What is it about again?
When SMEs request financing from a bank, the latter requires collateral for this purpose. This can be a mortgage on the business premises, but also the transfer (pledge) of the company's inventory, stocks and debtors. However, many, especially large, companies have a so-called pledge prohibition in their purchase conditions. This prohibits the transfer of the SME's claim against its buyer. Large companies do this to avoid being faced with a new creditor as well as to avoid it being unclear to whom payments can be made in discharge.
Clauses null and void
Freedom of contract is one of the pillars of our economy, yet it seems the government is going to put a stop to this provision. The reason for this is FAAN's estimate that lifting the pledge ban could make up to €1 billion of additional funding available to SMEs. This is because receivables subject to the pledge ban cannot now be used to raise funding. On top of this, a number of other European countries, including Germany, Austria and the UK, have already limited or completely abolished the possibility of prohibiting the assignment of receivables at arm's length. If the proposal is adopted, any clause prohibiting pledging of receivables between companies will be "null and void".
Not a done deal
It is not a done deal yet, the proposal will not just pass through the Lower House. VVD, CDA and D66 seem likely to vote in favour, and the CU also seems to go along. On the other hand, a party like the SP does have clear objections. It already felt during the discussion of the bill that led to the Homologation Private Agreement Act (WHOA) that the position of banks in bankruptcy situations is too strong. The SP also felt that adoption of this bill could lead to undesirable enlargement of the creditor economy (sic).
Fingers crossed
From our practice, I can only hope that the proposal becomes law soon. Too often, we see SMEs unable to finance themselves optimally because one or more of their larger clients have such a pledge ban in place. Bankers too see it as a nuisance and nonsensical ban that limits their options. Because the bill provides that assignment of a claim must be made known in writing before it takes effect, the legislature is meeting a key argument of the parties who use the pledge ban. Therefore, let us hope that our society does not face a serious social disruption in the near future that could again suspend consideration of this bill. Fingers crossed we would say.
