Uncertain payment behavior by contractual counterparts has become  a serious concern in the entire logistic chain. Increasingly, parties within that chain are declared bankrupt, leaving their contractual counterparts with unpaid invoices of often substantial amounts.

Official receivers simply refer creditors to bankruptcy laws, stating that their claim has no preference and that consequently, there is little or no prospect that the estate will honor any part of the claim at all. In addition, Receivers tend to demand immediate delivery of all goods that remain in the creditor’s custody. Here, the contractual right of pledge pertaining to the goods under his custody may prove be a razor-sharp weapon for the creditor in obtaining payment of all his invoices notwithstanding the bankruptcy.

If properly agreed, the right of pledge may enable the creditor to:
– stay out of the bankruptcy
– auction the goods under his custody, or
– dispose of  the goods under private sale with consent of the receiver
– invoke the right of pledge towards third parties –  such as the legal owner of the goods – in certain circumstances
– depending on its wording, invoke the pledge not only for the claims pertaining to the goods in question , but also for all previous claims not specifically pertaining to the goods in question.

In the weeks to comes I will elaborate in this column, discussing inter alia

– how to enact a right of pledge into the contract
– in what standard General Terms & Conditions such a pledge already  is incorporated
– what formalities need to be fulfilled for successfully invoking a right of pledge
– what defenses can be expected from debtors, official receivers and third parties
– what other pitfalls and snags should be anticipated

In my legal practice I have assisted creditors several times in successfully invoking the right of pledge. As it appears, it all boils down properly enacting the right of pledge into the contract.

So stay tuned –  there is substantially more to come.

Frans Vreede
Independent Legal Consultant Aviation & Logistics Law

M +31650 213 971
frans@vreede.aero
www.fransvreede.aero