Attachment of credit facilities - a recent decision of the Dutch Supreme Court


It has always been a fairly easy and straightforward process to obtain a prejudgment garnishee order in The Netherlands. A garnishee order (in the Dutch legal sense) is an order issued upon request of a (prejudgment) creditor against a third party (often a bank) to retain any assets it holds for a (prejudgment) debtor. The assets would include any sums owed by the third party to the (prejudgment) debtor, e.g. monies on account. As soon as the creditor’s claim is confirmed in court, he will be entitled to use these assets for recovery of the debt.

The creditor will often be aware of at least one of the judgment debtor’s bank account details and therefore it is logical for him to apply for an attachment order against this particular bank account to ensure safe recovery of the debt. However, why limit the attachment to one of the debtor’s bank accounts (with an often unknown balance), when he might have several at the same bank? Therefore, such application is often made against “all present and future claims of the debtor on the bank and in particular on bank account number [X]”.

Practice indicates that the bank will then, once the garnishee order has been served, freeze all of the bank accounts in the debtor’s name. The debtor will often also be automatically denied access to any existing credit facility, in which case the debtor may find himself in serious (and potentially unreasonable) financial difficulties particularly when the credit facility is needed for business purposes. The debtor’s remedy would be to initiate preliminary relief proceedings and apply for the attachment order to be lifted or partially lifted. The court would then assess whether the balances had been wrongfully attached, i.e. the claim does not justify such an attachment, or whether the sum of the attached balances exceeded the amount of the claim such that a partial lift would be appropriate.

Different judicial approaches

The outcomes of these preliminary relief proceedings have proved to be as different in approach as in consequence. Some courts consider a credit facility not as an existing attachable asset, but as an agreement between the bank and the client which entitles the client to a certain amount of money as soon as he demonstrates his intention to withdraw such money. Therefore, the attachable asset cannot arise until the debtor has tried to withdraw money. On this analysis, the courts would not lift the attachment on the credit facility because the credit facility could not have been affected by the attachment. Instead, these courts would order the bank to unfreeze the credit account.

Other Dutch courts have decided differently. For example, the District Court of Almelo ruled in 2002 that a credit facility can be attached but that the attachment will not take effect until the client exercises his right to claim under the credit agreement. In order to prevent the debtor from using the credit facility to reimburse other creditors, the Court decided that the attachment could not be lifted.

Enter the Supreme Court

For the first time on 29 October 2004, the issue came to be decided by the Dutch Supreme Court.

Following the argument adopted by the District Court of Almelo, the claimant argued that the unused part of the debtor’s credit facility had been ‘hit’ by the attachment if, and to the extent that, the debtor gave a payment order under the credit facility to the bank. In other words, the credit facility becomes an asset capable of recovery as soon as the debtor claims under it (but only for the amount of the payment order). Contrary to this argument, the Supreme Court considered that the attachment of bank accounts cannot relate to unused credit facilities.

The Supreme Court explained why, in its view, any other approach would lead to undesirable results:

1. Legally, according to the Supreme Court the client’s right to claim amounts of money under the credit facility agreement is not a right that can be transferred, because otherwise a relationship would arise between a third party and the bank, without the bank having knowledge of the quality of its ‘new’ client. As it cannot be transferred, it cannot be attached.

2. Practically, the judgment creditor cannot exercise the debtor’s right to call in the remaining unused credit because that would lead to a claim by the bank on the judgment debtor for the same amount. According to the Supreme Court, the bank would, in this case undoubtedly set off this claim against its obligation to pay the judgment creditor, because both claim and obligation originate from the same legal relationship. The exercise of the debtor’s rights by the judgment creditor would, therefore, not be useful.

The Supreme Court has finally ended a long existing uncertainty. In the future, the judgment debtor will retain full access to his credit facility even if all his credit balances are frozen.