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General banking conditions updated

Ingrid de Wilde

All Dutch banks apply the same set of general banking conditions (GBC), drawn up by the Netherlands Bankers' Association in consultation with consumer and corporate organisations, setting out a number of basic contractual provisions which regulate the relationship between the bank and its customer.

The GBC apply to all existing and future agreements between the bank and its customer, to the extent not provided otherwise in any specific agreement entered into between the bank and its customer. Additional general terms and conditions drawn up for specific products vary between banks.

On November 1 2009, a revised set of GBC became effective. Amongst other points, the terms and conditions relating to security have been amended and supplemented.

One notable change in the provisions of the GBC dealing with security is that these now specifically provide that any rights of mortgage or pledge obtained by the bank can be transferred to the bank's universal legal successor and can be unilaterally terminated (opgezegd) by the bank in whole or in part.

This is intended to provide the bank with better means to deal with the uncertainty that exists under Dutch law as to whether all moneys mortgages and pledges are transferable. The provisions enable the bank to comply with the requirements which will result (according to may practitioners) in all moneys mortgages and pledges being capable of being transferred: an explicit agreement to this effect with the security provider or the right of the bank to partially terminate the mortgage or pledge, so that it only continues to secure a fixed debt and thereby becomes transferable together with the debt secured.

The provisions in the GBC imposing a general obligation on the customer to provide the bank with security for its indebtedness no longer relate to existing indebtedness only. They also extend to future indebtedness owed to the bank. The intention of this is to make it more difficult for creditors of the customer or debtor (or in a worst case scenario, its bankruptcy trustee) to claim that security granted to the bank for new loans or restructured financings – which could result in old debt being replaced by new debt – is voidable on the basis of Dutch law pauliana (fraudulent preference) rules.

Effectively, it ensures that there was a prior legal obligation to create such security, so that the creditor or bankruptcy trustee wishing to nullify security on the basis of the Dutch law pauliana rules would also have to successfully attack the validity of this prior agreement, including the GBC declared applicable thereto, which will usually be difficult assuming the agreement was entered into at a time the company was still solvent.

Although Dutch case law on both subjects remains the subject of some debate it can be concluded that the revised GBC serve to improve the bank's position on both points.

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