SECURITISATIONS IN THE NETHERLANDS
The Netherlands have a traditionally strong residential mortgage loan securitisation market. The total amount outstanding of Dutch securitisations in 2020 was EUR 40.6 billion. In total EUR 5.9 billion of securitisations was sold to investors in 2020 via Dutch special purpose vehicles: EUR 2.8 billion are residential mortgages, EUR 1.4 billion buy-to-let mortgages and EUR 1.6 billion other securitisations. The total amount outstanding of securitisations of buy-tolet mortgages has doubled to EUR 3.3 billion in 2020. This reflects the growth of the private rental market and the interest of international investors in the Dutch housing market.
1. Funding
A securitisation transaction’s funding can be structured in several ways. The Special Purpose Vehicle (SPV) needs funding to purchase the receivables or assets, either through debt, equity or a combination of both, with the issuance of notes being the mostly used. The SPV issues (different tranches of) notes to mainly professional investors. The SPV will receive the notes’ face value, which the SPV then uses to purchase the receivables, thereby fulfilling its obligations (principal and interest payments) as laid down in the note documentation.
2. Parties
An original lender is the party which – directly or indirectly – concluded the original securitisation agreement. In general, this original lender will be the contractual counterparty and the loan obligors’ point of contact. Before the transfer to the SPV, the loans’ obligations are owed to the lender of record.
The originator is either the entity that was ‘involved’ in the original agreement or the entity that purchases a third party’s exposure (most likely the original lender’s) on its own account and then securitises them. The definition of originator is therefore broader than that of an original lender.
The SPV is set up for the acquirement of a portfolio of assets, obtaining financing for their acquisition and enter into agreements for this financing and acquisition. To ensure that the SPV’s assets aren`t seen as assets of the originator, the SPV is a stand-alone company without connections to the originator’s group. Most Dutch SPV’s are set up as a private limited liability company. To establish its independence, a licensed trust company – pursuant to the Dutch Trust Companies Act – will be appointed as the SPV’s director. The SPV is made bankruptcy remote by different measures to mitigate this risk.
The sponsor is either a credit institution or an investment firm other than the originator. As such, the sponsor establishes and manages a securitisation that purchases exposures from third-party entities. The sponsor can also – after establishing a securitisation that purchases exposures from third-party entities – delegates the day-to-day active portfolio management to an entity authorised to do so.
The servicer fulfils all kind of administration and payment collection services, such as collecting principal and interest payments from loan obligors, distributing payments and administrating the loan portfolio. Often, the original lender is appointed as servicer, but it can also be done by a third party specialised in servicing. The services often include primary, special and master servicing.
The investors in a securitisation transaction are the noteholders in case of a note issue or, in the case of a fund structure, the participants. The investors carry the asset pool’s risk (but not the risk retention part) and are often (institutional) financial institutions.
The security agent preserves the rights of investors and acts as their representative. Typically, a Dutch foundation acts as a security agent. Such a foundation has limited purpose, is set up as bankruptcy remote entity and often managed by an independent trust company licenced under the Dutch Trust Companies Supervision Act.
In securitisation transactions, a collection foundation – often managed by the servicer – can be appointed. Under Dutch law this is often a foundation, tasked with performing all payment collection and disbursements services through separate accounts, so the transaction’s cash flows can be easily distinguished from the servicer’s cash flows.
And finally, other parties which can be involved in a transaction include among others calculation agents, swap counterparties, liquidity providers or asset managers.
3. Assets
While a great variety of assets can be securitized, the vast majority of financial transactions involve the financing of residential, commercial or buy-to-let mortgage loans. But assets can also include among others corporate loans, acquisition finance, car loans or credit cards. Assets can be distinguished by their type but also by their quality. And while most assets are performing, there is a market for securitisations of non-performing loans (NPL’s).
4. Transfer of loans
A securitisation’s key object is to separate the portfolio of receivables from the originator’s assets and transfer them to the SPV. The most commonly used method is through a true sale. After the transfer the SPV will be the receivables’ beneficiary and it’s entitled to all cash flows coming from those receivables. In a true sale transaction, the transfer’s validity should be certain (no clawback provision) so future repayment claims due to an invalid transfer can be avoided.
This asset separation and legal transfer is usually realised through assignment. The assigned asset pool serves as a security for the investors for the investment’s repayment, making the assignment the central legal figure in a securitisation.
Dutch law distinguishes transfers of receivables resulting from loans by way of assignment (article 3:94 of the Dutch Civil Code; DCC) and those by way of contract transfer (article 6:159 DCC). In other words, on the one hand one sees transactions where the originator wants to part from the client leading to a new lender of record; on the other hand, there are transactions where the originator realises the receivables’ value resulting from the loan but remains the lender of record.
4.1 Assignment
Under Dutch law, assignments are either disclosed or undisclosed. In case of transfer through disclosed assignment, the receivables are transferred by notifying the loan obligors of the transfer. If the assignment is undisclosed the SPV becomes entitled to the receivables. There’s no notification requirement towards the loan obligors, but the undisclosed deed of assignment must be included in a notarial deed or registered at the Dutch tax authorities. Transactions including consumer receivables are often done by undisclosed assignment for commercial reasons and – except in certain (default) events – no notification will be given. As long as that is the case, payments under the receivables are made to the original lender (lender of record). The consequence of assignment is that the lender of record and the beneficiary of the receivables are no longer the same person.
Transfers only aimed at providing security are void because of a lack of valid title on the basis of article 3:84(3) DCC. The general opinion is that as long as parties intend to accomplish a true sale of the receivables and the SPV receives full title to them – and not just a security interest – the transfer will be valid.
Another important aspect for Dutch securitisation transactions is to be certain that there are no contractual transfer prohibitions. If they do exist, the transfer’s validity depends on the contract’s wording. If they imply proprietary effect, the assignment becomes invalid.
4.2 Transfer of Contract
Contract-based transfers transfer the loans with all associated rights and obligations to the SPV which will subsequently be the lender of record; in case of assignment the transferor stays the lender of record and the transferee only obtains the receivables, including the (ancillary) rights and obligations attached to them (articles 6:142 and 6:144 DCC).
A transfer of contract can only happen with the loan obligors` cooperation. Since there`s no guarantee one will get all loan obligors` commitment to cooperate in advance, it`s common practice that the relevant receivables are also assigned by disclosed assignment as a safety precaution.
4.3 Merger and Demerger
Next to transfers of contract, parties can choose for a merger and demerger. The transferor engages in a demerger, creating a separate, demerged entity, containing the contracts and portfolio that will be transferred; assets not be transferred remain in the original entity. The new demerged entity will then immediately merge with the transferee (for example the SPV) or the transferee will immediately purchase the shares. And while neither the loan obligors` consent nor their notification is required, demergers must be announced and creditors may object to them.
4.4 Ancillary Rights
Rights attached to the receivables that are key for their exercise and collection and that determine their substance and existence (e.g. granting final discharge and making repayment arrangements) accrue to the party entitled to the receivables; they are therefore transferred to the assignee as an ancillary right upon assignment of the receivable.
In general, loan obligors shouldn`t become aware of the assignment and the lender of record is not concerned – apart from realising the loans – with completely severing customer relations. By transferring the loan’s receivables through undisclosed assignment, the acquiring party (the SPV) becomes entitled to them, while no notification is required. However this has the consequence that the lender of record and the receivables` beneficiary are no longer the same persons.
Making the distinction between those rights and obligations that are transferred to the acquiring party and those which remain with the lender of record is not always clear-cut. But experience shows that investors are particularly interested in the receivables` return and less keen on unforeseen costs during the lifetime of his/ her investment.
The lender of record on the other hand must protect the loan obligors` interests on the basis of its own (contractual/legal) duty of care. Therefore the lender of record wants to avoid the situation where, on the one hand, it has a duty of care towards the loan obligors, while on the other hand the investor doesn`t want to cooperate, because this is usually at the expense of his/ her (prognosticated) return. See also Supreme Court 10 July 2020, ECLI:NL:HR:2020:1276; Promontoria-case in paragraph 7.13.
