On May 13 2003 the Dutch government presented a legislative proposal regarding financial security rights agreements. The proposal aims to implement EU Directive 2002/47/EC.
The proposal introduces more efficient financial security rights instruments. It provides for two types of agreements: (i) agreements that transfer the title of certain assets; and (ii) agreements that pledge certain assets to the secured party.
Given the broad scope of the agreements, the proposal restricts the collateral that may be granted to monies and securities. Securities are referred to as items that are tradable on the capital market, such as shares and bonds. Entering into the agreements is restricted to professional market parties. Lastly, the proposal does not allow a third party to grant security rights for another entity's obligations. This is considered an unnecessary restriction in, for instance, security rights in connection with group financing.
Parties entering into a financial security rights agreement must describe the collateral in a written agreement or in a comparable manner. No other formalities are required. Also, as in the International Swaps and Derivatives Association (Isda) Credit Support Annex, the secured party may use or sell the collateral pledged without the occurrence of an event of default, which is not possible under existing Dutch security rights law. Also, the secured party may sell, appropriate or, if the agreement allows it, set off the collateral if an event of default occurs.
If certain obscurities and unnecessary restrictions are left aside, the proposal does provide possibilities for more flexible security rights instruments that could be used by professional market parties.
Frans Haak and Matthieu Ph van Sint Truiden