Borgstelling
Suretyship
Suretyship is a contract whereby a third party, the surety, undertakes towards the creditor to discharge the debt of the principal debtor in the event of the latter’s default.
Suretyship constitutes a form of personal security under Dutch law of obligations. The surety assumes an independent obligation without incurring any performance obligation of its own towards the creditor. The regime is set out in Book 7, Title 14 of the Civil Code.
A suretyship must be concluded in writing and may be granted in respect of both existing and future obligations. The surety enjoys certain protective rights, including the right of subrogation and the right to invoke the defences available to the principal debtor.
In practice, suretyship commonly arises in bank financings, lease agreements and commercial transactions, where a holding company, parent or director acts as surety in order to mitigate the creditor’s risk.
“The bank granted the loan only after the holding company had furnished a guarantee for the obligations of the subsidiary company.”
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