association of corporate counsel (acc) - finance multi … · 2012-03-14 · by in-house counsel,...

By in-house counsel, for in-house counsel.®

Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200

Washington, DC 20036 USA tel +1 202.293.4103, fax +1 202.293.4701

www.acc.com

By in-house counsel, for in-house counsel.®

Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200

Washington, DC 20036 USA tel +1 202.293.4103, fax +1 202.293.4701

www.acc.com

InfoPAKSM

Finance Multi-Jurisdictional Guide: Netherlands Sponsored by:

Finance Multi-Jurisdictional Guide: Netherlands

Copyright © 2014 Practical Law Company (PLC) & Association of Corporate Counsel

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Finance Multi-Jurisdictional Guide: Netherlands December 2014 Provided by the Association of Corporate Counsel 1025 Connecticut Avenue, NW, Suite 200 Washington, DC 20036 USA tel +1 202.293.4103 fax +1 202.293.4107 www.acc.com

This InfoPAKSM provides a high level overview of the lending market, forms of security over assets, special purpose vehicles in secured lending, quasi-security, negative pledge, guarantees, and loan agreements. It covers creation and registration requirements for security interests; problem assets over which security is difficult to grant; risk areas for lenders; structuring the priority of debt; debt trading and transfer mechanisms; agent and trust concepts; enforcement of security interests and borrower insolvency; cross-border issues on loans; taxes; and proposals for reform.

The information in this InfoPAKSM should not be construed as legal advice or legal opinion on specific facts, and should not be considered representative of the views of PLC or of ACC or any of its lawyers, unless so stated. This InfoPAKSM is not intended as a definitive statement on the subject but rather to serve as a resource providing practical information for the reader.

This material was developed by PLC. For more information about PLC, visit their website at http://www.practicallaw.com/ or see the “About the Author” section of this document.

For more ACC InfoPAKs, please visit http://www.acc.com/infopaks

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Contents

I. Overview of the Lending Market .................................................................................................... 6

A. What Have Been the Main Trends and Important Developments in the Lending Market in Your Jurisdiction in the Last 12 Months? ............................................................................................................................................................ 6

II. Forms of Security over Assets ........................................................................................................ 7

A. Real Estate ................................................................................................................................................................................. 7

B. Tangible Movable Property .................................................................................................................................................... 8

C. Financial Instruments ............................................................................................................................................................... 9

D. Claims and Receivables ......................................................................................................................................................... 10

E. Cash Deposits ......................................................................................................................................................................... 11

F. Intellectual Property .............................................................................................................................................................. 11

G. Problem Assets ....................................................................................................................................................................... 12

III. Release of Security over Assets .................................................................................................... 13

A. How Are Common Forms of Security Released? Are Any Formalities Required? ................................................ 13

IV. Special Purpose Vehicles (SPVs) in Secured Lending ................................................................ 14

A. Is It Common in Your Jurisdiction to Take Security over the Shares of an SPV Set up to Hold Certain of the Borrower's Assets, Rather Than to Take Direct Security over Those Assets? .............................................. 14

V. Quasi-Security ................................................................................................................................. 14

A. What Types of Quasi-Security Structures Are Common in Your Jurisdiction? Is There a Risk of Such Structures Being Recharacterised as a Security Interest? ............................................................................................. 14

VI. Guarantees ...................................................................................................................................... 16

A. Are Guarantees Commonly Used in Your Jurisdiction? How Are They Created? ................................................ 16

VII. Risk Areas for Lenders ................................................................................................................... 16

A. Do Any Laws Affect the Validity of a Loan, Security or Guarantee (or the Terms on Which They Are Made or Agreed)? .................................................................................................................................................................. 16

B. Can a Lender Be Liable under Environmental Laws for the Actions of a Borrower, Security Provider or Guarantor? ............................................................................................................................................................................... 18

VIII. Structuring the Priority of Debts .................................................................................................. 18

A. What Methods of Subordination Are There? ................................................................................................................. 18

IX. Debt Trading and Transfer Mechanisms ...................................................................................... 19



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A. Is Debt Traded in Your Jurisdiction and What Transfer Mechanisms Are Used? How Do Buyers Ensure that They Obtain the Benefit of the Security and Guarantees Associated with the Transferred Debt? .......... 19

X. Agent and Trust Concepts ............................................................................................................ 20

A. Is the Agent Concept (Such as a Facility Agent under a Syndicated Loan) Recognised in Your Jurisdiction? . 20

B. Is the Trust Concept Recognised in Your Jurisdiction? ................................................................................................ 20

XI. Enforcement of Security Interests and Borrower Insolvency ................................................... 21

A. What Are the Circumstances in Which a Lender Can Enforce Its Loan, Guarantee or Security Interest? What Requirements Must the Lender Comply with? ................................................................................................... 21

XII. Methods of Enforcement ............................................................................................................... 21

A. How Are the Main Types of Security Interest Usually Enforced? What Requirements Must a Lender Comply with? .......................................................................................................................................................................... 21

XIII. Rescue, Reorganisation and Insolvency ........................................................................................ 23

