The Netherlands is considered a creditor-friendly jurisdiction. However, there are some aspects of Dutch law that US financial institutions considering ship finance in the Netherlands should be aware of. Below is an overview of these aspects.

Parallel debt

In Dutch (ship) finance transactions, it is customary to use a security agent (the Agent), which holds the security rights on behalf of the lenders. If a new lender comes in, the existing security rights will then not be affected.

It is generally assumed that a Dutch security right cannot be validly created in favor of a person who is not the creditor of secured liabilities (i.e., the Agent). To allow structures whereby an Agent is used, practice has developed the parallel debt, a separate claim owed by the borrowers to the Agent that equals the total amount owed to the lenders. The parallel debt only becomes due when the amounts owing to the lenders are due and is likewise discharged when the syndicated debt is repaid. The Dutch security right secures the parallel debt.

Mortgage over a ship

If a ship has been registered in the Dutch ship register, a mortgage can be created over the ship. A mortgage is created by way of a notarial deed to be executed before a Dutch civil law notary (the Notary) and registration of such deed with the Dutch ship register.

To avoid that parties to the mortgage have to actually appear before the Notary at the date of creation of the mortgage, it is market practice that the parties grant a power of attorney to the Notary. The power of attorney granted by the ship owner should be in notarial form. If the jurisdiction of the ship owner does not know the concept of a notary, it must be discussed with the Notary in which form the power should be issued instead. Usually, the signatures on the power of attorney must be notarized and apostilled and the power of attorney must be furnished with an authority statement.

This process may be time-consuming (approx. 1-2 weeks).

Pledge over bank accounts

If there are any bank accounts maintained in the Netherlands that are part of the collateral, a pledge can be created over these bank accounts. A pledge over bank accounts will be disclosed, meaning that the relevant account bank will be notified of the pledge.

The general terms and conditions that are used by most Dutch account banks contain a provision that renders bank account receivables incapable of being transferred, assigned or pledged. These general conditions also provide for a first-ranking right of pledge and a right of set-off for the account banks.

Therefore, certain consents and waivers need to be obtained from the account bank. This process may be time-consuming.

Want to know more about this topic? Feel free to reach out to Ralf Wubben.