‘Bank guarantee offers more security than prejudgement attachment’

In cases involving collection, oftentimes, pending a ruling, a prejudgment attachment is imposed on the assets The assets of a Dutch company reflect the value of all that the company possesses
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assets
of the debtor. This gives the creditor security that there is still something left after the collection procedure. Because prejudgment attachment is quite onerous for the debtor, he can apply for lifting such an attachment in preliminary relief proceedings. In a recent legal action, the issue was whether a bank guarantee offers the same security as a prejudgment attachment. Dutch Debt Collection lawyer Thomas van Vugt explains this ruling.

Preliminary relief proceedings for lifting attachment

In this case in preliminary relief proceedings the debtor offered a bank guarantee to substitute for a prejudgment attachment. However, the creditor did not accept this, because in his opinion the bank guarantee did not offer the same security as the attachment. Under the conditions of the bank guarantee, the bank would only pay out if the creditor had received a ruling in his favour that had become final. This meant that the bank guarantee would not pay out as long as objections to the ruling could still be submitted.

Prejudgment attachment: enforceable with favourable ruling

The creditor rightly points out that in a prejudgment attachment, assets can be sold as soon as a ruling becomes enforceable. The prejudgment attachment is then automatically converted into an enforceable attachment. An appeal does not suspend the enforceability of the sale. The court in preliminary relief proceedings agrees with the creditor and rules that the creditor does not have to accept an ‘inferior’ bank guarantee.

Prejudgment attachment: cancelled if debtor goes bankrupt

The Court of Appeal, however, does not share The portion of registered capital of a private or public limited company
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share
this opinion. Although it is true that assets can be sold more quickly than with a bank guarantee, in other respects a bank guarantee offers more security. For example, a prejudgment attachment is legally cancelled if the debtor goes bankrupt. Also, a bank guarantee offers more security than an attachment if several creditors attach the same asset cumulatively. In that case, the proceeds have to be divided among these creditors. A bank guarantee on the other hand only applies to this specific creditor. The Court of Appeal finds that the creditor is not in a less favourable position if the attachment is replaced by a bank guarantee. The bank guarantee offers another, but certainly not an inferior, type of security. The Court of Appeal therefore annuls the attachment.

Dutch lawyer for debt collection

In preliminary relief proceedings for lifting attachments, the provisional relief court assesses if there are reasons to lift the attachment. If another security is provided (bank guarantee) or if the attachment is wrongfully imposed, the order can be given to lift the attachment. For example, recently an attachment was lifted because the attaching party had not fully informed the court in the application for the attachment. Also in cases of invalid claims, in general attachments cannot be maintained.

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