5 Security
5.1 Security Rights
In a securitisation the SPV becomes entitled to the receivables and also requires the benefit of any security rights to secure those receivables. If they are transferred, accessory and ancillary rights (such as security rights) follow the receivables by operation of law with the exception of a purely personal right. Therefore, the SPV will have in principle the benefit of the security granted for the receivables. Additional security rights, e.g. a right of pledge on the disbursement account receivables, can be provided in a security transaction to the security trustee on behalf of multiple investors.
Under Dutch law a parallel debt (a separate and independent debt obligation) is created between the SPV and the security agent. This debt is equal to and linked to the SPV’s debt to the investors. This parallel debt of the security agent is secured by the security rights. The security agent must act in accordance with the transaction documents in relation to the enforcement of security rights and the distribution of payments in accordance with the payment’s listed included priority.
In general the SPV provides comprehensive security rights to the security agent under the parallel debt, for example an undisclosed first ranking right of pledge on receivables, bank accounts and any rights under the transaction documents.
5.2 Bank Mortgage
Bank mortgages are frequently included in Dutch loans with a bank as lender. Often, they exceed the provided loan and cover all payable amounts that might exist between the borrower and the bank. In case of assignment of a receivable secured by a bank mortgage, it’s uncertain whether the rights of the bank mortgage follow the receivable. Bank mortgages – being a specific type of security – don`t automatically follow the receivable but depend on the parties` intention. The bank mortgage right might be partially transferred and held by both the SPV and the original lender. Under Dutch law this constitutes a joint estate on which the Dutch rules pertaining to joint estates should be taken into account.
6 Regulatory aspects
6.1 Securitisation Regulation
In the European Union securitisations are regulated by the Securitisation Regulation (2017/2402/EU). They can be regarded as fully European when its originator, sponsor and SPV are established in the EU. If that`s the case and they meet the criteria of ‘simplicity, standardisation and transparency’, securitisations can be qualified as STS-securitisations. This STS-label ensures preferential capital treatment for banks and certain investment firms.
6.2 Offering of Credit
Article 2:60 of the Financial Supervision Act (FSA) forbids to offer (mortgage and consumer) credit without a Netherlands Authority for the Financial Markets (AFM) licence. This ‘offer of credit’ is a broad concept. For example, it includes the option of having a proposal to acquire a professional business to “act as counterparty” in a consumer contract; it also includes managing and administering such a contract in the pursuit of a professional practice or business. This broad definition means that a party holding or obtaining the receivables under a credit agreement qualifies as credit provider who must have – in principle – a licence. But if a credit manager handles the receivables after the transfer, the Exemptions Regulation comes into play, defining this person as a (licensed) credit provider or credit intermediary. Often, the lender of record is the credit manager, but he/ she could also be a third party servicer.
6.3 Credit Intermediation
Article 2:80(1) FSA prohibits to intermediate in credit without an AFM licence. This prohibition goes a long way, since it includes all commercial activities for ‘concluding’, amongst others, loan agreements between consumers and providers. In principle, servicers in securitisations or other whole loan sale transactions must act within the scope and licence requirement for credit intermediation.
6.4 Ban on commission
Article 4:25a(2) FSA and article 86c of the Market Conduct Supervision Financial Institutions Decree ban commissions in respect of mortgage loans. This means consumers must pay the servicer (as credit intermediary) directly. Since 2020 – as a consequence of the amended the Exemption Regulation – credit managers are exempted from this ban on commission.
6.5 Single-track Interest Rate Policy
Based on the single track interest rate policy-rule, a consumer mortgage loans provider must apply the same interest rate for the same fixed-interest period to new and existing loan obligors with similar risk profiles. The consumer’s risk profile depends primarily on the loan to value (LTV), loan to income (LTI), and whether the National Mortgage Guarantee covers the mortgage. On the other hand, regional differences are allowed to exist and discount campaigns are possible. The lender of record is therefore not allowed to apply different interest rates to loan obligors based on the underlying investors.
6.6 Credit granting
If the underlying assets of the securitisations are mortgages, the Mortgage Credit Directive (MCD; 2014/17/EC) applies. The Consumer Credit Directive (CCD; 2008/48/EC) comes into play if the underlying assets are consumer loans. In these cases, it should be noted that if the receivables of consumer loans or the loan contract are transferred, the consumer needs to be informed. That doesn`t mean that this is a constitutive requirement for transfers. And if the original lender continues to manage the credit on behalf of the SPV this notification is not required at all: the original lender remains the consumer’s point of contact.
6.7 GDPR
Data protection rules are relevant in respect to securitisations. Following the assignment of the receivables, the SPV would in principle receive personal data of loan obligors, consequently qualifying as data controller under de General Data Protection Regulation (2016/579/EU; GDPR). As such, the SPV would have to comply with the GDPR obligations, including the requirement to provide information to the data subjects (the loan obligors) in accordance with article 14 GDPR. This notification is at odds with the principle of the undisclosed assignment, whereby the loan obligors aren`t informed of the assignment. To ensure compliance with data protection rules, securitisation transactions often have arrangements in which the SPV receives data tapes without any personal data, circumventing the controller qualification. The loan obligors’ personal data will either by placed in escrow or be encrypted. In the latter case, a trustee holds the data key which can only be released in connection with defaults or enforcement of the portfolio.
6.8 PSD2
If a collection foundation is used in a securitization transaction, the question can arise if this foundation provides payment services and requires a license under the revised Payment Services Directive (2015/2366/EU; PSD2). The general assumption though is that this is not the case if the collection foundation is explicitly designated as the payment address and the loan obligors pay liberating to the collection foundation.
6.9 AIFMD
If the SPV finances the purchase of the receivables with capital raised through the issuance of units (participations rights) instead of notes, it can qualify as an alternative investment fund, regulated by the Alternative Investment Fund Manager Directive (2011/61/EU; AIFMD). That means that – in principle – the fund manager requires a licence. However, for the SPV the fund manager might be exempted for securitisation SPV’s based on article 2(3)(g) AIFMD, if the securitisation meets the set definition. Small scale securitisation – meaning the AUM do not succeed EUR 100 million or EUR 500 million and are unleveraged and closed-end for the first five years – could use of the AIFMD light regime of article 2:66a FSA, if certain conditions are met.
6.10 Prospectus
The Prospectus Regulation (2017/1129/EU) pertains to securitisations that are funded by the issuance of notes as well as to those funded by issuing units (participation rights), provided these qualify as securities. For the issuing of notes and participation rights, a prospectus drawn up in accordance with the Prospectus Regulation is required as well as the AFM`s approval. However, an exception applies if the securities are offered to less than 150 persons, or only to professional investors or when they have a EUR 100,000 countervalue. These exceptions don`t apply if the securities are to be listed on a regulated market.
6.11 MiFID II
Following article 3 of the Securitisation Regulation, sellers of securitisation positions (meaning exposures to a securitisation) can only sell those positions to retail clients if a suitability test has been passed. This test must follow the rules of the revised Markets in Financial Instruments Directive (2014/65/EU; MiFID II)
6.12 EMIR
The European Market Infrastructure Regulation (648/2012/EU; EMIR) contains multiple obligations for parties in an over-the-counter (OTC) derivate contract. Financial counterparties are subject to a clearing obligation through an authorised central counterparty for all eligible OTC derivative contracts. However, a Dutch SPV qualifies as a non-financial counterparty as long as it is not licensed as, for example, an alternative investment fund. If the SPV is a group company with its total gross notional value of the non-hedging OTC derivative exceeding the thresholds, the SPV could nevertheless be subject to the clearing threshold. If the SPV is exposed to the clearing obligation, it would also be required to post margin while different risk mitigation obligations apply as well.
