy. These are some of the first words of the explanatory memorandum (memorie van toelichting) to the Bill (the Explanatory Memorandum). The legislator is of the opinion that the concept of freedom of contract has an undesirable effect if it comes to imposing restrictions on transferability and pledgeability of receivables on a party In the Netherlands it is common practice that parties include provisions in agreements (or terms and conditions that apply thereto) that restrict or prohibit the transfer or pledge of receivables by contract based on article 3:83 paragraph 2 in conjunction with article 3:98 of the Dutch Civil Code (Burgerlijk Wetboek (DCC)). As a result, the related receivables and loan portfolios cannot be used as credit coverage, which leads to a limitation of credit capacity of creditors.
The introduction of the Bill leads to:
- Prohibition of terms that prohibit or restrict the transfer or pledging of commercial monetary claims (zakelijke geldvorderingen op naam);
- An exception for (a) claims under payment and savings accounts, (b) claims on or from central counterparties, etc., (c) claims related to syndicated loans and (d) claims held on so-called G-accounts (tax accounts);
- The introduction of the written notification requirement: a transfer or pledge is only valid after the debtor has been informed in writing.
Overall the Bill is good news for the Asset Based Finance, Commercial Finance and Factoring sector.
Changes following consultation
The consultation has led to a number of important amendments to the Bill. For example, the criterion, that the transfer or pledging must take place for financing purposes, has been abandoned. It would be too complex and cumbersome for parties to establish this time and time again. In addition, it has been clarified that claims on or from a central counterparty, a settlement agency, a clearing house or a central bank do not fall within the scope of the Bill.
The Bill also aims to include in article 3:83 paragraph 4 DCC that claims under a credit or loan agreement (potentially) involving multiple lenders are excluded from the Bill. In this way, the aim is not to include so-called syndicated loan arrangements within the scope of the Bill. Claims that are paid into a so-called G account, specific account for the collection of moneys to be paid for e.g. social security taxes, are also not affected by the Bill.
Furthermore, it has been further clarified that so-called negative pledge and pari passu provisions will also continue to apply in the future and that existing financing practice will not be affected in that respect.
Scope of the Bill
With the Bill, the legislator aims to prohibit or restrict contractual provisions that exclude or restrict the transferability and pledgeability of receivables. Only receivables that have arisen in the course of a profession or business fall within the scope of the Bill. Claims of private individuals who do not act in the course of a profession or business are explicitly excluded.
The Bill is expected to have a positive economic effect, at least, because it could lead to an additional credit facility of EUR 1 billion, which could benefit SMEs in particular, for example through new or more factoring and asset based finance options.
The legislative proposal
The Bill, if passed, will lead to the following changes in Book 3 DCC.
- A new paragraph 3 will be added to article 3:83 DCC: “Exclusion of the transferability or possibility to pledge is not possible if it concerns a registered monetary claim arising from a professional activity. A provision between the creditor and the debtor that causes the exclusion of the transferability of the pledgeability of such a monetary claim in whole or in part or to counteract the alienation of its pledge is null and void.“ The transferability or pledgeability of registered monetary claims that are acquired commercially can no longer be prohibited or limited. It follows from the Explanatory Memorandum that these are registered business monetary claims. This could also include a monetary claim from an insurance policy entered into the course of a business . It is not necessary that both parties have a professional capacity. Claims on individuals are also covered by the Bill. The Bill is limited to prohibiting restrictions on transferability and pledgeability only and does not, for example, preclude the contractual exclusion of a right of usufruct (vruchtgebruik).
- A new paragraph 4 will be added to article 3:83 DCC: “the previous paragraph does not apply to monetary claims: a. in a payment or savings account; b. under a credit or loan agreement in which several parties are or will be involved on the lender’s side; c. from or to a clearing institution as referred to in Article 1: 1 of the Financial Supervision Act, or a central counterparty, a settlement body, a clearing house or a central bank, as referred to in article 212a, parts c, d, e, and g of the Bankruptcy Act; d. which, pursuant to an agreement as referred to in articles 34, third paragraph, 35, fifth paragraph or 35a, fourth paragraph of the Recovery Act, will be paid into a bank account that is held for the payment of wage tax, turnover tax and social insurance contributions.” The background to this provision is to monitor and maintain undisturbed payments and securities transactions. In addition, with the exception under b., the legislator aims to keep so-called syndicated loans outside the scope of the proposed prohibition. The impact on international financing practice standardized documentation is frequently used, including LMA-based documentation, would be too severe. With regard to financing by means of crowdfunding, reference is also made to sub b. In order to be able to benefit from the exemption under sub b. it is important to demonstrate that there are or may be multiple creditors. Finally, claims held on a so-called G account are excluded.
- The Bill proposes to amend article 3:94 DCC by adding of a new paragraph 5: “If the delivery concerns a monetary claim within the meaning of article 83, third paragraph, first sentence, the notification is meant in the first or third paragraph, done in writing.” Article 3: 239 DCC will also be amended by the addition of a new paragraph 5: “If the pledge concerns a monetary claim within the meaning of article 83, third paragraph, first sentence, the notification is meant in the first or third Member, done in writing.“. The aim of these amendments is to include the requirement to send written notification in Dutch legislation. A transfer or pledge of a claim as referred to in article 3:83 paragraph 3 DCC is only valid after the debtor has been notified in writing. Parties have the freedom to design the written communication at their own discretion and can determine themselves which party will be responsible for sending the notification. It is also not necessary to make a separate notification for each individually transferred or pledged monetary claim, a ‘group notification’ is sufficient for multiple monetary claims from a specific supplier on a specific customer.
Transitional period and necessary actions
The Bill contains a proposal for a transitional period of three months after entry into force. This means that with regard to existing agreements from three months after the entry into force of the Bill, provisions that limit or exclude the transfer or pledging of commercial monetary claims are null and void. For contracts entered into after the Bill has entered into force, the Bill has immediate effect.
It is important for market parties to verify whether (standard) agreements and general terms and conditions that are currently being used contain provisions that are contrary to the Bill and what the consequences and impact thereof may be. It is advisable to amend standard documentation by removing provisions that conflict with the Bill.
In view of the importance, the Bill is expected to be adopted rather quickly.
Ploum’s Banking & Finance team will regularly provide updates on the status of the Bill. For questions and further information, please contact Matthijs Bolkenstein (firstname.lastname@example.org or +31 6 46630866) or Lucas Lustermans (email@example.com or +31 6 19850096).