A. Are Company Rescue or Reorganisation Procedures (Outside of Insolvency Proceedings) Available in Your Jurisdiction? How Do They Affect a Lender's Rights to Enforce Its Loan, Guarantee or Security? ................... 23

B. How Does the Start of Insolvency Procedures Affect a Lender's Rights to Enforce its Loan, Guarantee or Security? ................................................................................................................................................................................... 23

C. What Transactions Involving Loans, Guarantees, or Security Interests Can Be Made Void if the Borrower, Guarantor or Security Provider Becomes Insolvent? .................................................................................................... 24

D. In What Order Are Creditors Paid on the Borrower's Insolvency? ......................................................................... 24

XIV. Cross-Border Issues on Loans ....................................................................................................... 25

A. Are There Restrictions on the Making of Loans by Foreign Lenders or Granting Security (over All Forms of Property) or Guarantees to Foreign Lenders? ........................................................................................................... 25

B. Are There Exchange Controls that Restrict Payments to a Foreign Lender under a Security Document, Guarantee or Loan Agreement? ......................................................................................................................................... 26

XV. Taxes and Fees on Loans, Guarantees and Security Interests .................................................. 26

A. Are Taxes or Fees Paid on the Granting and Enforcement of a Loan, Guarantee or Security Interest? .......... 26

B. Are There Strategies to Minimise the Costs of Taxes and Fees on the Granting and Enforcement of a Loan, Guarantee or Security Interest? .............................................................................................................................. 27

XVI. Reform ............................................................................................................................................. 27

A. Are There Any Proposals for Reform? ............................................................................................................................. 27

XVII. Online Resources ............................................................................................................................ 27

A. Dutch Government ............................................................................................................................................................... 27

B. Dutch Judicial Organisation ................................................................................................................................................. 27


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XVIII. About the Authors ........................................................................................................................... 28

A. Gijs van Leeuwen, Partner ................................................................................................................................................... 28

B. Wouter Hertzberger, Partner ............................................................................................................................................ 28

C. Herman Wamelink, Partner ................................................................................................................................................ 29



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I. Overview of the Lending Market

A. What Have Been the Main Trends and Important Developments in the Lending Market in Your Jurisdiction in the Last 12 Months?

1. Dutch Pre-Pack Restructuring

The Dutch market has recently seen several restructurings where a receiver was informally involved in restructuring and the sale of assets before insolvency, in order to enable a sale immediately following a formal insolvency. The Dutch Bankruptcy Code does not contain any rules dealing with this but Dutch courts are co-operating with such pre-packs from time to time. See Section VII.A.

2. Significant Changes in Dutch Corporate Laws

Changes in the Dutch civil code relating to private limited liability companies (besloten vennootschappen) (BVs) came into effect in October 2012. These gave more flexibility to include tailor-made arrangements in a company's articles of association, for instance in relation to:

■ Relations between the corporate bodies.

■ Shares (including voting rights).

■ The abolishment of restrictions on financial assistance (except for BVs that are a subsidiary of a target public limited liability company (naamloze vennootschap) (NV)).

In addition, with effect from 1 January 2013 the rules on conflicts of interest have been amended for both BVs and NVs, and no longer limit the power to represent the company to third parties but instead now only relate to internal decision making.

3. Dutch Supreme Court Ruling on Collective Deed of Pledge

The Dutch Supreme Court confirmed in its ruling of 3 February 2012 (Dix ex officio/ ING) that the entry into supplemental deeds of pledge by a bank/security agent on the basis of a power of attorney (as is common practice in the Netherlands) creates a valid security.


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II. Forms of Security over Assets

A. Real Estate

1. What Is Considered Real Estate in Your Jurisdiction? What Are the Most Common Forms of Security Granted over It? How Are They Created and Perfected (That Is, Made Valid and Enforceable)?

Under Dutch law, real estate includes:

■ Land.

■ Buildings and structures permanently affixed to land, or permanently affixed to another building or structure which in turn is affixed to land.

Ownership of land includes:

■ Minerals not yet extracted from the land.

■ Flora affixed to land.

The only type of security that can be created over real estate registered in the Dutch public land registry (Kadaster)) is a mortgage over land ((ownership and leasehold) and, in some cases, building rights in respect of a building or structure). No separate mortgage can be created over minerals and flora. A mortgage is created by notarial deed (notariële akte) executed by a civil law notary, which must (among other things):

■ Include a description of the secured asset (with land registry registration number).

■ Include a description of the claim that the mortgage secures, or facts based on which the secured claim can be determined.

■ State the maximum amount for which the mortgage is created

■ Be registered at the Dutch public land registry (notary costs and registration costs are minimal).



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B. Tangible Movable Property

1. What Is Considered Tangible Movable Property in Your Jurisdiction? What Are the Most Common Forms of Security Granted over It? How Are They Created and Perfected?