6.13 Case-law Duty of Care
The Promontoria-case (Supreme Court 10 July 2020, ECLI:NL:HR:2020:1276) evolved around the question whether in case of assignment of loan receivables by a bank to a non-bank, the non-bank as assignee has a specific duty of care towards the borrower; and if so, how does that duty of care relate to the public law rules applicable to a bank and the bank’s duty of care? The Supreme Court ruled that the duty of care attached to the legal relationship isn`t part of the assigned receivable and doesn`t accrue to the assignee. However, the non-bank may have its own duty of care, obliging it to handle the borrower the same way as can be expected of a reasonably acting bank.
6.14 Credit Rating
The assets in a securitisation can be subject to credit ratings if parties desire such a rating. Rating the assets leads to obligations deriving from the Credit Rating Agencies Regulation (1060/2009/EC).
6.15 Brexit
Since 1 January 2021 the United Kingdom has its own securitisation regulation next to the EU Securitisation Regulation. While similar, these regimes aren`t identical. So for securitisations including both UK and EU parties, it’s necessary to check compliance with both regulations. For assessing the scope of the securitisation, the scope of both the Securitisation Regulation and the UK securitisation framework need to be taken into account.
7 Developments
7.1 Capital Market Recovery Package
The Capital Market Recovery Package aims to amend certain rules in the EU capital market to support the post-Corona economic recovery. The package also amends the Securitization Regulation (EU 2021/557), including amendment of the retention requirements for NPLsecuritisations. In the case of NPL-securitisations the servicer can also be the retainer, if they can demonstrate their expertise and control systems to service these exposures. Apart from the amendments deriving from the Capital Market Recovery Package, the securitisation framework is subject to a comprehensive review, scheduled for 2022.
7.2 Sustainable Securitisations
On top of the European Commission’s regulations and directives regarding sustainable finance that have already been introduced, more have been announced. And these will also have their impact on the securitisation market. The Capital Market Recovery Package amendments state that by 1 November 2021, the EBA will publish a report on developing a sustainable securitisation framework. In this framework sustainability transparency requirements are integrated in relation to the Sustainable Finance Reporting Directive (2019/2088/EU; SFDR) and the Taxonomy Regulation (2020/852/EU). Also, from 1 June 2021 originators in securitisations may publish information about the main negative impacts on sustainability factors of the assets of the underlying exposures assets. And finally, the introduced proposal for an EU green bond standard (COM(2021)391) could also apply to originators of securitisations which are funded through note issues.
7.3 Tokenisation
A final interesting development is the rise in popularity of cryptocurrency, stable coins and other blockchain based ‘securities’. This phenomenon, described as tokenization, can also impact the securitisation market – in fact, there are already examples of financial institutions using tokens in their transactions.
Tokens are digital securities, stored in an online ledger with strong encryption which could have benefits when compared to more traditional securities.
Unless they qualify for example as ‘units’ as defined in the AIFMD, tokens and cryptocurrency themselves are not yet regulated, but a proposal has been submitted to establish an European framework for markets in crypto assets (COM(2020)593; MiCA). Funding a securitisation through an initial coin offering might well be the future, but not without properly assessing the regulatory framework in advance.
TRANSFER OF LOAN RECEIVABLES AFTER PROMONTORIA
1. Introduction
The Dutch Supreme Court handed down two judgments on 10 July 2020 in which it answered preliminary questions of great importance to the finance practice: one of the issues raised in the preliminary questions is whether the nature of a bank receivable (bank vordering) precludes its transfer by the bank to a non-bank. This question is important, because such receivables are in fact transferred in large numbers on a daily basis. It is reassuring that the Supreme Court answered that question in the negative and found that the nature of a bank receivable does not preclude its transfer by a bank to a non-bank. In the same context, the Supreme Court addresses the important question whether and, if so, to what extent the party that acquires a loan or credit receivable (lening- of kredietvordering) is under any duty of care (zorgplicht).
In this article, we address the preliminary questions, the answers given and their application in practice, and demonstrate that a transfer of receivables by undisclosed assignment, however useful it may be, may give rise to certain conflicting interests that are not always carefully considered when financing arrangements are made. To this end, after providing a brief illustration of the financing arrangements in which this plays a role (Chapter 2) and describing the background of the judgments (Chapter 3), we will discuss the answers given by the Supreme Court (Chapter 4) and will then apply the rules that follow from them to a number of practical examples (Chapter 5).
2. Context: financing arrangements
Loans, or rather the loan receivables which arise under such loans, are frequently sold and transferred by banks to non-banks. This may include the (whole loan) sale of an existing loan portfolio to investment companies[1] or insurers, or to a company specifically incorporated for that purpose, but also, for instance, the transfer of a portfolio of loans or the resulting claims to a special purpose vehicle (SPV) as collateral for bonds/notes (obligaties) or other marketable securities (effecten) to be issued by the bank itself (under a covered bond programme) or by that SPV (as part of a securitisation transaction).
Non-bank lenders also regularly sell loans or the corresponding loan receivables by means of whole loan sales or securitisations.[2] The question whether the nature of a bank receivable precludes its transfer to a non-bank is of little relevance to such transactions. However, the Supreme Court’s findings as to whether or not the duty of care passes to the party acquiring the receivables are also relevant – particularly because the preliminary questions are formulated in general terms and the Supreme Court has formulated its rulings generally – to the situation in which non-banks transfer loans or the corresponding loan receivables, especially when its concerns loans which have been granted to consumers and the non-banks in question are also (similar to banks) subject to supervision and to licensing requirements.[3]
In the transactions described above, a distinction can be made between (1) the transfer of loans (or a portfolio of loans) by means of a transfer of contract (contractovername; Article 6:159 of the Dutch Civil Cide; DCC) and (2) the transfer of the loan receivables arising from those loans by means of assignment (cessie; Article 3:94 DCC).[4] In practice, this distinction could also be described as transactions in which the lender parts with its customer / borrower and transactions in which the lender realises the asset value of the loan receivable but remains the borrower’s contracting party (also referred to in practice and below as the ‘lender of record’). In a transfer of contract, the loan and all related rights and obligations are transferred to the acquiring party, and the acquiring party becomes the lender of record after the transfer of contract, whereas as a result of an assignment the transferring party (the assignor) remains the lender of record and the acquiring party (the assignee) only acquires the loan receivable, including the rights, ancillary rights and obligations attached to that receivable (Articles 6:142 and 6:144 DCC).
In practice, the transfer is disclosed to the borrower only if the lender actually wishes to part with its borrower and to transfer its position in its entirety. Although a transfer of contract is the best way of achieving this, it cannot be said with any certainty beforehand whether the relevant borrowers will cooperate (medewerken) with such transfer (which is required under Article 6:159 DCC) or, if such cooperation is granted beforehand, whether that act will not be annulled or avoided at a later time; for that reason, the relevant receivables are generally also transferred to the acquiring party by way of disclosed assignment, as a safety net precaution.
Outside this situation, as a general rule, lenders do not intend to have the borrower become aware of the transfer of the receivables and do not intend – apart from realising the value of the loans – to sever all customer relations.[5] On transfer of the loan receivables arising from the loan by means of an undisclosed assignment, the assignee becomes the sole owner (rechthebbende) of the receivable, while no disclosure is required.[6] As a consequence, however, the lender of record and the owner of the loan receivables are no longer the same persons or entities.
It is not always entirely clear-cut which rights and obligations pass to the acquiror and which rights and obligations remain with the lender of record. Experience has shown that an investor has a particular interest in the return on the loan (i.e., the projected cashflows) and does not wish to be faced with unforeseen costs / obligations during the term of the investment. The lender of record, on the other hand, must consider the borrower’s interests on the grounds of its own (contractual or public-law) duty of care. The lender of record does not want to face the dilemma of being bound in relation to the borrower to observe a certain duty of care while the investor is unwilling to cooperate, since that is usually detrimental to its (projected) returns. The Supreme Court in particular answered the question which rights and obligations pass to the acquiror and whether the acquiror is under a duty of care of its own. The judgments do not expressly answer the question of which rights and obligations remain with the lender of record and whether the borrower may still have claims against the lender of record in that regard – and, if so, whether the lender of record can (in turn) recover such claims from the acquiror.
