No-assignment clauses as it currently stands
Depending on the specific wording bans on assignment in a Dutch law governed contract can render a receivable incapable of being assigned or pledged. The default position (since a couple of years following a judgment of the Supreme Court) is that the receivables can be assigned or pledged. Only if certain wording is used or it is clear that parties have intended that the receivables could not be assigned or pledged, no assignment can be effected or no security right can be created.
A ban on assignment clause may (i) have contractual effect, which means that a breach of such clause results in a breach of contract, but the assignment or pledge itself can be effected or perfected or (ii) in rem effect, which means that a breach of such clause has no effect as such clause renders the receivables incapable of being assigned or pledged without the consent of the counterparty.
The legislative proposal Act on the Abolition of Pledge Prohibitions
The Act on the Abolition of Pledge Prohibitions will change the abovementioned legal framework on bans on assignment as follows:
- It will no longer be possible to agree on a ban on assignment clause with respect to receivables arising from the exercise of a profession or business. A clause between a creditor and a debtor which aims to exclude the assignability of such a receivable will be void (irrespective whether the ban on assignment clause has contractual or in rem effect).
- A ban on assignment clause will remain possible for certain receivables such as (i) bank account receivables and (ii) receivables arising under a syndicated financing. For such receivables, parties can still validly agree on a ban of assignment clause (irrespective whether the ban on assignment clause has contractual or in rem effect).
- If a receivable mentioned under point 1 (a receivable arising from the exercise of a profession or business) needs to be assigned or pledged on a disclosed basis, the debtor of such receivable must be notified in writing of such assignment or pledge. That the notice should be in writing is an additional requirement to the current legal framework which does not prescribe the form of the notice.
Implications of the Act on the Abolition of Pledge Prohibitions
The Act on the Abolition of Pledge Prohibitions will limit the possibility to agree on bans on assignment clauses with respect to Dutch law receivables and primarily targets small and medium-sized enterprises to give such entities more opportunities to assign or pledge their receivables. The main result of the Act on the Abolition of Pledge Prohibitions will be the improvement of the creditworthiness of certain entities (with a particular focus on small and medium-sized enterprises). From both the perspective of the lender and the borrower, the Act on the Abolition of Pledge Prohibitions will likely be more than welcome as it will remove certain financing obstacles which currently exist under Dutch law.
If you have any questions in relation to the Act on the Abolition of Pledge Prohibitions, please contact one of our colleagues below.
