Abolition of pledge restrictions: legal and international implications

On 4 March, the Dutch Senate (Eerste Kamer) passed the Abolition of Pledge Restrictions Act, sparking widespread positive coverage about improved financing opportunities for businesses. In this article, we explore the implications of this new law.

While the act is promising and could significantly facilitate trade receivables financing, it is important to note that these changes apply only to claims governed by Dutch law. Kees Hooft from Orange Clover and Rolf Michon from Orchard Finance explain which limitations still exist for the financing of trade receivables.

What is the issue?

Companies that supply goods or services to each other in B2B transactions typically operate on an open account basis. The goods or services are delivered, invoiced, and then paid after the agreed payment term. Running a business requires working capital investment, which is not a problem as long as working capital can be financed.

However, challenges arise in sectors with numerous small suppliers that serve only a few large buyers. These large buyers often impose long payment terms and dictate purchasing conditions to their suppliers. These purchasing conditions frequently include assignment and pledge restrictions, preventing claims against these buyers from being pledged or transferred to a financier. As a result, financiers exclude these claims from financing arrangements.

A well-known example of such a large player is a major U.S. e-commerce company, whose European operations are handled through its Luxembourg entity. This company enforces strict pledge restrictions combined with long payment terms. Suppliers struggling with liquidity issues due to these conditions are often directed to the company’s supply chain finance programme, where they can cash in their invoices early, but only at high discount rates. This is an expensive financing method that ultimately reduces business profitability.

What is the solution?

The Abolition of Pledge Restrictions Act aims to make trade receivables eligible for financing. The law was passed by the Dutch Senate on 4 March 2025, and is expected to come into effect on 1 July 2025. Three months after implementation, contractual assignment and pledge restrictions will no longer be valid for monetary claims arising from the exercise of a profession or business.

Does the law solve all issues?

It doesn’t, because the Abolition of Pledge Restrictions Act is subject to the choice of law. The transferability of claims is governed by the applicable law (Article 10:135(1) of the Dutch Civil Code). This means that the new Dutch nullification of assignment and pledge restrictions will only apply to claims governed by Dutch law.

For claims against foreign buyers, their purchasing conditions usually specify their local law as the governing law. Unfortunately, in most EU countries, assignment and pledge restrictions remain legally valid. So far, only a few EU countries have limited¹ or abolished these restrictions: Germany (since 1994), Austria (since 2007), and Hungary (since 2013). The UK (mainly since 2018) and the US (since 1952) have also imposed similar limitations.

Even for trade receivables within the Netherlands there is no absolute certainty. B2B market players are generally free to choose which law applies to their contract (except for certain specific matters where the law explicitly states otherwise, which is rare in commercial contracts). If, for example, a Dutch subsidiary of a foreign company imposes an assignment restriction under the (non-Dutch) law of its parent company, that law will determine whether the restriction remains valid.

Conclusion

The Abolition of Pledge Restrictions Act is a positive development, improving financing opportunities for businesses concerning their Dutch law-governed monetary claims. However, major U.S. e-commerce companies or similar large players that wish to maintain their pledge restrictions and supply chain finance revenue model still have workarounds. They can either designate a foreign entity as the contracting party or structure their purchasing conditions under foreign law, even within the Netherlands.

Questions?

Do you have questions about working capital financing or business funding? Contact us for a non-binding consultation to explore your financing options.

This article was written by:
Kees Hooft, Partner, Orange Clover
Rolf Michon, Partner, Orchard Finance

1. The restriction may vary by country. ↩︎