3. Background of the judgments
Briefly summarised, the background of both judgments amounts to the following.
Dutch bank Van Lanschot sold a portfolio of commercial property loans to Promontoria in 2015.[7] Promontoria was a company incorporated for that purpose without employees that, unlike Van Lanschot, does not have a banking licence. Promontoria outsourced the administering and servicing of the property loans to servicer Link Asset Services.
The portfolio also included the loans granted by Van Lanschot to Alegre and Immobile. At some point in time, Promontoria terminated (heeft opgezegd) and accelerated (opgeëist) these loans on the grounds of default on the part of Alegre and Immobile. The transfer of contract and the assignment of the loan agreements and the corresponding loan receivables asserted by Van Lanschot and Promontoria, were disputed in the cases in question. Promontoria argued that the loans (and the corresponding loan receivables) had been transferred as a result of a transfer of contract or an undisclosed assignment. Immobile disputed that any transfer of contract occurred, arguing that it had not cooperated by giving its prior consent. Alegre attempted to annul the transfer of contract by relying on error. Both borrowers also disputed the assignment of the loan receivables. In both cases, the Amsterdam Court considered it advisable, if indeed no transfer of contract had taken place, to address the question whether Promontoria could successfully rely on assignment of the loan receivables and in that context submitted four preliminary questions to the Supreme Court.
4. Answers to preliminary questions
4.1 Transferability of the bank’s right of claim
The first preliminary question is whether the nature of a bank receivable against its customer precludes transfer of that receivable by a bank to a non-bank and whether that receivable is therefore non-transferable within the meaning of Article 3:83(1) DCC. After all, the main rule under Dutch law is that a receivable is transferable unless the law or the nature of the receivable opposes such transfer (or the parties have contractually excluded that transferability).
As briefly summarised above, the Supreme Court answered that first question in the negative. It found in that regard, rather systematically, that:
- the substance of the performance by which the customer is bound under a loan agreement with a bank (namely payment to the bank of the borrowed sum of money plus interest) does not change as a result of transfer of the receivable by the bank to a non-bank and, in this respect, the nature of that receivable therefore does not preclude its transfer to a non-bank (paragraph 2.6.2 of the judgment);
- the bank’s rights and powers under that loan agreement are not such that they can be exercised only by a bank (paragraph 2.6.3, first section, of the judgment);[8] and
- the obligations of the non-bank towards the borrower (either a business customer or a consumer), including any duties of care, do not differ from the bank’s (corresponding) obligations to such an extent that the receivable can be exercised only by a bank (paragraph 2.6.2, second and third sections, of the judgment).
According to the Supreme Court, it is irrelevant in this regard whether the borrower is a consumer or a business customer, to what extent the loan was fully satisfied before the transfer, and whether the banking relationship has already been terminated (third preliminary question).[9]
The Supreme Court added that the possibility of the non-bank actually exercising the rights and powers derived from the receivable transferred to it in a different manner than the bank does not mean that an exception from the principle set out in Article 3:83(1) DCC that receivables are transferable must be accepted.
This ruling is the most desirable outcome for the financing practice and, in our opinion, also the only substantively correct outcome.
4.2 Duty of care and legal effect of assignment
The second preliminary question concerns the legal effects of the assignment, in particular whether the non-bank as an assignee is under any duty of care towards the borrower and, if so, how that duty of care relates to the public-law rules that apply to banks and the duty of care incumbent on a bank.
The Supreme Court specifically referred in this regard to the following duties of care of a bank towards its customers:
- a bank’s duty of care to its customers set out in Article 2 of the General Banking Conditions by which the loan agreement is (usually) governed;
- the obligations and duties of care that may arise from various statutory provisions by which the loan agreement is governed, such as Article 6:248(1) DCC and (in the case of a customer-service provider relationship) Article 7:401 DCC;
- the special duties of care arising from the social function of banks (such as advisory, information and warning duties), whose content and scope also depend on the circumstances of the case, the complexity of the product, and the associated risks; and
- if the customer is a consumer, the rules of conduct and standards of Part 4 of the Wet op het financieel toezicht (Financial Supervision Act) that apply to the bank as a financial service provider (within the meaning of Article 1:1 of the Financial Supervision Act).
First and foremost, the assignment does not change the assigned receivable, and the loan receivable therefore passes to the non-bank in the same ‘form’ as at the bank, including the rights and ancillary rights (Article 6:142 DCC) and the obligations (Article 6:144 DCC) attached to that receivable. Unlike in the case of a transfer of contract, however, the loan agreement and the resulting entire legal relationship between the bank and the customer do not pass to the non-bank in the case of an assignment of the receivable. The duties of care attached to that legal relationship (referred to in (a) to (c) above) as such do not form part of the assigned receivable and therefore do not pass to the assignee.
But this does not mean that the assignee is not under any duty of care or that the bank’s duty of care cannot in any way affect that assignee’s rights and obligations. The Supreme Court addressed the following interrelated rules that, in its opinion, can achieve the same result by different routes, where applicable:
- It is possible that a bank’s duty of care towards its customers may determine the content of its receivable, thus imposing restrictions on that receivable. Those same restrictions also apply to the non-bank after an assignment.
- Under Article 6:145 DCC, the borrower may furthermore invoke the same defences against the assignee that it would also have against the assignor.
- After assignment of a receivable to a non-bank, the legal relationship between that non-bank and the borrower is governed by the general Dutch law rules of reasonableness and fairness under Article 6:2 DCC. In determining what the rules of reasonableness and fairness require of the non-bank, all the circumstances of the case must be taken into account. One relevant circumstance is that the assigned receivable originates from a bank: the non-bank may reasonably be required to base its conduct partly on the borrower’s legitimate interests. This may mean that the non-bank has a duty of care of its own, which in turn may mean, for instance, that it must behave towards the borrower in the same way as may be expected of a prudent bank.
Finally, the Supreme Court noted that the answer to this preliminary question remains the same if the customer is in breach of all or part of the loan agreement and/or if the bank has terminated the banking relationship (third preliminary question[10]).
In addition to these ‘civil-law’ duties of care and their knock-on effect, if the borrower is a consumer, the assignee of the receivable (i.e., in our example, the non-bank which acquires the receivable from the bank) must, in principle, be regarded as a ‘provider’ of the loan within the meaning of Article 1:1 of the Financial Supervision Act and is therefore subject to the standards and rules of conduct set out in Part 4 of that Act, unless it outsources the management or execution of the acquired receivable (i.e., the credit) to a licensed credit manager within the meaning of Article 3 of the Exemption Regulations under the Financial Supervision Act. In that case, those standards and rules of conduct apply only to that credit manager and the assignee itself is exempt from those standards and rules. We assume that the Supreme Court did not mean to imply that – in the case of a loan to a consumer – the lender of record is thereby exempted from the standards and rules of conduct set out in Part 4 of the Financial Supervision Act, regardless of whether the management of the loan has been outsourced to a party other than the lender of record itself.
4.3 Lender’s responsibility on assignment of the credit claim
The Supreme Court did not answer the fourth preliminary question, as to what rights the customer may exercise against the assigning bank if the actions of the non-bank to which the receivables have been assigned differ from what may be expected of a bank on the basis of the rules of public law that apply to it and the duty of care incumbent on the bank. The reason for this is that no answer to this question was required, because Van Lanschot was not a party to the proceedings. This is, however, an important question for the legal practice, which we will address below when applying rules given by the Supreme Court in its judgments.
5. Application: practical examples
As stated above, it is important for the legal practice to be able to assess as clearly as possible which rights and obligations of the original lender pass to the assignee (automatically or otherwise) in the event of an (undisclosed) assignment, so that, if necessary, arrangements can be made about this beforehand and this can be taken into account in the commercial aspects, such as the purchase price of the receivable. Against this backdrop, we will discuss some practical examples below and try to formulate answers based on the principles set out by the Supreme Court.
