# Pledge

Source: https://contracko.com/glossary/pledge

# Pledge

A security right over movable property or claims giving the holder priority on enforcement.

## Definition

A pledge (pandrecht) is a security right over movable assets, rights or claims that entitles the pledgee to satisfy its claim from the pledged object with priority over other creditors. Dutch law recognises both a possessory pledge and an undisclosed (silent) pledge created by registered or notarial deed, the latter common over receivables and stock. On default the pledgee may sell the asset and recover from the proceeds.

## Example

> A bank takes an undisclosed pledge over a borrower receivables as security for a working-capital facility.

## Why this is a business risk

A pledge that is not properly created or registered may be unenforceable, leaving the secured creditor as an unsecured creditor in insolvency. For debtors, granting a pledge without tracking what has been pledged to whom can create conflicting security interests or inadvertent breaches of negative pledge covenants in other contracts. Managing pledge registrations across a portfolio requires close coordination between legal and finance teams.

## How to manage it

- Ensure the pledge is created in the correct form: a registered or notarial deed for an undisclosed pledge, or actual transfer of possession for a possessory pledge.
- For a silent pledge over receivables, set up a process to notify debtors when required (on default) and to regularly update the pledged receivables register.
- Check your existing contracts for negative pledge clauses before granting new security to avoid inadvertent breaches.
- Track the pledged assets and their estimated value relative to the secured obligation, requesting additional security if the value of pledged assets falls materially.
- On default, take prompt enforcement steps; delay may affect priority against other creditors or reduce realisation proceeds.

### How Contracko helps

Contracko's contract repository and AI analysis help identify pledge and security provisions across uploaded agreements, including negative pledge covenants that would restrict new security grants. Centralising this data reduces the risk of inadvertent breach when new financing arrangements are put in place.

## Legal references

- [BW 3:227 Dutch Civil Code: pledge Dutch law](https://wetten.overheid.nl/BWBR0005291)
- [BW 3:237 Dutch Civil Code: undisclosed pledge Dutch law](https://wetten.overheid.nl/BWBR0005291)

Unless marked otherwise, references are to Dutch law (Burgerlijk Wetboek, the Dutch Civil Code); EU instruments such as the GDPR apply across the EU. This is general information, not legal advice. Other jurisdictions treat these concepts differently. Verify the current text and your situation with a qualified lawyer.

## Relevant for

[Financial Services](https://contracko.com/industries/financial-services)[Logistics & Distribution](https://contracko.com/industries/logistics)[Manufacturing](https://contracko.com/industries/manufacturing)

## Related clauses

- [Retention of Title](https://contracko.com/clause-library/retention-of-title)
- [Payment Terms Clause](https://contracko.com/clause-library/payment-terms)

## Related terms

- [Retention of title](https://contracko.com/glossary/retention-of-title)
- [Right of retention](https://contracko.com/glossary/right-of-retention)
- [Bank guarantee](https://contracko.com/glossary/bank-guarantee)
- [Bankruptcy](https://contracko.com/glossary/bankruptcy)

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## Frequently asked questions

Common questions about this term.

- **Q:** What is the difference between a possessory and a silent pledge?
  **A:** A possessory pledge (vuistpand) requires the pledged asset to be physically transferred to the pledgee. A silent pledge (stil pandrecht) is created by a registered or notarial deed without transferring possession; it is common for receivables and inventory that the pledgor needs to continue using.

- **Q:** What is a negative pledge covenant?
  **A:** A negative pledge covenant is a contractual promise not to grant security over specified assets to other creditors without the existing creditor's consent. It protects the creditor from being subordinated by new security holders.

- **Q:** Can a pledge be enforced before the debtor is declared bankrupt?
  **A:** Yes, on default the pledgee can enforce the pledge without waiting for bankruptcy. In fact, enforcing before bankruptcy is preferable since bankruptcy triggers a stay on enforcement and the pledgee must then proceed under the supervision of the receiver.

- **Q:** How does a pledge over receivables work in practice?
  **A:** The pledgor assigns the receivables by deed (registered with the tax authorities for a silent pledge). On default the pledgee notifies the debtors of the pledge and collects payments directly. Until notification, the pledgor continues to collect and must account to the pledgee.

- **Q:** What happens to a pledge in the debtor bankruptcy?
  **A:** A pledgee is a secured creditor and has priority over unsecured creditors from the proceeds of the pledged asset. The receiver may give the pledgee a reasonable period to enforce; if not used, the receiver can sell the asset on behalf of the pledgee, deducting a contribution to general bankruptcy costs (boedelkosten).

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