Tangible movable property includes all tangible objects that are not considered real estate (see Section I.A). The form of security that can be granted over tangible movable property depends on whether the tangible movable property is registered or non-registered property.

a. Registered Tangible Moveable Property Vessels and aircraft, if registered in the Dutch public registry (het Kadaster), are registered tangible movable property under Dutch law. The only form of security that can be granted over such registered property is a mortgage. A mortgage is granted by notarial deed executed by a civil law notary and registration at the relevant Dutch public registry.

b. Non-Registered Tangible Movable Property The only form of security that can be granted over non-registered tangible movable property located in the Netherlands is a pledge. There are two types of pledges:

■ Non-possessory pledge. This is the most common type of pledge and is created by a written deed of pledge and either:

• execution of the deed of pledge in the form of a notarial deed; or

• registration of a (non-notarial) deed of pledge with the Dutch tax authorities.

■ Registration is required (to prove the existence and date of the deed of pledge) but is not publicly accessible.

■ Possessory pledge. A possessory pledge is created by bringing the non-registered property into the physical possession of the pledgee (usually the lender or the lender's agent) or a third party (as agreed between the pledgor (usually the borrower or a group company of the borrower) and the pledgee), and no written deed is required. If the pledgor regains control over the pledged property, the possessory pledge automatically terminates. The possessory form of pledge is rarely used in practice, except in certain trade finance transactions.


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C. Financial Instruments

1. What Are the Most Common Types of Financial Instrument over Which Security Is Granted in Your Jurisdiction? What Are the Most Common Forms of Security Granted over Those Instruments? How Are They Created and Perfected?

a. Financial Instruments The only form of security that can be granted over the financial financial instruments set out below is a pledge.

b. Securities Securities (such as shares, depositary receipts of shares or registered bonds) are transferable through book-entries under the Act on the Securities Giro System (Wet giraal effectenverkeer) and can be pledged by a book-entry in the name of the pledgee by the custodian bank. If the pledgee is also the custodian bank, then a pledge is established by an agreement between the pledgor and the custodian bank.

Securities that are transferable by book-entry but not governed by the Act on the Securities Giro System can be pledged by a deed of pledge and notice of the pledge to the bank that maintains the bank account in the Netherlands in which the securities are held. Under Dutch law, a security interest should be granted over these securities in accordance with the law of the jurisdiction where the account in which the securities are held is kept.

c. Registered Shares A pledge over registered shares in a BV or NV (and depositary receipts of such shares) must be created and perfected by a notarial deed. If the company's articles of association prohibit the grant of a right of pledge over the company's shares (and/or the attribution of voting rights to the pledgee), the articles of association must be amended before the notarial deed of pledge is executed.

Since a pledgee can only enforce its rights as a pledgee against the company in whose capital the shares are pledged if the company is notified of the pledge, the company is usually a party to the notarial deed.

d. Membership Interests and Partnership Interests A right of pledge over membership interests in a co-operative or a right of pledge of partnership interests in a limited partnership can be created and perfected by either a notarial deed or a non-notarial deed, depending on the terms and conditions of the constitutional documents and what is agreed between the members or the partners.



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e. Financial Collateral Security over financial collateral (as defined as such in Directive 2002/47/EC on financial collateral arrangements (Financial Collateral Arrangements Directive)) is created by way of a financial collateral agreement (financiëlezekerheidsovereenkomst). The Dutch regime relating to financial collateral agreements is based on the Financial Collateral Arrangements Directive. A financial collateral agreement can only be created if both:

■ One of the parties is a regulated financial institution (such as a bank), a government authority, central bank or supra-national financial institution.

■ None of the parties is a private person (not acting in the conduct of his business or profession).

A financial collateral agreement can create a security interest by a pledge or security transfer. Unlike the usual right of pledge or mortgage, a financial collateral agreement can provide that the security holder can enforce the security by setting off the value of the secured assets against the secured claim, or by appropriating the secured assets.

When a financial collateral agreement relates to securities which are transferable by giro transfer (see Section II.C.1.b) security should be granted in accordance with the law of the jurisdiction where the account in which the securities are held is kept.

D. Claims and Receivables

1. What Are the Most Common Types of Claims and Receivables over Which Security Is Granted in Your Jurisdiction? What Are the Most Common Forms of Security Granted over Claims and Receivables? How Are They Created and Perfected?

Security over claims and receivables (other than claims "to order" or "to bearer") is created by a right of pledge. There are two types of pledge.

a. Disclosed right of pledge This is created by a written deed of pledge and notice of the right of pledge to the debtor.

Receivables against a bank in relation to a bank account (including in respect of cash deposits administered on a bank account) must take the form of a disclosed right of pledge.

b. Undisclosed Right of Pledge This can be created by a written deed of pledge and either:

■ Execution of the deed of pledge in the form of a notarial deed.

■ Registration of a (non-notarial) deed of pledge with the Dutch tax authorities.


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If a claim or receivable is "to order" or "to bearer" (that is, embodied in a title document), a pledge can be created by a possessory pledge in the same way as security over unregistered tangible movable property (see Section II.A.1). However, in respect of a right "to order", endorsement is required.

A claim or receivable "to order" can also be pledged by means of an undisclosed pledge as above.

