Caselaw alert – Dutch Supreme Court simplifies rules on priority of pledges and distribution of proceeds of pledged receivables that have been pledged more than once
16 June 2021
In a recent case (the “Bowie Recycling Case”) the Dutch Supreme Court has finally confirmed that it is possible to change the priority of an existing right of pledge versus one or more other rights of pledge over the same assets in a similar way as already expressly provided for in relation to rights of mortgage under the Dutch Civil Code. Prior to this, there was no clear legal basis to rearrange the priority of rights of pledge, leading parties to resort to contractual intercreditor arrangements or recreation of pledges in the intended order of priority to achieve the same result to, for example, allow for a secured mezzanine loan or to give priority security to a lender providing additional financing in a restructuring situation. Furthermore, the Dutch Supreme Court has provided new and useful guidance with respect to the rules that apply to collection of pledged receivables and distribution of proceeds in cases where a claim secured by a pledge over rights and receivables is itself pledged by the original creditor/pledgee to another creditor, which could for example be done in the context of a loan-on-loan transaction.
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