(Originally published on November 10, 2011)

Since the entry into force of the Financial Collateral Act of 15 December 2004 (the "Collateral Act") implementing Directive 2002/47/EC on financial collateral arrangements as regards linked systems and credit claims (the "Collateral Directive"), financial collateral arrangements have benefitted from increased flexibility and legal certainty in Belgium. In particular, the Collateral Act sets forth simplified rules for the enforcement of collateral arrangements and acknowledges the validity and enforceability of substitutions and margin calls, transfers of title for security purposes, repo transactions and (close-out) netting arrangements, even in the event of insolvency.

Nevertheless, further harmonisation and an extension of the scope of the Collateral Directive were deemed necessary, leading to Directive 2009/44/EC amending Directive 98/26/EC on settlement finality in payment and securities settlement systems and the Collateral Directive. The Act of 26 September 2011 implements Directive 2009/44/EC in Belgium (the "Amending Act"). The Amending Act was published in the Belgian State Gazette on 10 November 2011 and will enter into force on the same date.

The most important changes introduced by the Amending Act are briefly summarised below.

Credit claims recognised as eligible financial collateral

The first and most important change brought about by the Amending Act is an extension of the scope of the Collateral Act to credit claims. The Amending Act defines a credit claim as a pecuniary claim arising out of an agreement whereby a credit institution, mortgage institution or any other entity that extends credit to consumers grants credit or a loan.

As a result, credit claims can now be pledged or transferred for security purposes, in the same way as financial instruments or cash. If an enforcement event occurs, the collateral taker can realise the credit claim as financial collateral, without prior notice or court approval, notwithstanding the existence of any insolvency proceedings or seizure. In addition, the collateral taker is entitled to realise the collateral by way of appropriation, provided the collateral agreement contains provisions to this effect, namely on the valuation of credit claims. The Collateral Act also recognises the assignment of credit claims for security purposes.

To further enhance the transferability of credit claims, the Amending Act introduces the possibility for the debtors of such claims to waive their set-off rights with regard to their creditors and the beneficiaries of the pledge or security agreement. Debtors can also waive bank secrecy rules, thereby allowing creditors to disclose information about the claim and the debtor. Of course, these provisions are without prejudice to mandatory rules of law on consumer credit.

Simplification of the formalities for the pledge or assignment of a mortgage-backed credit claim

A second important change introduced by the Amending Act is that the assignment for security purposes or the pledge of a mortgage-backed claim is no longer subject to the (burdensome and expensive) formalities set out in Articles 5 and 92(3) of the Mortgage Act of 16 December 1851. As a result, an assignment for security purposes or pledge of a mortgage-backed credit claim is enforceable against third parties without having to fulfil any formalities, other than execution of the relevant financial collateral agreement, or pay the 1% registration duty. However, the collateral provider must provide proof of the identity of the pledgee or assignee at the request of any third party.

These changes significantly facilitate the transferability of mortgage-backed credit claims thereby extending the possibilities for credit institutions to raise funds.

Shares of a BVBA/SPRL and CV/SC

Previously, there was some uncertainty as to whether financial instruments had to be traded on a capital market in order to fall under the scope of the Collateral Act. This uncertainty was due to the definition of a financial instrument which, further to the Act of 2 August 2002 on the supervision of the financial markets and financial services, refers to securities traded on a capital market. However, not all companies' shares can be traded on a capital market, in particular those of a private limited-liability company (BVBA/SPRL) or a cooperative company (CV/SC).

While a majority of the literature agreed that the legislature did not intend to exclude inherently untradeable shares, clarification was deemed necessary. The Amending Act therefore specifies that financial instruments, regardless of whether they can be traded on a capital market (e.g. shares in a BVBA/SPRL or CV/SC), fall within the scope of the Collateral Act.

As a result, pledges of the shares of a BVBA/SPRL or CV/SC can now also benefit from the flexible enforcement rules of the Collateral Act.  It should be kept in mind, however, that the Collateral Act does not override the share transfer restrictions applicable to the BVBA/SPRL and CV/SC set forth in the Belgian Company Code.

Exclusion of netting arrangements with non-merchants

On 27 November 2008, the Constitutional Court ruled that the Collateral Act's protection of (close-out) netting arrangements violates the principle of equal treatment set forth in the Belgian Constitution, to the extent that it applies to arrangements entered into with individuals who are not merchants (commerçants/handelaren). As the exact scope of the Constitutional Court's decision remained unclear, there was legal uncertainty in this area.

The Amending Act expressly excludes from the scope of the Collateral Act netting arrangements with non-merchants, including close-out netting arrangements. Consequently, a determination of whether the counterparty is a merchant should be made when entering into a netting arrangement.

Collateral Act partially inapplicable during judicial reorganisations

The Collateral Act's simplified rules on the enforcement of collateral arrangements were applicable in the event of a suspension of the enforcement of security interests during a judicial reorganisation under the Business Continuity Act (Loi sur la Continuité des Entreprises /Wet Continuiteit Onderneming). However, certain case law had held to the contrary.

