Pledge: the importance of a good deed of pledge and its correct registration with the tax authorities

If you lend money to someone or if you have a claim against someone, you want that person to repay that amount no matter what. You want that even if that person goes bankrupt.

In a previous article, I wrote about the importance of having collateral as a creditor. That way, you can ensure that you will get your money even in the event of bankruptcy.

One of the most common and effective securities to ensure that you get your money is a lien. For example, a lien can be established on stock and inventory, but also on (trade) receivables or shares.

Advantages lien

A lien gives you two major advantages over unsecured creditors.

First, you have the right of execution. This means that you can execute ("sell") the pledged property and recover on the proceeds without having to go to court first.

Second, you are a separatist in bankruptcy. This means that you do not have to file your claim in bankruptcy and you may also proceed to foreclosure if your debtor goes bankrupt. Thus, a lien is "bankruptcy-proof."

Most common liens

In practice, a lien is usually placed on receivables or movable property (such as inventory, stock or vehicles).

These liens can be "quietly" established or "publicly" established.

A quiet lien on receivables means that your debtor's debtors - that is, the parties to whom your debtor has receivables - do not know about the lien.

Thus, in principle, they may still "simply" pay your debtor. Only if you give notice of the lien - for example, because your debtor does not pay you - must the debtors pay to you. They may then no longer pay your debtor.

With a public lien on receivables, your debtor's debtors are immediately informed of the lien and must (in principle) pay you from the outset.

A silent lien on movable property means that your debtor can still dispose of the movable property himself. If your debtor does not pay, you can claim the goods and sell them.

With a public lien on movable property - a so-called fist lien - you take direct control of the property and thus your debtor cannot dispose of it from the outset.

In practice, a silent lien is mainly used because it allows the debtor to continue his business without hindrance. After all, he still has the movable property at his disposal and can collect the claims on his debtors himself.

This is also in your interest as a creditor because it allows the debtor to make money from his business and pay you back.

However, if you are not paid, you can disclose the lien and recover from the proceeds of the receivables and chattels.

In short, with a lien, you have a powerful weapon in both good times and bad from your debtor.

Establishment requirements of quiet liens

What is important, however, is that the lien is properly established because otherwise it has no effect.

To establish both a silent lien on receivables and a silent lien on movable property, a notarized deed or a private, registered deed is required.

A private deed can be prepared by yourself and is therefore faster and cheaper than a notarized deed.

However, the private deed must be registered with the tax authorities. This is because the pledge is only established through registration. So if the deed of pledge is not registered (correctly), there is no legally valid pledge!

That vesting must be done correctly and carefully - and that it even sometimes goes wrong for large, professional parties - is clear from a recent Amsterdam court ruling.

Amsterdam court ruling

ING Bank NV lent various amounts and claims that it has an undisclosed lien on receivables as security for repayment of these amounts.

ING Bank NV discloses its quiet lien because its debtor fails to pay and requests a debtor of its debtor to pay ING Bank NV because of its lien.

The debtor's debtor refuses and takes the position that there is no lien on receivables in favor of ING Bank NV.

The reason would be that the pledge deed was not registered with the tax authorities and thus no legally valid pledge was created.

As an argument, the debtor argues that the registration was recorded on the Chamber of Commerce extract hung behind the deed and not on the deed itself.

The court goes along with this. This is because the Registration Act 1970 and the Registration Act 1970 Implementation Regulations stipulate - very briefly - that the registration must be placed on the deed itself. That has not been done here. The statement was put on the extract from the Chamber of Commerce.

As a result, while it is established that something has been registered, it cannot be determined what exactly has been registered, let alone the private deed from which the lien would follow. Moreover, the method of registration is not in line with the content of the Implementation Regulations.

ING Bank NV therefore has no lien, according to the court, and the debtor's debtor does not have to pay ING Bank NV.

It is therefore questionable whether the ING Bank NV lender will see any return on the amount it lent. This depends, among other things, on whether ING Bank NV has any other collateral.

Conclusion

It follows from this article and the Amsterdam court ruling that not only is it important that you stipulate the right collateral, but also that the collateral is properly established.

Indeed, without collateral or if collateral is not properly established, there is a very good chance that you will not see any of your money back.