E. Cash Deposits

1. What Are the Most Common Forms of Security over Cash Deposits? How Are They Created and Perfected?

Cash deposits qualify under Dutch law as receivables against the bank with which the account is maintained. Security is created over the receivable by way of a disclosed right of pledge (see Section II.D.1).

a. Common Forms of Security Security over cash deposits is created by way of a right of pledge, which is a disclosed right of pledge (see Section II.D.1).

F. Intellectual Property

1. What Are the Most Common Types of Intellectual Property over Which Security Is Granted in Your Jurisdiction? What Are the Most Common Forms of Security Granted over Intellectual Property? How Are They Created and Perfected?

a. Intellectual Property Intellectual property includes:

■ Patents.

■ Trade marks.

■ Copyright.

■ Domain names.

■ Designs.

■ Databases.



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b. Common Forms of Security The form of security which can be granted over intellectual property (registered and unregistered) is a right of pledge. Only the intellectual property rights which have a legal basis and are transferable can be pledged. In Dutch legal literature there is discussion on which intellectual property rights have a legal basis and are transferable. It is likely that the intellectual property listed above can be encumbered with a right of pledge. A right of pledge over intellectual property rights is created by written deed of pledge.

In addition, a right of pledge over certain intellectual property rights can be registered to make the pledge enforceable as against third parties. The following registries register intellectual Dutch property rights and security granted over them:

■ Dutch Patent Office (Octrooiencentrum Nederland).

■ Benelux Office for Intellectual Property (Benelux Bureau voor de Intellectuele Eigendom).

No security can be granted over trade names or over intellectual property rights which are "personal" (certain copyrights may qualify as such).

G. Problem Assets

1. Are There Types of Assets over Which Security Cannot Be Granted or Can only Be Granted with Difficulty? Which Assets Are Difficult or Problematic When Security Is Granted over Them?

a. Future Assets It is not possible to mortgage future registered property (such as real estate, ships or aircraft). In general, security can be granted over all other present and future tangible movable property, financial instruments, receivables and intellectual property. However, such a security will not cover assets that come into existence after the pledgor's bankruptcy or cessation of payments. For lease receivables and, arguably, insurance receivables this means that the security is not perfected until the relevant lease period has commenced or the insured event occurs, even though the receivable results from an existing contractual arrangement.

In addition, a security over future receivables that is not disclosed to the debtor only extends to those receivables that arise directly out of a legal relationship that exists at the time the security is taken. Consequently, it is market practice for an undisclosed pledge over (trade) receivables to include a mechanism which requires the security provider to pledge its future receivables at agreed intervals.


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b. Fungible Assets It is possible to grant security over fungible assets. In general, assets can be made subject to a security interest as long as their description makes them sufficiently identifiable. This concept is broadly interpreted and may include, for instance, a description of an entire type of fungible assets stored at a particular location. If fungible assets are commingled with assets of the same type owned by a third party this may affect the security.

c. Assets with Transfer Restrictions and Personal Rights Security cannot be granted over contractual rights that have a (contractual) restriction on transfers or security, or over personal rights which by their nature cannot be transferred, such as certain rights under limited partnership agreements and certain intellectual property rights.

III. Release of Security over Assets

A. How Are Common Forms of Security Released? Are Any Formalities Required?

Dutch security interests are accessory security, which means that the security rights terminate by force of law when the secured liabilities are discharged in full.

Security can be terminated (opgezegd) by written statement from the security beneficiary (if the security document stipulates this). No formalities apply.

Alternatively, security can be waived (afstand doen van) by an agreement between the security provider and the security beneficiary. No formalities apply.

A mortgage release/waiver must be registered in the Dutch public land register. The release/waiver should also be notified to third parties that have been notified of the security, intellectual property registers and companies in whose capital shares are pledged.



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IV. Special Purpose Vehicles (SPVs) in Secured Lending

A. Is It Common in Your Jurisdiction to Take Security over the Shares of an SPV Set up to Hold Certain of the Borrower's Assets, Rather Than to Take Direct Security over Those Assets?

Apart from securitisation/covered bond transactions, it is uncommon in Dutch financing transactions to only take share security in an SPV holding assets (and it is not common to set up an SPV to hold a borrower's assets other than in the context of a securitisation/covered bond transaction).

V. Quasi-Security

A. What Types of Quasi-Security Structures Are Common in Your Jurisdiction? Is There a Risk of Such Structures Being Recharacterised as a Security Interest?

1. Sale and Leaseback

In a typical sale and leaseback, the user/lessee of an asset sells it to a buyer/lessor, who then leases it back to the user/lessee. The lease period will then be equivalent to the useful life of the asset and the rental payments are equal to the purchase price. The commercial effect of such a sale and leaseback is similar to a secured loan to the user/lessee for the asset.

Sale and leaseback structures are permitted under Dutch law and they are not likely to be recharacterised as security. However, parties should be careful to avoid sale and leasebacks being recharacterised as a transfer of title for security purposes, which is void under Dutch law. In a landmark case, the Supreme Court has upheld a typical sale and leaseback, but sale and leaseback terms should be carefully drafted to ensure that this recharacterisation risk does not occur.


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Financial lease of real estate, pursuant to which the financial ownership of the leased real estate is with the user/lessee, is a rarity in the Netherlands. This is due to a high protection level of the user/lessee pursuant to stringent legislation.