5.1 Practical example: interest rate reset right
The question has arisen in the transactions practice whether the ‘interest rate reset right’, i.e., the contractual right arising from the loan agreement for the lender to unilaterally reset the level of the applicable interest rate, may be exercised by the party acquiring the interest-bearing receivable. Assignees like to be able to influence the interest rate on an interest rate reset, since that allows, for instance, such investors to increase their yield and allows SPVs that themselves have ‘back-end’ interest obligations under the notes used to finance the acquisition of the receivables can use this interest rate reset right, for instance, to ensure that their operational expenses can continue to be met out of the interest income.
It has previously been argued in legal literature[11] that the interest rate reset right passes to the assignee on assignment of the principal receivable. The Supreme Court now also appears to implicitly make that assumption, where it addresses in paragraph 2.16 of the judgments in question the legal position of the assignee if it increases the interest rate after the assignment.
The Supreme Court found that if the assignee increases the interest rate, the borrower cannot invoke in relation to the assignee a duty of care that applies to the assignor, because that duty of care as such did not pass to the assignee as a result of the assignment of the receivable. The borrower can, however, invoke in relation to the assignee the content of the assigned claim and therefore also the restrictions that form part of that receivable. If, for instance, the assignor and the borrower had agreed on a maximum permissible interest rate increase, that agreement limits the content of the receivable that the assignor assigns to the assignee, and the receivable passes to the assignee with its content limited in that manner. In that case this limitation of the possibility to increase the interest rate therefore forms part of the receivable and applies to the assignee on that ground, according to the Supreme Court. If the assignee is subject to a (special) duty of care that implies or entails that the interest rate increase is subject to a certain maximum, this duty of care limits the content of the receivable that the bank assigns to the assignee and the receivable passes to the assignee with its content limited in that manner. The limitation of the possibility of increasing the interest rate forms part of the receivable also in that case and that limitation therefore applies to the assignee, again according to the Supreme Court.
In the Supreme Court’s opinion, the legal relationship between the assignee and the borrower after the assignment is furthermore governed, under Article 6:2 DCC, by the rules of reasonableness and fairness, and those rules may give rise to a duty for the assignee to limit an interest rate increase. According to the Supreme Court, the extent to which the interest rate increase is in line with the market precedents may also be relevant in this regard.
The Supreme Court therefore appears to assume that the assignor(s) and the assignee(s) may apply different interest rates, albeit that an interest rate increase by an assignee may be limited by a duty of care (insofar as that duty of care thus limits the content of the receivable in that sense) and may not be unacceptable by standards of reasonableness and fairness. According to the Supreme Court, this means that a borrower is not protected if the assignor was entitled to increase the interest rate but did not do so out of leniency, and the assignee implements an interest rate increase after the assignment that is not limited by a special duty of care and is not unacceptable by standards of reasonableness and fairness.
On the basis of the following example, we will attempt to explore the significance of this Supreme Court finding:
- Borrower A takes out a (mortgage) loan with a lender. Maturity of the (mortgage) loan is thirty years. An interest rate of 1.5% for a period of five years is agreed. The corresponding loan receivables are subsequently transferred by way of undisclosed assignment (i.e., without notice to borrower A) to insurer A.
- That same day, borrower B, borrower A’s neighbour, also takes out a loan with the same lender and on the same terms as borrower A. The corresponding loan receivables are subsequently transferred by way of undisclosed assignment (i.e., without notice to borrower A) to insurer B.
- Borrower C, borrower A’s other neighbour, also takes out a loan with the same lender and on the same terms as borrower A. The loan receivables are not assigned and therefore remain on the lender’s balance sheet (i.e. ‘on its own books’).
- After five years, the lender sets a new interest rate, again at 1.5%. However, insurer A and insurer B increase the applicable interest rates to 2.0% and 3.0%, respectively. The new fixed-interest period is again five years for all the loans.
- We also make the following assumptions: borrowers A, B and C (and their collateral) have the same risk profile; all three interest rates set by the lender, insurer A and insurer B for the second five-year fixed-interest period are market-based; no contractual restrictions have been agreed in the relationship between the lender and borrowers A, B and C.
Assuming that the lender is (or was) under no related duty of care, no limitation was agreed and no ‘right to leniency’ arose either, the first question is whether the increase in the interest rate by insurers A and B is unacceptable by standards of reasonableness and fairness. The Supreme Court appears to consider that in this situation the borrower cannot challenge the interest rate increase by the assignee. We believe, however, that if the borrower has not consented to transfer of the receivable and, in the case of a consumer, has also not been expressly made aware of this consequence of such transfer, that borrower should be able to rely on it that, regardless of the transfer – and in light of the Supreme Court’s findings, therefore either by limitation of the right of claim or by the effect of reasonableness and fairness – is bound only by the interest rates charged by the lender of record (assuming that the lender of record is still active), and that this should mean that the assignee, regardless of whether it communicated the assignment in exercising its interest rate reset right, is bound by the interest rates charged by the lender of record.[12] A different outcome would mean that a borrower that (assumably) knowingly chooses a particular lender may not only be confronted with another party as the creditor beyond his control and influence, but also with that other creditor’s interest rate and other policies.
It is also interesting in this context how the Supreme Court’s finding relates to the single-track interest rate policy (eensporig rentebeleid) rule under Article 81a of the Market Conduct Supervision (Financial Institutions) Decree (Besluit gedragstoezicht financiële ondernemingen Wft). Under that single-track interest rate policy rule, a provider of mortgage loans to consumers must apply the same interest rate for loans and the same fixed-interest period that it applies to new and (with resets) existing borrowers with a similar risk profile.[13] Since the assignee of the loan receivables also qualifies as a ‘(credit) provider’ (aanbieder van krediet) under the Financial Supervision Act, it is in principle also subject to the single-track interest rate policy rule. That is not the case if the assignee falls within the scope of the ‘securitisation exemption’ under Article 3 Exemption Regulations under the Financial Supervision Act (Vrijstellingsregeling Wft). Under this provision, a company that acquires loan receivables under a loan agreement – regardless of whether it is an undisclosed or a disclosed assignment – is exempt from the licensing requirement and from the provisions of the ‘Business Conduct Supervision of Financial Enterprises’ section of the Financial Supervision Act, including the single-track interest rate policy rule, if the management (beheer) and execution (uitvoering) of the receivables have been outsourced to a credit manager (kredietbeheerder).[14]
If the management and execution of the transferred receivables have been outsourced to a credit manager, the assignee is (exempted from and therefore) not subject to the rules of conduct and standards set out in the ‘Business Conduct Supervision of Financial Enterprises’ section of the Financial Supervision Act and, accordingly, not bound by the single-track interest rate policy rule. It makes no difference in that regard whether the receivables were transferred by way of a disclosed or an undisclosed assignment. However, despite the assignment, the lender of record (also) remains a (credit) provider within the scope of the Financial Supervision Act and must therefore comply with the single-track interest rate policy rule and offer the same interest rate to both existing and new borrowers. It would furthermore not be consistent with the single-track interest rate policy rule if a distinction was made in the interest rate setting for borrowers depending on the company to which the relevant receivables have been assigned (by disclosed or undisclosed assignment).
This is also in line with the wishes of the AFM (the Netherlands Authority for the Financial Markets). The AFM considers the influence of investors on interest rate setting undesirable and already requested the Minister in 2016 to explore the possibilities of including safeguards for mortgage loans financed by investors.[15] The AFM is concerned that possible future developments, such as reducing margins on investments in mortgage loans, might cause investors to lose interest and to try to discourage customers from staying with this provider by raising interest rates when they are reset. Where appropriate, the AFM now imposes requirements when granting licences, to alert parties to their duty of care and to address the risk of these high interest rates.
The Supreme Court found that the assignor’s duty of care does not pass to the assignee on assignment; in our opinion, the same therefore applies to the single-track interest rate policy rule.[16] We do believe, however, that the content of the transferred loan receivable is limited by the single-track interest rate policy rule that applies to the lender of record. The loan receivable whose content has been limited in that manner therefore passes to the assignee, which (if not already limited by the rules of reasonableness and fairness; see above) therefore must take into account the single-track interest rate policy rule that applies to the assignor.
