In its judgment Rabobank/Reuser of 3 June 2016, the highest court of justice in the Netherlands (Hoge Raad or Supreme Court) ruled that:
- the purchaser of goods delivered subject to retention of title may establish a valid pledge on his conditional property right
- payment to the seller may cause this conditional property right to evolve into full ownership rights on such goods after the purchaser's bankruptcy
- as a result of payment to the seller, the pledgee (rather than the receiver) is entitled to the goods because a valid pledge was established on the goods concerned.
Until now, it was assumed that a valid pledge could no longer be established on account of the pledgor having lost his power to dispose of his property and because the goods formed part of the insolvent estate.
Rabobank had established a pledge on goods delivered to Kwekerij (Revadap) subject to retention of title. At some point the compulsory winding-up of Revadap was ordered. Rabobank settled the claim of the supplier that had delivered the goods subject to retention of title after the court had ordered the compulsory winding-up. As a result of payment to the supplier, the retention of title lapsed and Revadap became the owner of the goods.
After the goods had been sold, the receiver subsequently claimed the proceeds. According to the receiver, Revadap had lost its power to dispose of its property on account of its insolvency, and the goods that had initially been delivered subject to retention of title could no longer be validly pledged to Rabobank following payment of the purchase price by Rabobank. The receiver therefore claimed that the goods formed part of the insolvent estate.
Rabobank argued that a valid pledge had been established on the goods. According to Rabobank, Revadap was the owner of the goods delivered subject to retention of title on the condition precedent that the purchase price would be settled. Rabobank claimed that a valid pledge could be established on this conditional property right despite the insolvency of Revadap. By settling the supplier's claim, Rabobank obtained a pledge on such goods. Allegedly, Revadap's loss of power to dispose of its property was not an impediment as all acts of transfer were performed before the court order.
The Supreme Court ruled in favour of Rabobank.
This ruling is very favourable for pledgees (i.e. banks). By settling the claim of a supplier who delivered subject to retention of title they can obtain a valid pledge on the full ownership of the goods concerned. Obviously, this will only be an attractive option for pledgees if the expected proceeds of the sale are higher than the supplier's claim, which must be settled first.
Receivers are less happy with the ruling of the Supreme Court; for once the purchase price is paid, goods delivered subject to retention of title no longer form part of the insolvent estate.
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