Summary

Until the 1992 Civil Code (Burgerlijk Wetboek) was introduced, registered claims were not usually provided as security because they were subject to a right of pledge, but because of fiduciary transfer of ownership. Section 84, subsection 3, Book 3 of the 1992 Civil Code provides that a contract for the transfer of fiduciary ownership is not a valid legal basis for transfer, and new provisions on undisclosed pledge on registered claims were introduced. These provisions relating to undisclosed pledge on registered claims are the subject of this thesis.

Pledge on registered claims gives rise to many questions in practice. A major cause of this is the complexity of this legal concept. One reason for this complexity is that at least three parties are involved in a pledge on a registered claim: the pledgor, the pledgee and the debtor. A second reason is that, on the one hand, the holder of the right to a registered claim has a personal right to performance while, on the other hand, he has a property right in the claim. Another reason for the many questions to which the legal concept of undisclosed pledge give rise is that the current statutory provisions relating to it are rather sketchy.

The purpose of this study is to answer several questions that could arise with respect to the provisions relating to undisclosed pledge on registered claims.

In Chapter 2, some general starting points are formulated for the evaluation, application and amendment of the statutory provisions relating to undisclosed pledge. These starting points are the basis for answering the questions posed in the following chapters.

Chapter 3 contains a brief outline of the provisions relating to pledge on registered claims under the Civil Code of 1838. A survey of the current provisions is also included.

In Chapter 4, the transfer of fiduciary ownership as security is compared to undisclosed pledge. By introducing the provisions relating to undisclosed pledge on claims, the legislature intended to provide roughly the same possibilities as provided by transfer as security before the 1992 Civil Code was introduced. One of the main purposes of this comparison is to promote understanding of the legislature’s intention. Another purpose is to answer the question (in Chapter 5) whether the ‘ban’ on transfer as security should be dropped.

In Chapter 5, attention is paid to the question whether transfer as security should once again be made possible on a large scale and, if so, whether the provisions relating to undisclosed pledge should be abolished. The conclusion is that the ‘ban’ on transfer of ownership as security should be dropped, because there is a justified need for that concept in practice, particularly in cases in which the provider of security wants to give the financier more possibilities to dispose of the security than he would need in order to use it, where appropriate, for recovery purposes. In those cases, an undisclosed pledge is not a good alternative to transfer of ownership as security. The provisions relating to undisclosed pledge suffice quite well in cases where the parties intend nothing more than to create a possibility for recovery with priority by a creditor.

Chapter 6 examines the characteristics of a registered claim that determine whether it is suitable for pledging. Special attention is paid here to the possibilities to create a pledge on a claim for delivery of goods and the requirement set by law that a claim to be pledged must be transferable. A proposal has been made to drop this requirement.

The requirement of determinability is the subject of Chapter 7. A distinction is made between the determinability of the obligation (usually under a contract) that justifies the pledge and the determinability of the claim as the object of the legal act by which the pledge is created.

The subject of Chapter 8 is pledge on future claims. In this context, attention is not only paid to the possibility to pledge future claims, but also to the consequences of the transfer of a legal relationship for rights of pledge on future claims arising from the legal relationship. A broadening of the possibilities to pledge future claims is advocated. Special attention is also paid to the consequences of declaring the pledgor insolvent for the rights of pledge created in advance on his future claims.

Chapter 9 deals with the right to collect a pledged claim during the pledgor’s insolvency and recover the amount collected. This chapter also deals briefly with the consequences of a cooling-off period announced during the pledgor’s insolvency and the right of the pledgee (with respect to the pledgor or the latter’s trustee) to the information needed to collect a pledged claim.

Chapter 10 examines the consequences of creating a pledge on a claim and of the pledgee’s entitlement to collect for the possibilities of the pledgor, the pledgee and the debtor to set off the pledged claim against a counterclaim.

Chapter 11 deals with substitution of a pledge on a claim by another pledge on cash or scriptural money. Substitution is possible on the basis of Book 3, Section 229 of the Civil Code if the pledged claim is nullified or has reduced in value and the pledgor acquires a substitute claim because of that nullification or reduction in value.

Substitution also occurs when the pledged claim is collected and the pledgor’s right to the amount collected becomes vested in the pledgee. The legal basis for this is provided by Section 246, subsection 5 of Book 3 of the Civil Code. This provision is problematic, for example because it is not clear if and how the pledgee who collects the claim can make the distinction between the amount collected and his own capital which is required for substitution. For that reason, a proposal is made in this chapter for legal regulation of a designated account to be held by the pledgee.

In Chapter 12, several rights relating to the collection of a pledged claim are discussed. Each right discussed is examined regarding who may exercise it, the pledgor, the pledgee entitled to collect or both. An example of such a right is the right to make the pledged claim due and payable by exercising an entitlement (for example by calling it in). Another example is the exercise of a right of security depending on the pledged claim, such as a mortgage right.

Disputes with the debtor of a pledged claim are the subject of Chapter 13. Attention is paid, for example, to the pledgee’s right to claim compliance with the claim in proceedings against the pledgor and the pledgee’s right to take over proceedings brought by the pledgor. The possibilities of reaching an amicable settlement with the debtor are dealt with as well.

If Section 84, subsection 3 of Book 3 of the Civil Code, which provides that a contract for fiduciary transfer of ownership does not constitute a valid legal basis for transfer, is dropped, questions will arise regarding the integration of fiduciary transfer of ownership into the current Civil Code. Some of these questions are dealt with in Chapter 14. The main conclusion of this chapter is that the legislature should prevent overdistribution of security owners by way of a prohibition on appropriation and by requiring security owners to pay the surplus remaining after recovery to the provider of the security, unless the legal basis for the transfer is a financial collateral arrangement.

Lastly, in Chapter 15, concluding observations are given and the main conclusions drawn. Recommendations to the legislature are made in several conclusions. One of the main conclusions is that the current statutory provisions suffice in cases where there is no need to transfer the security to the holder of the security, on the understanding that some additions and amendments to the current provisions are desired. Another important conclusion is that the ‘ban’ on fiduciary transfer of ownership as security should be dropped.