The ‘securitisation exemption’ does not apply in all cases. For instance, if the transferred loan receivables are not managed and executed by a credit manager. In that case, the assignee is not only subject to a licensing requirement, but is also under an obligation of its own to comply with the single-track interest rate policy rule. The same applies if a transfer of contract is involved rather than an assignment, as the securitisation exemption does not apply to such transfers.[17] In the case of a transfer of contract, the transferor (the original lender of record) is no longer the provider of the transferred loan agreements and is therefore ‘released’ from the single-track interest rate policy rule. In the case of an assignment of the loan receivables whereby the ‘securitisation exemption’ does not apply, the single-track interest rate policy rule, strictly speaking, applies to both the assignor and the assignee.
The question is then what the outcome is of the single-track interest rate policy. The assignor (the original lender) remains subject to the single-track interest rate policy rule and must offer new and existing borrowers the same interest rate on loans (if the fixed-interest period and risk profile are the same). It may not differentiate between the underlying assignees in doing so. Nothing will therefore change for the assignor.
And what about the single-track interest rate policy rule and the assignee? Is this rule limited by the letter of the law to the duty of equal treatment of new and existing borrowers of the assignee, and does it therefore apply only if the assignee itself also engages in new originations, as Lieverse and Rongen argue,[18] or is the duty more extensive and does it extend to equal treatment of new and existing borrowers of both the assignee and the assignor (the lender of record)? We also believe that if the exemption does not apply and the assignee has obligations of its own under the single-track interest rate policy rule, the content of the loan receivable is limited by the single-track interest rate policy rule of the assignor (the lender of record). The loan receivable, with its content limited in that manner, thereby passes to the assignee (or the rules of reasonableness and fairness governing the legal relationship between the borrower and the assignee mean that that assignee must comply with what may be expected from the prudent assignor based on the single-track interest rate policy rule). The assignee must then also take into account the (single-track) interest rate policy of the assignor, regardless of whether a disclosed or an undisclosed assignment is involved. For a different opinion, see Lieverse and Rongen, who take the view that the assignee’s interest rate policy must be aligned with that of the assignor only in the case of an undisclosed assignment.[19]
Be that as it may, if the single-track interest rate policy rule still applies to the assignor (the lender of record) and the interest rate reset right has passed to the assignee, the original lender may be liable for the interest rate difference towards the borrower that has arisen as a result of an interest rate increase by the assignee that is not in line with this single-track interest rate policy.
If the original lender wishes to retain control over the interest rate policy – which the AFM in any case also considers desirable – it is advisable to stipulate on the transfer of the loan receivable that the interest rate reset right remains vested in the assignor, because the assignor can stipulate exclusion of the transfer of certain ancillary rights.[20] We believe this also applies to the interest rate reset right. We can also imagine that, for safety’s sake (if the transfer of the interest rate reset right cannot be excluded), parties may agree, in the case of both an undisclosed and a disclosed assignment, that the assignee aligns the interest rate policy with that of the assignor.
5.2 Practical example: negative Euribor
Another interesting question in this context is which party (the assignor or the assignee) is liable for the payment of negative interest to the debtor/borrower in the case of (mortgage) loan agreements in which a variable interest rate equal to Euribor (or another interest rate benchmark) has been agreed without a lower limit (nowadays such variable interest rates include a lower limit, e.g. zero) and without any prior provision having been made for a scenario in which that variable interest rate becomes negative.
It follows from a ruling of the Disputes Committee of the Financial Services Complaints Institute (Kifid) that, in the relationship between the borrower and the lender, the latter is required to pay the negative interest even if the loan agreement does not (expressly) provide that the lender is liable for any negative interest.[21] The variable nature of the linking of the interest rate due to Euribor is speculative for both the bank and the consumer. By not paying consumers negative interest, while also not paying for limitations, the lender distorts a balance in a manner that is only to the consumer’s detriment, without being authorised to do so, according to the Disputes Committee. On this ground, the Disputes Committee found that a reasonable interpretation of the agreement meant that the lender was required to pay the negative interest.[22]
The question is which party is required to pay negative interest if the loan receivable has assigned to the assignee. That question will be particularly relevant in transactions in which the possibility of negative interest (and its payment) was not foreseen when those transactions were entered into and no provisions were made on that point.
A loan receivable is assigned to the assignee as it existed at the assignor, including the ancillary and other rights and the obligations attached to that loan receivable (Articles 6:142 and 6:144 DCC), as the Supreme Court also found in paragraph 2.10 of its judgment.
The question is therefore whether the (implicit) obligation to pay negative interest as an ancillary obligation within the meaning of Article 6:144 DCC passed to the assignee as a result of the assignment. In our view, there is arguable such an inextricable link between the principal loan receivable, the entitlement to interest that passes along with it as an ancillary right, and this obligation to pay negative interest, that this obligation to pay negative interest constitutes an ancillary obligation within the meaning of Article 6:144 DCC and that this ancillary obligation has therefore also passed to the assignee as part of the assignment of the principal loan receivable.
Another complicating factor is that although – in a normal case, with a positive interest rate – the lender’s interest claim passes to the assignee, in the case of an undisclosed assignment the assignor remains authorised to collect the claim. If the assignor subsequently collects the claim on that ground, it must then surrender the amount collected to the assignee. So what about a (reverse) payment obligation of the assignee with regard to negative interest? Conceivably, the money flows would then have to be reversed, in the sense that the assignor’s collection authority is converted into an obligation to pay the negative interest, and the assignee in its turn is obligated to pay that negative interest to the assignor.[23] Assuming that the assignee would also always remain authorised to pay the negative interest directly to the borrower, this reverse situation is also in keeping with Article 6:144 DCC, from which it follows that the assignor vouches for the assignee’s ancillary obligations.
Incidentally, many financing arrangements use what is known as a collection foundation (stichting ontvangsten), to which the borrower (on the lender’s instructions) may validly pay and discharge its debts (bevrijdend betalen) under the loan agreement, regardless of whether the corresponding loan receivable has been assigned.[24] In that case, a ‘reverse’ obligation to pay negative interest could be incorporated into the foundation’s transaction documentation, whereby, in our view, the basic principle should be that such a payment, in the relationship between the foundation, the assignor and the assignee (and the allocation ratios that apply between them), must take precedence over all other payment obligations of the foundation, and that (for instance) repayments received can be used, if necessary, to pay the negative interest to the borrower.
5.3 Practical example: COVID-19-related payment holidays and stay of execution
The government encouraged mortgage lenders to be lenient with their customers if they were unable to meet certain repayment obligations as a result of the COVID-19 measures.[25] Several major banks allowed borrowers in this context to suspend their repayment obligations for three months (known as a ‘payment holiday’).[26] In most cases, that payment holiday took the shape of a payment arrangement. If the claim under the loan has been transferred by assignment, who is authorised to enter into such a payment arrangement? The Ministry of the Interior and Kingdom Relations, in consultation with the Dutch Banking Association, the Dutch Association of Insurers, the National Mortgage Guarantee Scheme and Vereniging Eigen Huis, has furthermore urged mortgage lenders not to foreclose during certain periods.[27]
The Promontoria judgments do not address the question as to what duty of care remains with the original lender after assignment of the loan receivable. The fourth preliminary question touches on this indirectly.[28] As stated above, the Supreme Court did not answer that question, because Van Lanschot was not a party to the proceedings and the answer was not required to decide on the claims of Alegre/Immobile against Promontoria. In practice, however, this question is indeed relevant, also in the practical example above, since allowing payment holidays and/or postponing the enforcement of the mortgage in the borrower’s interest may, in our opinion, precisely affect this duty of care.[29]
Relevant factors in this regard are that:
- the lender of record remains the (sole) contracting party and usually also the borrower’s sole contact with regard to the loan agreement and the payments to be made under that agreement; and
- in the case of loans to consumers, the lender of record, regardless of the possible classification of the assignee as a provider, in practice remains – at least de facto – subject to, for instance, new relevant laws and regulations and the supervision conducted by the AFM, and will have to follow any instructions, guidelines or enforcement actions in that regard. The same applies to the described government request to postpone all COVID-19-related foreclosures for a certain period of time.
