‘Bank guarantee offers more security than prejudgement attachment’

Collection lawyer Amsterdam

In cases involving collection, oftentimes, pending a ruling, a prejudgment attachment is imposed on the 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. Collection lawyer Hidde Reitsma 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 becomes enforceable with a 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 is cancelled if the debtor goes bankrupt

The Court of Appeal, however, does not 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.

AMS lawyers for collection and attachment cases

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.

Hidde Reitsma - Advocatenkantoor AMS Advocaten
Hidde Reitsma Hidde has a varied consultancy and litigation practice, focusing on corporate law and insolvency law. He frequently acts in proceedings before the Enterprise Chamber of the Court of Appeal in Amsterdam and in cases on directors’ liability. Hidde also advises on drawing up and negotiating contracts, mergers and acquisitions and joint ventures. Follow Hidde also on Google or LinkedIn. Hidde is available via e-mail and +31 (0)20-3080315.
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