The Amending Act provides that the Collateral Act's rules on the enforcement of pledges of bank accounts and credit claims (Arts. 9, 9(1) and 15) and the exercise of netting arrangements (Arts. 14 and 15) are not applicable during a judicial reorganisation (i) involving a debtor that is not a public or financial entity (as defined in the Amending Act) or (ii) if the debtor is a public or financial entity, the provisions can only be relied on by creditors that are public or financial entities, except in both cases in the event of default of the debtor. In practice, this means that if court-supervised reorganisation proceedings are commenced against a debtor other than a public or financial entity, creditors are not entitled to enforce their security interests or carry out netting arrangements on the sole ground that such proceedings have been opened.

Likewise, these provisions do not apply in the event the Belgian government takes a decision calling for the disposal of assets belonging to a distressed credit institution or insurance undertaking whose financial situation could undermine the stability of the Belgian or international financial system.

As an exception to the foregoing, the new rules do not apply (i) if the collateral taker exercises a netting arrangement without calling for the termination, rescission or early repayment of the contractual arrangement; (ii) to the enforcement of a pledge of financial instruments (Art. 8 of the Collateral Act), a transfer for security purposes (Art. 12 of the Collateral Act) or a repo transaction (Art. 13 of the Collateral Act); or (iii) to the enforcement of any type of financial collateral relating to derivatives.


(Originally published on May 23, 2011)

With effect from 11 May 2011, the Dutch rules on financial collateral arrangements (FCAs) have been amended. The amendment act, which implements Directive 2009/44/EC (the Amending Directive) in Dutch law, allows so-called "credit claims" to be used as collateral under an FCA. This newsletter discusses the most important changes.

General introduction on FCAs

An FCA is an agreement under which a collateral provider provides financial collateral to a collateral taker as security for the performance of one or more obligations. This can either be through the creation of a pledge on or through an outright transfer of title to the financial collateral. By law, a collateral taker under an FCA enjoys a number of advantages that are not available to a "traditional" collateral taker. However, these advantages only apply if the FCA is concluded between certain categories of parties. In addition, prior to the amendment of the Dutch rules on FCAs, only cash (i.e. monies credited to an account or deposit) and securities could constitute "financial collateral".

Extension of scope of statutory rules on FCAs

As a result of the amendment act, it is now also possible for so-called "credit claims" to be used as "financial collateral" under an FCA. The Dutch FCA rules are based on Directive 2002/47/EC (the Collateral Directive), which was amended by the Amending Directive. One of the reasons behind the Amending Directive is that, with effect from 1 January 2007, the European Central Bank decided to introduce credit claims as an eligible type of collateral for Eurosystem credit operations. The amendments under the Amending Directive are intended to maximise the economic impact of the use of credit claims and to contribute to a level playing field among credit institutions in all EU member states.

Definition of credit claims

Credit claims are defined in the Dutch FCA rules as pecuniary claims arising out of an agreement whereby a credit institution, as defined in Section 1:1 of the Dutch Financial Supervision Act (e.g. a bank), grants credit in the form of a loan. Where the debtor is a consumer, a claim will only constitute a credit claim within the meaning of the Dutch FCA rules if the collateral taker or the collateral provider is a central bank (or a comparable supranational institution such as the European Central Bank). In enacting this restriction, the Dutch legislature chose to utilise an opt-out option under the Amending Directive.

Credit claims as collateral under an FCA


The creation of a pledge on or the outright transfer of title to a credit claim pursuant to an FCA is subject to the regular Dutch statutory rules on pledges and transfers of ownership. The transfer of a credit claim pursuant to an FCA does, however, benefit from Section 7:55 of the Dutch Civil Code, which states that such a transfer will not constitute a fiduciary transfer of ownership as prohibited by Section 3:84(3) of the Dutch Civil Code.

Use and sale

Where a pledge pursuant to an FCA has been created on cash or securities, such collateral may be used or sold by the collateral taker (provided that this is permitted under the terms of the FCA). In such a case, the collateral taker must transfer equivalent collateral to the collateral provider to replace the original collateral. Under the amendment act, however, it is not possible to use or sell collateral consisting of credit claims. The reason for this is that (according to the legislative history of the amendment act) credit claims are not fungible, and consequently no equivalent collateral could be transferred by the collateral taker. Where title to credit claims has been transferred pursuant to an FCA, the collateral taker can use or sell the credit claims by virtue of its ownership rights.


Upon the occurrence of an enforcement event, credit claims pledged pursuant to an FCA can be sold and the proceeds thereof can be set off by the collateral taker against the obligation(s) secured by the FCA. This is in addition to the powers to collect pledged claims granted to a "traditional" pledgee. In case of a title transfer FCA, the collateral taker is, by virtue of its ownership rights, entitled to sell and collect the credit claims as well.

Other changes

The amendment contains a number of changes other than those related to the introduction of credit claims as a form of financial collateral. The following are the most notable:

  • Where a pledge has been created pursuant to an FCA, the collateral provider now has a preferential right in respect of its claim against the collateral taker for equivalent collateral following the use or sale of the original collateral. The aim of this change is to strengthen the collateral provider's position in the event of the collateral taker's bankruptcy.
  • The amendment act contains changes regarding settlement finality in payment and securities settlement systems. These changes implement the amendments to Directive 98/26/EC (the Settlement Finality Directive) laid down in the Amending Directive.