Unlike in the case of a transfer of contract, whereby the acquiring party as the (new) lender of record takes over all the rights and obligations under the loan agreement and the original lender is relieved of that position, in the case of an assignment of the loan receivable, the contractual relationship between the original lender and the borrower remains intact. It is generally assumed in the case of assignment that rights not specifically attached to the loan receivable but relating to the entire legal relationship remain vested in the assignor. On this basis, optional rights, such as the right to set aside or dissolve (ontbinden) the loan agreement, remain vested in the original lender.[30] Rights attached to the loan receivable that are important for the exercise and collection of the loan receivable and that determine the content and existence of the loan receivable (such as granting final discharge and making repayment arrangements) are vested in the owner of the loan receivable and therefore pass to the assignee as ancillary rights when the loan receivable is transferred.[31] On this basis, it may be assumed that the powers that are relevant in this practical example (agreeing a payment holiday and postponing enforcement) have passed to the assignee as a result of the assignment, and that the original lender (without a power of attorney) no longer has those powers.
As discussed above, it follows from the judgments in question that the original lender’s duty of care does not pass to the assignee as an ancillary right of the loan receivable or as an obligation attached to the loan receivable (within the meaning of Article 6:144 DCC). At most, the content of the loan receivable is limited[32] by the original lender’s duty of care, and the assignee may have its own duty of care based on the rules of reasonableness and fairness (Article 6:2 DCC).
In our opinion, however, this does not mean that the original lender no longer has any duty of care at all regarding the creditor powers that have passed to (and can only be exercised by or on behalf of) the assignee. We believe that the original lender must continue to promote the borrower’s interests on the grounds of its own contractual duty of care as well as the duty of care arising from any applicable public-law rules. Violation of that duty of care may constitute grounds on which to hold the original lender liable for breach of contract or a wrongful act.[33] The original lender may be liable vis-à-vis the borrower for damages on the grounds of the actions of an assignee that fails to properly manage the loan receivable. Lieverse and Rongen take the view that the assignor is under no duty of care in respect of the creditor powers that have passed to the assignee, other than the assignor’s duty of care to ensure that the assignee has all the required licences and that the assignee manages the credit claim(s) in a manner that adequately safeguards the borrower’s interests.[34] According to Rongen, any different view would be a socially undesirable outcome and would impede economic transactions and give rise to a significant liability risk regarding future conduct of the assignee over which it has little or no control and that, at the time of the assignment, is unforeseeable for the assignor.[35] We agree with Lieverse and Rongen that the original lender/lender of record should not ultimately bear the liability. But we also believe that the borrower should not be in a worse position as a result of a transfer of a loan receivable compared with the hypothetical situation in which the loan receivable was not transferred.[36] In our view, if the borrower can demonstrate this, there is scope for a claim for damages against the original lender if the assignee fails to administrate the loan receivable(s) properly. We believe that the assignee itself may in such case also be held liable, but the original lender will need to warrant this as it were (similar to Article 6:144 DCC, on the understanding that precisely that article does not apply, in the absence of a ‘transferred’ obligation within the meaning of that article). But if the borrower in such case indeed sues the original lender, it should be possible for that original lender to then recover such claim(s) from the assignee (since the assignee is the only economic stakeholder in the transferred claim), unless this has been expressly excluded in their underlying relationship.[37]
According to Lieverse and Rongen, if the management of the loan receivable has been outsourced to the original lender, the original lender itself is in control.[38] In our view, this remains to be seen, and depends on the agreements made between them in the servicing agreement, the power of attorney (and its scope) in respect of creditor powers, and the instructions given by the assignee to the original lender in its capacity as manager of the loan receivable. If the instructions differ from what is in the borrower’s interest in the case in question (and what the original lender would be obligated to do on the basis of its duty of care towards that borrower), the original lender in its capacity as servicer may be in breach of contract in relation to the assignee if it nevertheless enters into an arrangement with that borrower in the borrower’s interest (and in compliance with its own duty of care). Such contracts do often include a requirement for the servicer to act as if that servicer itself were the owner of the loan receivable. In that situation the original lender may get away with failing to follow the instruction, but what if the management is not outsourced, or is outsourced to a party that is not the original lender, which is frequently the case in financing transactions?
6. Final comments
We believe that the Supreme Court has provided clarity in the Promontoria judgments regarding the transferability of the bank receivable (which, by its nature, is not non-transferable) and the assignee’s position in relation to the borrower (also in the case of non-bank receivable). The duty of care of the transferring party (the lender of record) does not pass to the assignee together with the receivable, but the content of the assigned receivable may be limited by that duty of care. Moreover, the rules of reasonableness and fairness governing the legal relationship that applies between that assignee and the borrower may mean that that assignee has a duty of care of its own, as a result of which it must act towards the borrower in the same way as the (prudent) assignor.
Because Van Lanschot was not a party to the present case, the Supreme Court did not provide a clear framework regarding the position of the transferring lender, either in relation to the borrower or in relation to the assignee. On the basis of practical examples, we have illustrated the ambiguities that remain in these relationships and how the interests of the lender of record and the assignee may conflict on these points. In this potential conflict, the borrower, which, as a rule, has not expressly cooperated (as is usually the case in an assignment), should not, in our view, be in a worse position as a result of an assignment, and the rights and powers of the assignee should, where applicable, be deemed to be limited as a result (possibly by a limitation of the content of the claim or by the effect of reasonableness and fairness). If the lender of record – which in our view retains a certain duty of care towards the borrower after the assignment as the lender of record and the borrower’s contracting party – is liable for damages on account of any breaches of that duty of care as a result of acts performed by or on behalf of the assignee, there should, in principle, be scope for that lender of record (unless the parties have agreed otherwise) to subsequently recover its claim(s) from the assignee (since the assignee is the only economic stakeholder in the assigned receivable).
Authors
J.L. Snijders and Y.C. Tonino, FIZ advocaten
Footnotes
[1] As in the present case, in which Van Lanschot sold and transferred a loan portfolio to a subsidiary of Cerberus Capital Management.
[2] A significant part of the Dutch mortgage and (financial) lease market is directly or indirectly financed in this manner.
[3] Article 2:60 of the Financial Supervision Act (offering loans).
[4] Whereby that latter category can of course be subdivided into disclosed assignments (with notification to the debtor, in accordance with Article 3:94(2) DCC) and undisclosed assignments (with registration of the deed of assignment, in accordance with Article 3:94(3) DCC).
[5] In practice, banks and other lenders will not want to disclose to their customers that they are transferring their receivables against them to an external party, for fear of damaging their commercial position or customer relationship. The operational aspects of (individually) giving notice to the customers in question will also play a part here. Cf. M.H.E. Rongen, Cessie (diss. Nijmegen; Onderneming en Recht, vol. 70), Kluwer: Deventer 2011, no 382.
[6] Article 3:94 DCC
[7] It would appear, however, that Promontoria has since resold the portfolio to Germany-based Ortolan Nederland Credit Solutions GmbH; see Wat staat de doorverkochte klanten van Lanschot te wachten?, FD 4 November 2019, and Amsterdam Court 27 July 2020, ECLI:NL:RBAMS:2020:3853, in which a (former) borrower/debtor of Van Lanschot and Promontoria unsuccessfully challenged a foreclosure auction announced by Ortolan in a foreclosure dispute.
[8] Without much ado, the Supreme Court, here sets aside the reliance by Alegre and Immobile on the Supreme Court judgment of 12 January 1990, ECLI:NL:HR:1990:AC2326, NJ 1990/766 with commentary from W.M. Klein (State/Appels), in which it was actually assumed that the nature of a certain credit receivable accruing to the State, in the context of a kind of emergency loan, stood in the way of transfer of that receivable by the State, because of the far-reaching powers attached to it for the State.