2. Factoring

In a factoring transaction, a debtor sells its receivables to a buyer at a discount. If the debtor becomes insolvent, the buyer typically has recourse to the receivables of the debtor. Factoring is from a commercial perspective equivalent to a loan secured by a pledge over the receivables.

3. Hire Purchase

A hire purchase transaction is a lease transaction which includes an option for the lessee to buy the asset for a nominal amount at the end of the lease. If the lessee becomes insolvent before exercising the option, the lessor remains the owner of the asset. This is from a commercial perspective equivalent to a secured loan in respect of the asset.

4. Retention of Title

This involves the sale of an asset where the buyer takes possession of the asset, but title to the asset remains with the seller until the purchase price has been paid in full. Alternatively, if the purchase price for an asset is not paid, the seller has the right to reclaim title (within a limited period). This is from a commercial perspective equivalent to a transfer of title to a buyer who gives a pledge over the asset as security for payment of the purchase price.

5. Set-off

A party may set-off debts to a party with claims against that party if certain conditions are met. Parties can agree to widen or restrict the scope of set-off and certain conditions are not applicable in a bankruptcy.



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VI. Guarantees

A. Are Guarantees Commonly Used in Your Jurisdiction? How Are They Created?

Corporate guarantees are commonly used in the Netherlands. A corporate guarantee is a contractual undertaking of the guarantor. No formalities apply.

VII. Risk Areas for Lenders

A. Do Any Laws Affect the Validity of a Loan, Security or Guarantee (or the Terms on Which They Are Made or Agreed)?

1. Financial Assistance

An NV cannot provide collateral, give a price guarantee, guarantee or otherwise bind itself jointly and severally with a third party for the purpose of subscription or acquisition of shares in its capital by that third party. In addition, it can only make loans to a third party if the management board of the company has resolved to do so and the following conditions are met:

■ The loan is made on reasonable terms.

■ The equity capital (eigen vermogen) of the company, less the amount of the loan, is at least the paid and called capital (gestorte en opgevraagde kapitaal) plus the amount of statutory reserves.

■ The creditworthiness of the third parties involved in the transaction has been carefully reviewed.

■ If the loan is made for a subscription of shares in connection with an increase in the share capital, the acquisition price of the shares is reasonable.

The board resolution to grant the loan is subject to shareholder approval, which requires a qualified majority (or a 95% majority if the shares are listed).


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The financial assistance prohibition extends to all Dutch subsidiaries of a Dutch company (including BVs) and (from a Dutch law perspective) to all non-Dutch subsidiaries of a Dutch company. (This applies even though the financial assistance restrictions for transactions where a BV is the subject of the acquisition of shares were removed from the Dutch Civil Code in October 2012.) There is no whitewash procedure.

2. Corporate Benefit

A company, or its receiver (curator) in bankruptcy, can contest a transaction if the entry into that transaction contravenes the objects of that company or is not to the corporate benefit of that company and the counterparty was aware, or should have been aware, of this without personal investigation.

To assess whether a Dutch company's objects are transgressed, the courts will look at whether:

■ The objects clause in the articles of association of the company allow the transaction.

■ The transaction in the corporate interest of the company.

■ The transaction jeopardises the further existence of the company.

A transaction is in the company's corporate interest if it derives sufficient commercial benefit. This depends on all relevant facts and circumstances, and case law confirms that the interest of the group to which the company belongs can also be taken into consideration.

a. Fraudulent Transfer (Actio Pauliana) A receiver (curator) in bankruptcy can challenge a guarantee given by a Dutch entity if:

■ The guarantee was entered into without there being a legal obligation to grant the guarantee.

■ The guarantee results in prejudice to other creditors of the company.

■ Both the company and the beneficiary of the guarantee knew, or should have known, that such prejudice would occur.

This right is also open to creditors outside insolvency (but rarely used).

3. Loans to Directors

Dutch law has no special rules for loans to directors but such loans must be granted in line with financial assistance, corporate benefit and fraudulent transfer rules (see above).



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4. Usury

Dutch law has no rules on usury other than in relation to consumer credit loans. However, there is limited and very fact-specific published case law of lower courts ruling that contractual (Dutch law) arrangements on interest were not enforceable where these arrangements are an unacceptable breach of the principles of reasonableness and fairness.

B. Can a Lender Be Liable under Environmental Laws for the Actions of a Borrower, Security Provider or Guarantor?

Under the Soil Protection Act (Wet Bodembescherming), a lender holding or enforcing a mortgage over land can become liable to the government under environmental law to reimburse the costs of decontamination, but only to the extent that the lender has been unjustly enriched as a result of that decontamination. This liability therefore cannot put the relevant party into a worse position than it was in before the decontamination.

Unjust enrichment of a party holding or enforcing a mortgage over land may occur if the value of the mortgaged property increases as a result of the government decontaminating the land.

The Dutch Water Act (Waterwet) contains similar provisions in relation to the reimbursement of costs related to the decontamination of riverbeds.

