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Assignment of receivables secured by pledge agreement

The Supreme Court of the Czech Republic dealt with whether an assignment of a receivable arising from a secured obligation also transfers the ancillary clauses of the pledge agreement, e.g. the right to demand a contractual penalty, to the new owner.

In case No. 21 Cdo 3283/2024, the creditor assigned a receivable from a loan agreement, which was secured by the real estate of the managing director - the debtor (pledgor), to a third party - the assignee. The new owner of the receivable subsequently demanded that the debtor pay them a contractual penalty under the pledge agreement because they allegedly did not allow the new owner to enter the real estate as was agreed in the pledge agreement. However, according to the general courts, the assignee was not in the position to demand any contractual penalties since the pledge agreement as such had not been transferred to them.

Assessment by the Supreme Court

The Supreme Court stated that an acquirer of a receivable does not automatically become a party to the pledge agreement. They therefore do not have the right to demand the performance of the pledge agreement’s obligations that do not serve to exercise the pledge as such. The statutory regime of the assignment of receivables only covers rights that form a functional whole with the receivable, typically the right to be satisfied from the collateral.

According to the Supreme Court, a contractual penalty for the failure to provide cooperation (e.g. failure to allow access) cannot be considered part of the assigned receivable. For this, the pledge agreement as a whole would have to be assigned. In other words: upon the assignment of a receivable, the collateral as such (more precisely the creditor’s right to be satisfied from the realisation of the collateral) is transferred but the separate rights and obligations under the pledge agreement are not.

Therefore, unless the agreement has been expressly assigned to them, the new owners of the receivable cannot without further ado exercise all rights arising from the pledge agreement. The legal effects of a sole agreement on assignment “including security” do not cover individual contractual obligations between the pledgor and the original pledgee that are not directly related to the realisation of the pledge.

The Supreme Court’s case law thus confirms that rights under securing agreements are not transferred to the assignee of a (secured) receivable without an express agreement. The application of contractual penalties or other ancillary provisions requires a separate and express assignment of the pledge agreement, not just a general reference to the assignment of a receivable “including security”. In the absence of such arrangement, the assignee may easily lose the ability to effectively enforce the related rights.

We will be happy to assist you in reviewing and properly setting up contractual documentation for the assignment of secured receivables to ensure legal continuity in cases of more complex contractual relationships.