The situation in this case is as follows. A Russian bank granted a loan to A. As security for this loan, C and D pledged their shares in a Dutch private limited company to the bank.

A defaults on the loan, whereupon the Bank initiates legal proceedings (arbitration) in Moscow. The Russian arbitrator establishes the debtor's default and rules that the loan is due. A has appealed this ruling.

In the meantime, the Bank wants to liquidate its rights under the pledge agreement and requests the notary to auction the pledged shares, but the notary refuses. The bank summons the notary and C and D.

The dispute concerns how the pledge agreement should be interpreted. The agreement stipulated that the bank could only proceed with foreclosure of the shares if A were in default. “evidenced by a court decision of a competent court”. The Bank argues that this clause should be interpreted grammatically. The Russian arbitrator was authorized to rule on the dispute, the recognition of the Russian arbitrator was not the subject of the dispute, and the default was established by this authority. So what is the notary waiting for?

The court, however, reaches a different conclusion. First, the Dutch (interim relief) judge interprets the clause of the deed of pledge as intended to protect the pledgors (C and D). Moreover, these are pledgors who provide security for a third party, not for themselves. Under such circumstances, it should not be too easily established that there is default and grounds for enforcement of the pledges. The provision must therefore be interpreted as meaning that it must concern a irrevocable Decision of a competent court. Since the appeal is still pending, the Dutch court concludes that this condition is not met. Therefore, the lien cannot be liquidated. The court therefore disregarded the grammatical interpretation.

This ruling is a prime example of how Dutch law looks beyond the mere letter of the document. To prevent disputes like this, it's important to draft contracts properly and steer them toward the (often grammatical) interpretation desired by the parties. By including clear definitions and provisions that steer toward a grammatical interpretation, ambiguities like these can be minimized. Consult your lawyer for this.

Read the ruling discussed above here.

The Netherlands is required by June 26, 2017, to establish a so-called "UBO register" listing all major shareholders of Dutch legal entities. This register, which follows from a European directive, is intended to further combat money laundering and terrorist financing. The downside is that it jeopardizes the privacy and security of major shareholders and family businesses in the Netherlands, but also throughout Europe.   

UBO stands for "Ultimate Beneficial Owner." Simply put, a UBO is the natural person who pulls the strings behind the scenes at a company or other legal entity, such as a foundation trust office. Whether this is the case must be assessed on a case-by-case basis. A UBO's interest in the company exceeds 25%, among other things.

The outlines of the UBO register in the Netherlands have already been announced. The bill has not yet been submitted to the House of Representatives. The proposed UBO register will include (1) name, (2) month of birth, (3) year of birth, (4) nationality, (5) country of residence, (6) and the nature and extent of the interest. If the Dutch government has its way, this register will be made publicly accessible.

Family businesses and major shareholders fear for their personal safety and that of their family members if information about their assets becomes public knowledge. With this information and the published annual accounts, anyone can determine someone's worth. A boon for journalists, magazines like Quote 500, and curious neighbors.

The government considered privacy and security subordinate to the higher goal of preventing money laundering and terrorist financing. Apparently, the government has forgotten the kidnappings that have affected wealthy families (Heineken, Heijn, Van der Valk, Alberda Jelgersma). Family businesses and major shareholders are therefore scrambling to find ways to avoid UBO registration.

Interests held through a Curaçao trust agreement and a Private Fund Foundation are, in principle, excluded from the UBO register. For trust offices that also wish to provide services to family offices, the Curaçao trust and Private Fund Foundation instrument could develop into an attractive product and provide a positive boost to the sector. The transfer of control from, for example, a Dutch trust office foundation to a Curaçao trust requires comprehensive legal and tax guidance in two jurisdictions.

This article was published in the Amigoe from March 7, 2017

See also the previously published article about the UBO register and the central shareholder register.