International rolling stock financing in Netherlands

Under Dutch law there are two types of pledge (pandrecht) that can be granted over movable assets (roerende zaken) located in the Netherlands, including rolling stock:

• a non-possessory right of pledge (bezitloos pandrecht) 
• a possessory right of pledge (vuistpand).    

Under Dutch law, it is not possible to grant security over movable assets by transferring the ownership of the assets (fiduciaverbod).

A non-possessory pledge over rolling stock is created by way of a private deed (onderhandse akte) which is registered with the Dutch tax authorities or by way of a notarial deed (notariële akte).

Registration of the private deed with the Dutch tax authorities must be completed as soon as possible as the registration is required for the creation and validity of a non-possessory pledge. This registration is free of charge. Most commonly, the private deed of pledge will require the pledgor to promptly submit to the pledgee evidence of the filing of the deed with the Dutch tax authorities for registration purposes and evidence of the registration (being a date stamped copy of the deed). 
If a non-possessory pledge is created by way of a notarial deed, no registration formalities apply. 

A possessory pledge is created by bringing the rolling stock into the (physical) possession of the pledgee. This type of pledge does not formally require a deed and terminates automatically as soon as the pledgor regains possession over the collateral asset. This type of security is not commonly used in the context of rolling stock financing.

If the rolling stock is in the physical possession of a third party, the deed of pledge will provide for an obligation of the pledgor to notify such third party by way of a formal notice to be subsequently countersigned by that third party. In such notice (or other contractual arrangement) the third party will confirm that it holds the collateral for and on behalf of the pledgee. It should be considered on a case-by-case basis if the third party is required to waive its rights of retention (or similar rights) which it may exercise with respect to the collateral.

Under Dutch law, there are two types of pledge that can be granted over receivables, including leasing receivables:

• a disclosed right of pledge (openbaar pandrecht) 
• an undisclosed right of pledge (stil pandrecht).

A disclosed right of pledge over receivables is created by way of a private deed (onderhandse akte) together with a notice of the right of pledge to the debtor(s) of the pledged receivables. A disclosed right of pledge may be directly enforced against the debtor.

An undisclosed right of pledge over receivables is created by way of a private deed which is registered with the Dutch tax authorities or by way of a notarial deed (notariële akte). No notification of the right of pledge is made to the debtor(s) of the pledged receivables. An undisclosed pledge over receivables may only be enforced against the debtor(s) of the pledged receivable after it has been notified to such debtor. 

Under Dutch law, it is not possible to grant security over receivables by transferring the ownership of the receivables (fiduciaverbod).

Under Dutch law, a non-assignment clause may have effect under the law of obligations (verbintenisrechtelijk effect), or may have proprietary effect (goederenrechtelijk effect). A non-assignment clause which only (contractually) prohibits a party from assigning its rights will, if breached, generally result in a breach of contract but will not affect the assignee’s or pledgee’s rights. In this case the rights subjected to such clause can still be transferred or pledged. For a non-assignment clause to have proprietary effect, the non-assignment clause would need to expressly state that the claim itself cannot be transferred.

On 29 May 2020 legislation was submitted to the Dutch parliament which aims to limit the use of non-assignment clauses. The legislation is not yet in force and effect.

Yes, pursuant to a so-called “omnibus pledge agreement”. Pursuant to such agreement, (future) receivables can be pledged on a disclosed and undisclosed basis. However, there are certain limitations with respect to pledging future assets.

Future assets include receivables that do not yet exist and receivables that exist but are not yet owned by the pledgor. A right of pledge over receivables is not perfected until the pledgor becomes the owner of the pledged receivable (and has not lost its power of disposal of the receivable at that time as a result of, for example, bankruptcy).

An undisclosed pledge over future receivables can only be created over existing receivables and receivables that arise directly out of a legal relationship that exists at the time the security is created. In view of the above, it is common practice to provide in the deed of pledge that the pledgor and the pledgee will periodically enter into an additional, so-called supplemental deed of pledge to pledge the receivables which did not exist at the time of the creation of the undisclosed pledge, or did not directly arise from a legal relationship that existed at the time the undisclosed pledge was created. The deed of pledge will generally provide for the formalities required for the signing and registration of each additional deed of pledge of receivables. This may include the grant of the required power(s) of attorney. The formalities to be followed in the case of a supplemental deed of pledge are the same as for the original deed of pledge: the deed must either be registered with the Dutch tax authorities or be executed in the form of a notarial deed. No notification of this additional deed is made to the debtor of the pledged receivables. Should the rolling stock financing be provided by a Dutch bank, it is likely that the pledgor has granted to such bank a power of attorney to grant that bank (on the pledgor’s behalf) a right of pledge on all receivables that exist on any day. By entering into a so-called collective supplemental deed of pledge on a daily basis, Dutch banks ensure to be granted valid security over all existing receivables.

