NETHERLANDS Law and Practice Contributed by: Eduard Scheenstra, Etiënne Courbois and Jenny Noordermeer, CMS
3.6 Loan Transfer Mechanisms In the Netherlands, the benefit of a loan can be trans- ferred through assignment, contract takeover (con- tract transfer), or sub-participation. Assignment involves the transfer of receivables or rights via a written agreement. If the assignment is undisclosed, it must either be executed by notarial deed or registered with the Dutch tax authorities. For disclosed assignments, notification to the debtor is required. Contract takeover transfers both rights and obliga- tions under a contract and requires a written agree- ment, along with the co-operation of the counterparty. This consent can be provided informally. Sub-participation does not involve a transfer of legal rights or obligations. Instead, it allows a third party to share in the economic benefits of a loan through a private arrangement with the original lender. The sub-participant has no direct legal claim against the borrower. Under Dutch law, security rights – such as mortgag- es and pledges – are accessory in nature, meaning they automatically follow the claims they secure upon transfer. In syndicated lending, security is commonly held by a security agent on behalf of all lenders. When a lender transfers its rights, the position of the security agent remains unaffected, and the transferee benefits from the agent’s duty to distribute any enforcement proceeds. If a new security agent is appointed, the related parallel debt claims must also be transferred to ensure that the corresponding security rights move with them. 3.7 Debt Buyback Under Dutch law, borrowers or sponsors are not outright prohibited from engaging in debt buyback transactions. The terms of a credit agreement typi- cally allow the involved parties to freely determine any restrictions on such buybacks as they see fit. Generally, the standard LMA provisions on debt buy- backs apply without any particular Dutch law-based deviations, under which buybacks are either restricted or made subject to certain restrictions that a borrower
than customary restrictions like violation of public order. However, certain agreed-upon restrictions may be in effect. For example, a facility agreement generally pro- vides for strict rules regarding the purpose and use of the term loans. Usually, the relevant proceeds must be applied to finance the purchase price, fees and other costs related to the acquisition and financing thereof and the refinancing of the target’s existing indebted- ness. A violation of these provisions usually consti- tutes an event of default. Further, under the finance documents usually a funds flow statement should be delivered as a condition precedent, setting out the application of the funds (including the relevant ben- eficiaries and related bank account details). 3.5 Agent and Trust Concepts The concept of a “trust”, as it exists in common law jurisdictions, does not have a direct equivalent under Dutch law. While Dutch courts may recognise specific trust structures in accordance with the Hague Con- vention of 1 July 1985 on the Law Applicable to Trusts and their Recognition, common law trust arrange- ments are generally seen as unsuitable when Dutch law-governed security is provided for the benefit of a lender group. Instead, syndicated lending transactions under Dutch law typically rely on a structure known as a parallel debt arrangement. Under this mechanism, each obli- gor undertakes to pay the security agent an amount equal to the amounts it owes to the finance parties under the finance documents (commonly referred to as the “underlying liabilities”). The security granted then secures the parallel debt obligations, rather than the underlying liabilities directly. In the event of enforcement, the security agent is contractually required to apply the proceeds towards repayment of the underlying liabilities, following the distribution order agreed upon by the finance parties. The parallel debt agreement provides that when an underlying liability is repaid (in whole or in part), the corresponding parallel debt is automatically consid- ered repaid to the same extent – and vice versa.
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