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    Supreme court upholds security over assets subject to retention of title

    It is common practice for suppliers to deliver goods subject to a retention of title (eigendomsvoorbehoud). In such case ownership of such goods only transfers to the buyer upon payment of the claims of the supplier that are secured by the retention of title. In the event the buyer is declared bankrupt before the secured claims are paid, the seller can reclaim his goods from the trustee in bankruptcy as owner.

    On 3 June 2016, the Dutch Supreme Court rendered a landmark decision in which it ruled that a right of pledge granted by the buyer over its conditional right of ownership of goods delivered subject to retention of title will be upheld in the bankruptcy of the buyer. This decision is of great importance for the financing- and insolvency practice as it will allow secured creditors to take recourse on goods delivered subject to a retention of title, subject to the condition that the relevant secured claims are settled. This will greatly improve the possibilities to effect a relaunch out of bankruptcy by enforcement of security.

    Supreme court ruling

    Contrary to District Court and the Court of Appeal, the Dutch Supreme Court ruled that a pledge, created before bankruptcy, on the conditional right of ownership of the goods, qualifies as an unconditional pledge on an existing right, whose establishment has already been finalized before the bankruptcy occurs. No further acts of disposal by the purchaser debtor are required. Thus, if the condition precedent of payment of the claims secured by the retention of title are fulfilled after bankruptcy - e.g. through payment by the holder of the right of pledge - the pledge ipso jure becomes a pledge on the full ownership of the assets and thus on the assets themselves. The pledgee can then enforce the pledge and take full recourse on the proceeds.

    The supreme court ruling can be found here.

    For more information, please contact Stefan van RossumJelmer Baukema or Charlotte Hoedt of Van Doorne's Restructuring and Insolvency team.