A similar limitation does not apply to a disclosed right of pledge over future receivables. However, a disclosed right of pledge may not be created easily in practice as pledgors will not generally be willing to notify large numbers of debtors and will prefer not to make them aware of the pledge through notification. But in the context of Dutch rolling stock financing, a disclosed pledge may well be the preferred form of pledge over receivables as the number of debtors is often limited.

Under Dutch law, a pledge would be available as security.

A right of pledge over registered shares in a Dutch private company with limited liability (besloten vennootschap met beperkte aansprakelijkheid or “B.V.”) or a Dutch public limited company (naamloze vennootschap or “N.V.”) is created by way of a notarial deed between the pledgor, pledgee and the company in the capital of which the shares are being pledged. 

The deed of pledge will generally also be granted over the rights that are related to the shares, for example, the rights to receive dividends or distributions and voting rights. 

Should the articles of association of the company whose shares are to be pledged prohibit the granting of a right of pledge over its shares, or certain other elements of the right of pledge over the shares, then such articles of association must be amended prior to the creation of the pledge over the shares. 

The deed of pledge will often only permit the pledgee to exercise voting rights subject to the occurrence of certain conditions (such as the occurrence of an event of default). The (conditional) transfer of voting rights must in certain cases be approved by a general meeting of the company whose shares are pledged. 

The deed of pledge will often only permit the pledgee to collect dividends or other distributions subject to the occurrence of certain conditions (such as the occurrence of an event of default).
If the company has a works council, the works council may need to be given an opportunity to advise on the creation of the share pledge and the (conditional) transfer of voting rights to the pledgee. This is unlikely in the case of an SPV financing.

A right of pledge over membership interests in a cooperative (coöperatie), or a right of pledge of partnership interests in a limited partnership (commanditaire vennootschap), is created and perfected either by way of a notarial deed or a private deed. What is required depends on the terms and conditions of the relevant entity’s constitutional documents and on what has been agreed between the members or the partners. In many cases the cooperative and the partnership are notified of the pledge by being a party to the deed of pledge. 

Pledges on other types of shares (such as bearer shares and shares included in a clearing system) are relatively rare and therefore also less relevant in the context of rolling stock financing

The deed of share pledge will provide for the terms and conditions upon which the pledgee will be entitled to enforce the security rights, as for instance following the occurrence of an event of default under the financing arrangements. 

A Dutch share pledge can be enforced by means of:

• a public sale, which requires a bailiff/notary to sell the shares publicly; typically, sale by public auction takes a long time to conclude and requires the involvement of the Dutch court to determine the most appropriate method of sale – hence this option is not commonly used
• a private sale, either to:
  • a third party, with the consent of the pledgor (i.e. where the pledgor agrees with the pledgee that the sale will be effectuated in the form of a pre-packed deal)
  • a third party, upon having obtained prior approval to do so from the court, or 
  • the pledgee, in the amount to be determined by the court.   

With respect to the second and third categories above, the court will allow potential purchasers to submit bids and will assess whether the proposed purchaser could deliver the purchase price and if it is the highest bid available. Once approved by the court, the shares can be transferred by way of notarial deed.

The proceeds from the sale of the collateral shares will be applied towards discharge of the secured obligations under the finance documents.

Under Dutch international private law, the lex rei sitae determines the law governing the transfer of ownership of rolling stock and determines the law governing the creation of security over the rolling stock.

Further, under Dutch international private law, an exception to the applicability of the lex rei sitae is provided for goods that are in transit or on transport: in case the rolling stock is situated in a transit country, the law of the country of destination (lex destinationis) applies to the transfer of ownership of rolling stock and applies to the creation of security over the rolling stock.

Validly created foreign law security rights over rolling stock (at the time of creation of the security rights located outside the Netherlands) are in principle recognised in the Netherlands (conflit mobile), unless the enforcement of such foreign law security right (at the time the rolling stock is located in the Netherlands) is incompatible with Dutch law.

