Court of Appeal Rules on Scope of a Pledgee’s Settlement Powers

On 18 March 2025, the Arnhem-Leeuwarden Court of Appeal issued an important judgment (ECLI:NL:GHARL:2025:1553) concerning the limits of a pledgee’s authority when dealing with debtors of a bankrupt pledgor. The case involved ING Bank N.V. (ING) and the curator of J.T.M. Vastgoed B.V. (JTM)

Two key issues were raised:

Pauliana claim – The bankruptcy trustee argued that a settlement agreement ING concluded with a tenant of the bankrupt estate should be annulled as a fraudulent preference. The Court rejected this claim.

Settlement authority of the pledgee – The central question was whether ING, as pledgee, could enter into a settlement with a debtor of JTM based on its right of collection (Section 3:246 of the Dutch Civil Code) and its general terms and conditions. The Court answered this question in the negative.

Relying on established case law (HR Neo River 2014 and HR Megalim/Veenbloem 2016), the Court held that a pledgee’s collection powers do not extend to granting (partial) remission of claims or entering into settlements on behalf of the pledgor. Such powers remain with the pledgor (or, in case of insolvency, the curator).The Court further found that ING could not rely on its general terms and conditions to broaden its authority. Contractual clauses granting a settlement power fall within the scope of the rules on agency (Section 7:422 and 7:424 of the Dutch Civil Code), which terminate upon bankruptcy. Consequently, ING’s settlement with the tenant was unlawful towards the estate, and the bank was ordered to pay damages to the curator.

Practical Implications

This ruling underscores the closed system of Dutch property law: parties cannot contractually expand the rights of a pledgee beyond what the law provides. For banks and other secured creditors, the decision is a reminder that their powers in insolvency situations are strictly limited to those expressly recognised by law. If a pledgee seeks to compromise a claim, the bankruptcy trustee’s consent is required.

Further clarification from the Supreme Court may follow as a cassation appeal has been filed.