VIII. Structuring the Priority of Debts

A. What Methods of Subordination Are There?

1. Contractual Subordination

Contractual subordination of debt is possible and enforceable. The contractual arrangements can include:

■ An obligation to turnover amounts received.

■ A restriction on enforcing claims.

■ A power of attorney to the senior creditor to release the junior debt.


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2. Structural Subordination

Structural subordination is possible and is achieved by lending on different levels in the group structure and/or by contractually agreeing to limit recourse (to certain assets of certain group entities).

3. Inter-Creditor Arrangements

In general, creditors are entitled to the net proceeds of the liquidation of an estate of a debtor in proportion to their claims. However, a creditor and a debtor can agree that a creditor's claim will have a lower ranking in respect of all or certain other creditors.

Subordination is common in certain types of larger finance transactions (such as acquisition finance and project finance) and is typically achieved by a subordination agreement or inter-creditor agreement between the junior creditor, the senior creditor and the debtor, and sometimes by incorporating subordination provisions in the loan agreement. It is also possible to have a subordination agreement between a junior creditor and a debtor with only a third party stipulation in favour of a senior creditor, but such a stipulation may be revoked until it is accepted by the senior creditor.

IX. Debt Trading and Transfer Mechanisms

A. Is Debt Traded in Your Jurisdiction and What Transfer Mechanisms Are Used? How Do Buyers Ensure that They Obtain the Benefit of the Security and Guarantees Associated with the Transferred Debt?

Both unsecured and secured debts are traded in the Netherlands. The transfer of a claim can be achieved by executing a transfer certificate, which must comply with the requirements for transferring claims (cessie) or (if rights and obligations are to be transferred) for transfer of contract (contractsoverneming) if the rights and obligations are governed by Dutch law.

If all rights under a bilateral loan agreement are transferred, the security accessory to the transferred rights (as a Dutch-law security will typically be) is automatically transferred to the new buyer by operation of law.



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If a participation under a syndicated loan agreement is transferred and the participation is secured by a Dutch-law security, buyers of the debt obtain the benefit of the security associated with the transferred debt by relying on the parallel debt structure (see below).

Due to several Dutch law restrictions and uncertainties, Dutch security is commonly granted to secure a security agent's parallel debt claim, under which the obligors undertake to pay to the security agent, at intervals, an amount equal to the total outstanding borrowings from the lender comprising the syndicate. Each transferee relies on the fact that the security agent holds the security by way of the parallel debt structure on behalf of the syndicate.

X. Agent and Trust Concepts

A. Is the Agent Concept (Such as a Facility Agent under a Syndicated Loan) Recognised in Your Jurisdiction?

The agency concept is recognised in the Netherlands as a contractual arrangement only. Although in theory Dutch law will recognise certain trust relations created under other laws, the extent of this is unclear and parties do not tend to rely on a trust.

B. Is the Trust Concept Recognised in Your Jurisdiction?

1. Recognition

Dutch law does not have a concept or doctrine identical to the concept of a trust. However, any trust validly created under its governing law will be recognised by the courts of the Netherlands according to, and subject to the limitations of, the rules of the Act on the law applicable to trusts (Wet conflictenrecht trusts) (Trust Act), which implements The Hague Convention on the Law Applicable to Trusts and on their Recognition 1985 (Hague Trusts Convention). See, however, Section X.A.

2. Enforcement

A foreign security trustee can enforce its rights in the Dutch courts. Section 4 of the Trust Act stipulates that rules of Dutch law regarding transfer of property, security interests or protection of creditors on insolvency do not prevent recognition of the trust under section 11 of the Hague Trust Convention.


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XI. Enforcement of Security Interests and Borrower Insolvency

A. What Are the Circumstances in Which a Lender Can Enforce Its Loan, Guarantee or Security Interest? What Requirements Must the Lender Comply with?

Parties have contractual freedom to agree on the terms and conditions under which a loan or guarantee becomes due and payable.

Security rights governed by Dutch law are enforceable if there is a default in the performance of the secured obligations, which have to be obligations to pay an amount of money.

In contrast to a right of mortgage and an ordinary right of pledge, a financial collateral agreement can provide that a right of pledge created over the security collateral is enforceable on the occurrence of events other than a payment default.

XII. Methods of Enforcement

A. How Are the Main Types of Security Interest Usually Enforced? What Requirements Must a Lender Comply with?

1. Public Sale

A secured creditor can enforce its security right by selling the collateral. The Dutch Civil Code provides for various options. The general rule is that the collateral is sold in a public auction according to local customs and applicable standard terms and conditions:

■ For a mortgage, the public sale must take place before a civil law notary.

■ For pledged property that can be traded in a market or on an exchange, the sale can take place on the market through a broker or on an exchange through a qualified intermediary, according to the rules and usages applicable to an ordinary sale on the market or exchange.



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■ For collateral consisting of receivables, the secured creditor can enforce the right of pledge by collecting the receivable. If the receivable is not yet due and payable but can be declared due and payable by termination, the secured creditor has the right to do this.