The legal basis for the principle of recognition of foreign security rights is the so-called “assimilation” theory. This means that a foreign security right is not formally “transformed” into a corresponding Dutch law security right but that it is “assimilated”. The foreign security right will then be considered to operate as the most closely corresponding Dutch law security right. This also means that, as far as the contents and the scope of the foreign security right is concerned, that security right remains formally governed by the jurisdiction under which it was created. 

The process of assimilation implies that certain discrepancies could arise between the legal effects of a non-Dutch law-governed security right over rolling stock as soon as the rolling stock crosses the Dutch border.

Dutch case law has refined the concept of assimilation and has confirmed a positive approach to a broad recognition of foreign security rights over goods: the relevant security right does not need  to be fully equivalent to the corresponding Dutch law security right but, in a specific case, substantially equal in content and legal effect.  

Depending on the characteristics of the non-Dutch law security right in question, for the purposes of assimilation under Dutch law, it may be assumed that key characteristics such as, for example, the right to invoke the security right against third parties and the registration requirement, may be taken into account. However, each recognition scenario must be assessed on a case-by-case basis, depending on the precise characteristics of the non-Dutch law security right in question and circumstances of the case.

In order to determine whether assimilation into a form of Dutch law security is possible, a comparison with the form and the legal effects of the most closely corresponding lawful security right under Dutch law needs to be made. 

In the case of non-Dutch law security rights which are not evidenced by any kind of public act (registration etc.), recognition of that particular security right under Dutch international private law will depend on whether that security may be lawfully assimilated, and taking into account that under Dutch law, the transfer of ownership for the purpose of creating a security right is not allowed (fiduciaverbod). 

We note that applying the Dutch international private law assimilation criteria to any particular case of a non-possessory non-Dutch law-governed security right which is not evidenced by any kind of public act (registration etc.) could lead to the conclusion that certain non-possessory non-Dutch law security rights which are not evidenced by any kind of public act (registration etc.) will be recognised and others will not.

Under Dutch international private law, the law that governs the receivable (vordering op naam) determines if the receivable can be pledged (or transferred), and the law applicable to the creation of the security right (or transfer) determines the proprietary effects of the security right.

The law governing the security right determines the legal requirements applicable to the creation of the security right (or transfer); it determines who will be entitled to exercise the rights attached to the pledged receivable, (the scope of) the rights which may encumber the pledge receivable, how such rights rank and how they are to be amended, transferred or terminated.

Validly created foreign law security rights over Dutch law-governed receivables are in principle recognised in the Netherlands (conflit mobile), unless the enforcement of such right is incompatible with Dutch law.

In the case of non-Dutch law security over Dutch law receivables, Dutch law will determine whether the type, form and legal effects of the non-Dutch law security sufficiently justifies assimilation and recognition of the security right in the Netherlands. 

In particular, the non-Dutch law security over Dutch law-governed receivables will need to match the legal effects of the characteristics of either a Dutch law disclosed right of pledge over receivables or an undisclosed right of pledge over receivables described above. 

If and when such non-Dutch law security over receivables complies under the conflit mobile rule and is thus recognised under Dutch law, then the legal effects of such security will be the same as if it were a Dutch law disclosed right of pledge over receivables or a Dutch law undisclosed right of pledge over receivables as further described above. This means that it will then be enforceable against the assignor and against third parties (including the insolvency administrator of the assignor).

Assuming that the management agreement between the borrower and the fleet manager is governed by Dutch law, one would not expect to see an assignment of the lease receivables from the manager to the borrower under the management agreement. Under such management agreement the borrower grants to the manager the right to act on its behalf. The borrower will thus remain owner of the lease receivables and lessor. The management agreement will therefore not provide for any assignment of the lease receivables but will provide for the contractual terms and conditions for the fleet manager to act on the borrower’s behalf.

Yes. However, rather than an on-assignment, we would expect a pledge of the lease receivables in favour of the finance parties/security trustee. However, as described above, certain limitations apply with respect to pledging lease receivables.

The leases are typically entered into by the borrower/owner as lessor and not by the manager on behalf of the borrower/owner. In the event of an insolvency of the manager, the borrower/owner will still be able to collect the payments and replace the manager.

The lender will require a right of pledge over the lease receivables and the rent collection account. However, as described above, certain limitations apply with respect to pledging lease receivables.