21 October 2024
Recently, the House of Representatives in The Netherlands (de Tweede Kamer) adopted the Bill on Lifting Pledge Bans. With a minor amendment to Article 3:83 of the Dutch Civil Code, this law regulates that it is no longer possible to exclude the pledging of accounts receivable for financing purposes.
The big advantage of this law is that accounts receivable of companies can be used to a much wider extent as collateral for financing. And with that, financing opportunities for companies have also increased.
In particular, buyers/customers who purchase large quantities of products from many suppliers like to agree with their suppliers that the supplier is prohibited from pledging its claim against the buyer. Think of suppliers to supermarket chains, but also suppliers to healthcare companies, large contractors, governments, etc. The advantage of this for the buyer is that they cannot be confronted with a pledge (such as a bank or factoring company) against their will, which saves on administrative costs and ensures that they cannot – accidentally – pay the wrong party.
For financiers, however, this is restrictive. After all, a lender wants certainty that its loan will be repaid. In many cases, accounts receivable are a company’s most important asset. If these cannot be pledged, obtaining financing is virtually impossible. This limits the entrepreneur’s ability to invest and run the business.
It also generally works that the more value a company can pledge as security to a lender, the more generous the credit will be. Often, a higher collateral value is also reflected in a lower interest rate for the credit.
It is clear that if receivables cannot be pledged or transferred because a buyer does not want it, this limits a supplier’s ability to get more credit from financiers. In recent years, pledge prohibitions were increasingly included in general terms and conditions or in agreements themselves. Financiers saw the risk of a pledge on receivables becoming worthless increase. It also increased the administrative burden, as entrepreneurs and financiers had to check all contracts with buyers and their general terms and conditions for possible pledge prohibitions when applying for financing.
With this new law, all pledge prohibitions will become invalid. This applies to all claims that arise from the entry into force of the Act on the Removal of Pledge Bans, even if they stem from existing supply contracts that still contain a pledge ban. Entrepreneurs’ organisations MKB-Nederland and VNO-NCW welcome this change in the law, and have already indicated that the new law will provide much-needed additional credit space. In particular, it gives suppliers the opportunity to explore options with their existing bank and not be obliged to enter into expensive financing products from alternative financiers than banks (think factor companies, crowdfunding platforms, etc.) in appropriate cases.
A ban on pledging or assignment of receivables remains possible, if it does not take place in the context of a business financing.
Do you have questions after reading this article? Or wondering where opportunities lie for you? Don’t hesitate to contact us.
This article was written in cooperation with Christiaan Mensink.
