PARALLEL DEBT IN CURACAO

New legislation

It has become market practice in Curacao, and also in the Netherlands, to create a separate (parallel) obligation, owed by the borrower (or guarantor) to the security agent in its own name, on the terms and in an amount equal to the original (principal) obligations owing by the borrower (or guarantor) to the lenders.

The security rights are then granted to the security agent in its own name to secure the parallel debt. This “parallel debt” structure is usually reflected in the facility agreement and gives the security agent an own and independent right to demand payment by the relevant obligor of all amounts owed under the finance documents. The security documents in their turn provide that security is created to secure the parallel debt. This parallel debt concept is not expressly recognized by Dutch (case) law and it could be argued that a security interest to secure the parallel debt contravenes the accessory nature of the security interest.

As of January 1st 2012, the uncertainty of whether a valid security right can be created in favor of a person who is not the creditor of the secured obligations no longer exists under Curacao law. This is due to the introduction of a new paragraph 3 to section 231 of Book 3 of the Curacao Civil Code, which provides that an obligation for which a right of pledge or mortgage has been granted could be owed to a party not being the pledgee or mortgagee.

Karel Frielink
Attorney (Lawyer) / Partner

(18 February 2012)

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