[9] The third preliminary question is whether it is relevant for the purpose of answering the first and second preliminary questions whether the borrower did not fully comply with the loan agreement and whether the bank terminated the banking relationship. The Supreme Court answered these questions together with the first and second preliminary questions.
[10] See note 9.
[11] See e.g. Rongen 2011, no 1022, who regards the interest rate reset right, like the interest receivable, as a (stacked) ancillary right within the meaning of Article 6:142 DCC. Biemans takes a slightly different approach. He regards only the right to stipulated interest (the interest clause) as an ancillary right. According to him, the existing interest receivables do not pass as ancillary rights unless they are transferred separately. The future interest receivables arise directly in the assignee’s assets as a result of the interest clause passing to the assignee as an ancillary right. The assignee is a party to the interest clause that has passed to the assignee and, on that basis, is entitled to change the interest (see J.W.A. Biemans, Rechtsgevolgen van stille cessie (diss. Nijmegen; Onderneming en Recht, vol. 65), Kluwer: Deventer 2011, no. 382).
[12] Cf. in this sense Rongen 2011, no 1025. Rongen appears to have changed his position and now agrees with Lieverse that, once notice has been given, the acquiror is no longer bound by the interest rates charged by the original lender (see the commentary by C.W.M. Lieverse and M.H.E. Rongen on this judgment, Ondernemingsrecht 2020/136, paragraph 3.4).
[13] Bulletin of Acts and Decrees 2012, 695, p. 38.
[14] Articles 3 and 43(4) of the Exemption Regulation under the Financial Supervision Act. For the backgrounds and conditions of the ‘securitisation exemption’, see also M.H.P. Claassen & J.L. Snijders, De overdracht van vorderingen uit hoofd van kredietovereenkomsten, FR 2020, vol. 4, pp. 150 et seq.
[15] See www.afm.nl/nl-nl/professionals/nieuws/2016/jul/wetgevingsbrief.
[16] In which regard we note that the single-track interest rate policy rule is based on Article 4:25 of the Financial Supervision Act, which deals with prudent provision of services to consumers.
[17] The market did, however, assume that the ‘securitisation exemption’ would also apply in the case of a transfer of contract. In the consultation of 24 December 2019 on the amendment to Article 3 of the Exemption Regulation under the Financial Supervision Act, however, the Minister established beyond doubt that in the case of a transfer of contract the acquiror must fully comply with the provisions for credit providers under the Financial Supervision Act.
[18] Lieverse & Rongen 2020, paragraph 3.4
[19] Lieverse & Rongen 2020, paragraph 3.4. Because, in practice, investors are keen for the assignee to be able to exercise the interest rate reset right without any restriction, all the more so if notice of the assignment has been given, the legislature or the court will ultimately have to decide on this.
[20] Rongen 2011, no 1268
[21] Kifid (Disputes Committee) 31 March 2016, JOR 2016/133 with commentary by Rongen.
[22] In the ruling, the Disputes Committee found that the lender had neither stated nor shown that it might be negatively impacted by an obligation to pay negative interest. It could be inferred from this that if the lender had stated this and could have shown that it had incurred financial loss, the Disputes Committee would have taken this into account in the reasonable interpretation of the agreement. For instance, the fact that the lender is bound to its investor by a ‘zero floor’ might have been taken into account, according to Rongen in his commentary on the Disputes Committee’s ruling. We wonder, however, whether this possible mismatch would be interpreted to the consumer’s detriment in court.
[23] Which again raises an interesting question as to the ranking of such a claim in the event of bankruptcy of the assignee, both for the situation in which the obligation already existed on the date of the bankruptcy and for the situation in which the obligation arose after the date of the bankruptcy.
[24] The purpose of this is on the one hand to separate the receipts from the assignor’s assets for the benefit of the assignee(s) for which the assignor receives payments as the collection agent, and on the other hand to create continuity (and thereby reduce the likelihood of payments ending up in the wrong account) of the account in which the borrower must meet its payment obligations before and after the loan receivable is assigned.
[25] The Dutch government thereby intervened less forcefully than the German legislature, which, by Act of 27 March 2020 (Gesetz zur Abmilderung der Folgen der COVID-19-Pandemie im Zivil-, Insolvenz- und Strafverfahrensrecht), stipulated in respect of consumer credit that borrowers who ran into payment problems in the first months of the COVID-19 crisis were entitled to an automatic payment holiday of three months, which – subject to other agreements between the lender and borrower – resulted in an extension of the term of the loan.
[26] We refer to the extensive article by M. van der Weide, De consequenties van een uitstel van betaling onder hypotheekleningen voor RMBS transacties, Ondernemingsrecht 2020/79, for a description of the impact this payment holiday may have on RMBS securitisation transactions.
[27] See www.rijksoverheid.nl/actueel/nieuws/2020/04/07/geen-gedwongen-verkopen-van-huizen-gedurende-coronacrisis. This example is somewhat oversimplified, however, because the insistence included a request to the mortgage lenders to co-sign a declaration in which they confirmed that, in principle, they would not foreclose during that period.
[28] In the sense that it addresses the question what rights the borrower can exercise in relation to the transferring lender if the assignee’s actions differ from what might be expected of a bank under the rules of public law that apply to a bank and the duty of care incumbent on a bank.
[29] Whereby the extent to which the lender itself would be free to derogate from the (urgent) advice must of course be taken into account.
[30] In this context, termination of the loan agreement by the lender of record in order to terminate the contractual relationship should be distinguished from termination of the loan by the assignee to make the claim immediately payable.
[31] In this sense, the pledgee is worse off than the assignee. In the case of waiver of a right of pledge, the Supreme Court has ruled, with reference to Article 3:246 DCC and the parliamentary history, that the pledgor is authorised to waive a right of claim. See the Supreme Court judgment of 21 February 2014, ECLI:NL:HR:2014:415, NJ 2015/82 with commentary by H.J. Snijders (IAE/Neo-River). The legislature deliberately opted to have these powers remain vested in the pledgor, since they profoundly affect its rights and interests and the pledgee is only interested in the pledged property insofar as it secures his claim, according to the Supreme Court.
[32] We therefore assume here that developments that take place after the assignment but relate to the receivable may also limit the content of that receivable.
[33] Cf. also K. Vreemann & M. Huizingh, Overdracht van een kredietportefeuille en de bancaire zorgplicht, FIP 2019, vol. 3, p. 34.
[34] Lieverse & Rongen 2020, paragraph 3.5. Possibly stricter: Advocate General Hartlief in paragraphs 51-4.156 and 5.9 of his advisory opinion for the Promontoria judgments, which provide an excellent overview of the state of affairs surrounding the transfer of loan receivables and the related regulations. In this context, in his commentary on these judgments in JOR 2020/267, J.W.A. Biemans draws a comparison, as far as the duty of care of the transferring lender is concerned, with the termination of a bank’s credit relationship.
[35] M.H.E. Rongen, De overdraagbaarheid van kredietvorderingen van banken aan niet-banken, FIP 2020, vol. 1, p. 39.
[36] This is of course different if the borrower has been deliberately and fully informed about the identity of the assignee and the terms of the transfer, and then agrees to the transfer, but that is usually not the case in an assignment (cf. Vreemann & Huizingh 2019, p. 34). It is of course debatable what constitutes a ‘worse position’ in a particular case, especially with regard to rights and powers that were vested in the transferring party but were not exercised by it for reasons of leniency and that are, however, exercised by the assignee. The Supreme Court appears to rule in the Promontoria judgments that the borrower bears this risk. There are arguments to support that position, particularly in a customised case.
[37] Or: Advocate General Hartlief in his advisory opinion for the Promontoria judgments. Hartlief finds it conceivable that the transferring party must ensure that the assignee bank properly manages the transferred loan receivables, for instance by including a provision to that effect in the deed of assignment (cf. paragraph 4.160).
[38] Lieverse & Rongen 2020, paragraph 3.5
