Room for funding!

This time again on the retention of title. I did so before (AM 3, 2015). Back then, it was about how retention of title must be stipulated by the supplier to ensure that it actually holds up when the chips are down. This time it's about how retention of title can affect the buyer's ability to finance its business.

In fact, there is news. On June 3 of this year, the Supreme Court handed down a landmark judgment on the answer to the question of whether a buyer of goods delivered under retention of title can establish a valid lien that, upon fulfillment of the condition (payment of the full purchase price), grows into a lien on full ownership, even if the buyer's bankruptcy is declared before the fulfillment of that condition. For the enthusiasts among you, I provide here the finding place of the judgment called Rabobank/Reuser: ECLI:NL:HR:2016:1046.

The point is that previously it was assumed that if the purchase price of an asset had not been paid in full at the time the bankruptcy was declared, a valid lien could no longer arise. This is because, as a result of the declared bankruptcy, the buyer is no longer authorized to dispose of his company's assets. The latter is a condition for transferring an asset, but also for establishing a lien on it, for example. The judgment of June 3, 2016 teaches us that - I am now going to be dogmatically very brief - despite the fact that the buyer, due to not having paid the purchase price yet, only has a conditional right of ownership to the purchased property, can still establish an unconditional lien thereon. The pledgee (the bank) can, by payment of the purchase price, effect that property is subject to the pledge.

So what does that mean in practice?

With this ruling, the asset-based fundability of companies is increased. After all, despite the acquisition of an item subject to retention of title, this can immediately be legally and bankruptcy-proof pledged to obtain credit. However, a comment is in order: if it concerns raw materials that are processed after acquisition (under retention of title), a new item is created and the retained ownership is lost. The judgment that is the subject of this column relates specifically to merchandise that is resold without first undergoing processing.