2. Alternative Procedure

An alternative enforcement procedure (such as a private sale to a third party or to the security beneficiary or, for pledges only, any other solution) requires the prior approval of the Dutch preliminary relief judge (voorzieningenrechter). The approval of the Dutch preliminary relief judge is discretionary but is usually granted if the proceeds of the private sale are likely to be higher than the proceeds that would have been received if the collateral were sold at public auction (and therefore the court will usually request a third party valuation evidencing the higher proceeds).

For a pledge, the security provider and secured creditor can agree to an alternative sale without involving the preliminary relief judge, provided such agreement is reached after the right of pledge has become enforceable.

If the pledged collateral is encumbered with a limited right (beperkt recht) or is subject to an attachment (beslag), the co-operation of the holder of the limited right or attachment is also required.

3. Pledge over Financial Collateral

For a pledge over financial collateral, the Dutch Civil Code provides that the secured creditor can enforce its right by:

■ Selling financial collateral (securities) on the capital markets and using the proceeds for its secured claims.

■ Appropriating financial collateral (securities) and setting off its secured claims against the value of the financial collateral.

■ Setting off its secured claims against financial collateral (cash).

Parties can agree otherwise in the financial collateral agreement.


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XIII. Rescue, Reorganisation and Insolvency

A. Are Company Rescue or Reorganisation Procedures (Outside of Insolvency Proceedings) Available in Your Jurisdiction? How Do They Affect a Lender's Rights to Enforce Its Loan, Guarantee or Security?

There are no statutory company rescue or reorganisation procedures in the Netherlands, outside of the insolvency proceedings of suspension of payments and bankruptcy (see Section XIII.B).

Recently, it has been argued in the legal literature that a pre-packaged administration (also referred to as a "pre-pack") could be applied in the Netherlands. In a pre-packaged administration the future receiver monitors and pre-approves arrangements by the relevant companies and its financiers and/or shareholders a sale of assets, before there being an insolvency (and the appointment having become effective). These assets sales are then executed directly after the opening of the bankruptcy proceedings. In recent cases, the Dutch courts have facilitated requests for such arrangements even though the Dutch Bankruptcy Code does not contain rules for this (see Section I.A).

In addition, further to the recognition of English law schemes in other European courts, certain European jurisdictions have changed their insolvency laws to facilitate restructurings that are more in line with the UK insolvency scheme procedure.

B. How Does the Start of Insolvency Procedures Affect a Lender's Rights to Enforce its Loan, Guarantee or Security?

With limited exceptions, a secured creditor (pledgee or mortgagee) is not affected by either of the two insolvency procedures of suspension of payments or bankruptcy. The creditor can therefore enforce its rights as if there were no insolvency procedure. The most important exception is that the supervisory judge (rechter-commissaris) (the judge that orders the bankruptcy or the suspension of payments) can order a cooling-off period of a maximum of two months (which can be extended once, with an additional period of a maximum of two months) which prevents during this period:

■ Creditors, including secured creditors, from claiming movables that are subject to a non-possessory pledge from the receiver.

■ Taking enforcement action on secured assets belonging to the estate. This includes movables that are subject to a possessory right of pledge.

The supervisory judge has discretion to limit the cooling-off period to certain third parties and thereby exempt pledged assets already in the possession of the pledgee. The pledgee of



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a receivables pledge can give notice to the debtors of debts subject to an undisclosed pledge and collect such debts, even during the cooling-off period. Assets subject to a financial collateral security agreement are exempt from the cooling-off period.

After the cooling-off period has expired, a pledgee and a mortgagee can take enforcement measures.

A further exception is that the receiver can enforce the rights of the pledgee or mortgagee, if they fail to exercise those rights. The receiver can set a period within which a secured creditor must start enforcement, failing which the receiver can take over.

The Supreme Court has determined that if the pledgee of an undisclosed pledge does not notify the debtors within 14 days of the start of the bankruptcy, the receiver can collect the relevant debts and the secured creditors will then not lose their preference over the collection proceeds but will have to share in the general costs of the bankruptcy.

C. What Transactions Involving Loans, Guarantees, or Security Interests Can Be Made Void if the Borrower, Guarantor or Security Provider Becomes Insolvent?

The provision of any security can be made void if it is prejudicial to the (other) creditors, and provided certain conditions are met (under the doctrine of actio pauliana, see Section VII.A). The conditions are:

■ The grantor was not under any legal obligation to provide the security.

■ The provision of security was prejudicial to the interests of other creditors.

■ Both the grantor and the pledgee or mortgagee to the transactions were aware (or should have been aware) that the transaction was prejudicial to the other creditors. For a grant of security, this awareness is deemed to exist if the security was provided within a year of the date it is first contested, or within a year before the date of the bankruptcy if such security was not granted on the basis of a pre-existing contractual obligation or when the secured obligations were due and payable.

D. In What Order Are Creditors Paid on the Borrower's Insolvency? Secured creditors have a strong position in Dutch insolvency proceedings and can enforce their rights as if an insolvency proceeding had not been opened. Secured creditors do not contribute to the general costs and expenses of the insolvency proceeding. The proceeds of enforcement secured assets fall outside the bankruptcy (unless the secured creditors do not timely take enforcement measures).

