Dutch Supreme Court confirms possibility to change the priority of rights of pledge (without releasing them)

On 9 April 2021, the Dutch Supreme Court has confirmed the possibility to change the priority of rights of pledge (pandrechten) in deviation of the prior tempore rule. A change to the priority of rights of mortgage (hypotheekrechten) (in relation to earlier vested rights of mortgage or rights in rem) is explicitly stated in the Dutch Civil Code and is therefore without doubt possible. In relation to rights of pledge such change to the priority was not stated in the Dutch Civil Code and therefore it was previously not clear as to whether such change would be enforceable. With this judgement, this uncertainty has come to an end.

According to the judgement, it is possible to establish that a right of pledge (pandrecht) in relation to one or more other rights of pledge on the same asset has a higher ranking than the ranking it would have based on the time of creation, provided that the deed (akte) concerning the change in priority (or more separate deeds which are to be read in conjunction) demonstrates that the pledgees which are subordinated in priority have consented to such subordination. The consent of these pledgees needs to comply with the same formalities as those that apply to the creation of the relevant right of pledge. A change in priority of a right of pledge can take place on the occasion of the creation of a new right of pledge – whereby the deed concerning the change in priority can be included in the deed of pledge concerning this new right of pledge – but also subsequently.

The change in priority can only be invoked against persons who’s legal position with respect to the asset is affected by the change in priority, such as pledgees who’s ranking are not subordinated by the relevant change in priority, other owners of a right in rem and persons levying an attachment, if such persons consent to the change in priority. Such consent can be given at any point in time without formal requirements.

The possibility to change the priority of rights of pledge tallies with the needs in practice and are in particular relevant in relation to the multiple pledging of future receivables.
Should you have any questions in relation to changing the priority of rights of pledge or any of the other subjects dealt with in this recent judgement, please contact Jason van de Pol.