Pledge Ban Repeal Act takes effect July 1, 2025 – here’s what really changes

On Aug. 1, 2024, I previously wrote an article about the House of Representatives passing the Pledge Ban Elimination Act. In that article, you can read about why that law could mean a serious widening of financing space for you as a business owner.

The Abolition of Pledge Bans Act has now, on March 4, 2025, been passed by the Senate and will enter into force on July 1, 2025. With that, the bill has now finally become law. A reason for me to pay attention to the law again.

The new regulation eliminates clauses that make it impossible for entrepreneurs to pledge or transfer their trade receivables. There is a three-month transition period for already existing clauses, which means that as of Oct. 1, 2025, they too will be considered null and void. The consequences for entrepreneurs can be significant. It is important to prepare now.

End of contractual restrictions

As written earlier, pledge and assignment prohibitions were frequently used in commercial practice. Often these were automatically included in general terms and conditions or standard contracts, usually by the stronger party in the negotiation. This restricted the financing scope of smaller companies in particular, which were therefore unable to use their receivables to raise working capital through, for example, factoring or pledging with banks or financiers.

With this law, the legislator now puts an end to this. Trade receivables – that is, money receivables arising from a profession or business – may be pledged or transferred, even if a clause has previously been agreed that excludes this. Think not only of invoices for services rendered or goods delivered, but also of claims from, for example, purchase agreements relating to real estate or shares. The law now releases these receivables to serve as collateral for credit.

Contractual and property law clauses null and void

Importantly, this includes not only property law clauses – provisions that make assignment legally and technically impossible – but also covenant law clauses, where debtor and creditor have contractually prohibited each other from assigning the claim. Both types will henceforth be considered null and void. However, the current system for contract assignment will remain in place. This still requires the cooperation of the other party.

Negative pledge and pari passu continue to be allowed

Of particular note is that the law explicitly does not affect so-called negative pledge and pari passu clauses, provided they are agreed upon between the debtor and a third party.

A negative pledge is an agreement in which the debtor promises to a third party (usually a lender) that he will not pledge or encumber certain assets for the benefit of others, or at least not without consent. A pari passu clause requires the debtor to ensure that its obligations to one creditor are treated equally with those to others.

Because these clauses are not agreements between the creditor and debtor on the transferability of the claim itself, they fall outside the scope of the new law. Therefore, both clauses are found with some regularity in financing practice may still be an existing obstacle to pledging or assigning certain claims. Such clauses remain permissible, and their presence should be kept in mind when taking stock of what new opportunities the law offers for you.

Limited exceptions

The law also contains some exceptions to the prohibition of non-transferability clauses. For example, it does not apply to claims from checking and savings accounts, so-called G-accounts used for the payment of taxes and premiums, and clearing claims in financial transactions, such as with central banks and clearing houses. Claims from loan agreements where multiple lenders are parties (as in some Crowdfunding agreements) also remain exempt.

New space for funding

What does this mean for you specifically? First of all, it creates new opportunities to raise financing with receivables as collateral, even when this was previously excluded under an existing contract. This suddenly makes factoring, as well as classic lending based on receivables, much more accessible. At the same time, it will become easier for financiers to obtain security without in-depth contract analysis – and that works to the advantage of entrepreneurs who want to raise capital quickly

Areas of concern in practice

But note that the relaxation also brings new responsibilities. For example, the law now requires that when a trade receivable is transferred or pledged, the notice to the debtor must be in writing. As a business owner, you will therefore need to be able to accurately record and assess such communications. This requires a sharply structured administration. Whereas previously a debtor could ignore such a communication by invoking the assignment prohibition in the agreement, that defense will now be completely eliminated.

The lifting of the pledge prohibitions is also worth looking at in detail for lenders. If you have receivables in your portfolio from loans that were previously not transferable but now are, it can provide additional flexibility. Interest rates have risen compared to several years ago.

Therefore, it is wise to have your us review your portfolio to flag receivables that become marketable.

Prepare now

In short, this change in the law opens up new opportunities on a large scale, but at the same time requires good preparation. Which contracts still contain assignment prohibitions? Which receivables will soon become available as collateral? And how do you ensure that your organization is ready to actually use this new space?

We are happy to help you with that. Let us analyze your contracts, assess your position and together look ahead to July 1 and beyond. Because those who act now will soon be at the front of the queue with financiers.

Get advice

Do you have any questions? Then contact one of our lawyers by mail, telephone or fill in the contact form for a free initial consultation. We will be happy to think along with you.