The following order of priority applies in a bankruptcy proceeding:


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■ General costs and expenses of the bankruptcy proceedings themselves (boedelschulden).

■ Secured creditors in respect of proceeds of secured assets, where they have not themselves taken enforcement measures. Of these, the mortgagee and pledgee rank highest.

■ Creditors with a specific privilege, that is, creditors with priority with respect to the distribution of the proceeds of a particular asset. For example, creditors who have incurred costs to preserve the assets.

■ Creditors with a general privilege, for example wages and pensions.

■ Unsecured creditors.

■ Subordinated creditors.

There are a number of exceptions to this general order of distribution. For example:

■ In very limited cases, a specific privilege ranks above a pledge on a certain asset.

■ In certain cases, the Dutch tax authorities rank above the creditors with a privilege and above the holder of a non-possessory pledge over movable inventory on the debtors' premises.

XIV. Cross-Border Issues on Loans

A. Are There Restrictions on the Making of Loans by Foreign Lenders or Granting Security (over All Forms of Property) or Guarantees to Foreign Lenders?

There are no restrictions on granting security to foreign lenders.



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B. Are There Exchange Controls that Restrict Payments to a Foreign Lender under a Security Document, Guarantee or Loan Agreement?

There are no exchange controls that restrict payments to a foreign lender under a security document or loan agreement.

XV. Taxes and Fees on Loans, Guarantees and Security Interests

A. Are Taxes or Fees Paid on the Granting and Enforcement of a Loan, Guarantee or Security Interest?

1. Documentary Taxes

There are no taxes or fees payable on the granting and enforcement of security other than those stated below.

2. Registration Fees

Registration fees apply to the registration of security documents with the land register, ship register or aircraft register. These fees are low.

3. Notaries' Fees

Notaries' fees apply to any security granted by the execution of a notarial deed. Mortgages and share pledges must be created by notarial deed. Other security documents can but are not required to be created by notarial deed.

Notaries' fees for a share pledge are not prohibitive (approximately EUR2,500 per pledge). Notaries' fees for a mortgage deed can differ significantly, and depend on the asset(s) to be mortgaged.


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B. Are There Strategies to Minimise the Costs of Taxes and Fees on the Granting and Enforcement of a Loan, Guarantee or Security Interest?

There are no such strategies as costs are not prohibitive.

XVI. Reform

A. Are There Any Proposals for Reform? There are no current reform proposals.

XVII. Online Resources

A. Dutch Government W http://wetten.overheid.nl

Official website of the Dutch government containing Dutch legislation in the original language.

B. Dutch Judicial Organisation W www.rechtspraak.nl

Official website of the Dutch Judicial Organisation containing Dutch case law.



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XVIII. About the Authors

A. Gijs van Leeuwen, Partner Banking & Finance - Amsterdam

Norton Rose Fulbright LLP

T +31 20 46 29 430 F +31 20 46 29 333 E [email protected] W www.nortonrosefulbright.com/nl

Professional qualifications. The Netherlands, Advocaat.

Areas of practice. Banking and finance; financial services

Recent transactions

■ Advising many banks from all over the world on lending to Dutch borrowers and banking security in the Netherlands.

■ Advising a derivative central counterparty on the European legislation on OTC-derivatives, central counterparties and trade repositories.

■ Advising on debt capital market transactions, both programmes (EMTN, DIP's) and private/bilateral.

■ Advising on securitisations and derivative transactions.

■ Assisting in the setting up of a security arrangement between central counterparties and CSD's.

Professional associations/memberships. Dutch Securities Law Association; Dutch Association of Trade Law; International Bar Association

B. Wouter Hertzberger, Partner Banking - Amsterdam





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Areas of practice. Banking; financial services; PPP

Recent transactions

■ Advising the lenders (including EKF and ELO) on the project financing of a two wind farms on Curacao.

■ Advising the lenders (including EKF) on the on the project financing of a wind farms on Aruba.

■ Advising Rabobank on the ELO financing relating to a Glencore seed crushing plant in Hungary.

■ Advising Rabobank on the project financing of a biodiesel production facility acquired by Louis Dreyfuss in Germany.

■ Noordoostpolder: Advising the sponsors of the largest wind park development in the Netherlands to date on its project financing (ongoing).

■ Westermeerwind: Advising the sponsors of a near shore wind park development in the Netherlands on its project financing (ongoing).

■ Advising solar total on the structuring and the potential mezzanine financing for a solar portfolio financing.

■ Advising Gazprom on its long-term storage development and cushion gas arrangement in the Netherlands.

Professional associations/memberships. Dutch Securities Law Association; New York Bar Association; International Bar Association; Amsterdam Bar Association

C. Herman Wamelink, Partner Banking - Amsterdam




Areas of practice. Banking; financial services.

Herman Wamelink specialises in acquisition finance and also has broad experience on general lending, structured and project finance, restructurings and real estate finance.

Herman's experience includes acting on an extensive number of domestic and international acquisition finance transactions, acting for both lenders and investors. In addition, Herman



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advises lenders and companies on general lending transactions, both secured and unsecured.

association of corporate counsel (acc) - finance multi … · 2012-03-14 · by in-house counsel,...

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