Fiduciary prohibition and assignment to security

The law offers several options for providing security when you lend money. The most obvious options are property and mortgage. In addition, we know the surety by a third party. However, one form of security is prohibited by law. Namely, the transfer of property to serve as security. We know that construction by its ancient Roman designation, namely as ‘fiduciary property.

Fiduciary ownership and fiduciary prohibition

Fiduciary ownership involves a debtor transferring ownership of a particular thing to his creditor. There is then an agreement that the creditor will transfer the property back, when the debt is paid. This was allowed in the Netherlands until the introduction of the new Civil Code (BW) in 1992. But since the introduction of the new BW, a fiduciary prohibition applies in the Netherlands. That fiduciary prohibition is contained in article 3:84 paragraph 3 BW. Instead, it is silent lien entered. If a transfer to security did take place, it is void.

Purchase agreement or fiduciary transfer?

The determining factor as to whether there is a violation of the fiduciary prohibition is the title of transfer. For example, if there is a valid purchase agreement, then in principle it is not a transfer by way of security. But, the existence of a purchase agreement by itself is not sufficient. In fact, the court will evaluate the purchase agreement and determine from its contents what the intent of the parties was.

Sale and lease back construction

In the judgment Keereweer / Sogelease the Supreme Court ruled that a sale and leaseback agreement does not violate the fiduciary prohibition. The condition, however, is that there is an actual transfer. This requires that the property be transferred to the leasing company without restriction, so that it receives more than just a right to the property that protects it as a creditor. It is true that in that case, the transferor had a personal right to use the items and the option to take ownership of the item at the end of the lease period, but even so, there was no violation of the fiduciary prohibition because the leasing company actually received full ownership of the item.

Engage lawyer in fiduciary prohibition case

If you have found yourself in an issue where a fiduciary duty is (potentially) at issue, contact the Lawyers at Lexys. Just fill out the contact form below.