On 11 September the Belgian Act that introduces certain measures to restrict the activities of vulture funds (the “Act”) was published in the Belgian Official Journal.

The text of the Act can be found in French here (FR) and in Dutch here (NL).

Background and key provisions

Vulture funds are funds that “prey” on debtors in financial difficulties by systematically buying distressed debt (bonds or loans) at a (very) low price, while speculating on the expectation that the relevant debtor will eventually return to a better financial position. Once the financial position of the debtor indeed allows this, vulture funds will proceed to claim full payment of the debt, including by way of court proceedings and court approved enforcement actions. The amount of profits vulture funds make are often very considerable compared to their initial and much smaller investment.

The new Act aims to discourage vulture funds when they would target sovereign debtors. Specifically, the law imposes the following limitations on creditors acquiring a loan or debt owed by a sovereign state:

  1. if, by acquiring the loan or debt, the creditor seeks to achieve an unlawful benefit, its right against the debtor for payment of the loan or debt will be limited by law to the amount of the price he paid for the acquisition; and
  2. if the payment of the acquired loan or debt by the debtor gives the creditor an unlawful benefit, then the creditor will not be allowed to obtain an order for enforcement or another form of enforceable title or to take any conservatory or enforcement measures against the debtor or its assets in Belgium, only if such title or measures are requested by the creditor for the purpose of obtaining payment of the loan or debt in Belgium.

A creditor is deemed to pursue an unlawful benefit (“nastreven van een onwettig voordeel” / “recherche d’un avantage illégitime”) whenever there is a manifest disproportion (“klaarblijkelijke wanverhouding” / “disproportion manifeste”) either (a) between the purchase price for the debt or loan payable by the creditor and the nominal amount of the acquired debt or loan or (b) between the purchase price for the debt or loan payable by the creditor and the amount for which the creditor is actually seeking payment from the debtor.

In order for the above limitations to apply, at least one of the following additional criteria needs to be met besides the manifest disproportion requirement:

  • the debtor was insolvent or upon the verge of insolvency at the time the debt or loan was acquired; or
  • the creditor has its seat in a country or territory that (i) is included in the list of “Non-Cooperative Jurisdictions” that was drawn up by the Financial Action Task Force (FATF), (ii) is referred to in article 307, § 1, 5th paragraph of the Belgian Income Tax Code, or (iii) is included in the list, drawn up by the Belgian Government, detailing the countries that refuse to negotiate and to sign an agreement which provides for the automatic exchange of information with Belgium in the field of fiscal and banking matters, in conformity with OECD standards, and which should be in place as of 2015;
  • the creditor uses court proceedings systematically to claim payments of debt or loans that it bought previously;
  • the debtor was the subject of debt restructuring measures, in respect of which the creditor has refused its cooperation;
  • the creditor has abused the financially distressed situation of the debtor by agreeing a clearly unbalanced repayment agreement; or
  • full repayment of the amounts being sought by the creditor would have a demonstrably unfavourable impact on the country’s financial situation and could jeopardize the social economic development of its people.

The Act states that its provisions are subject to the application of international treaties, the laws of the European Union, or bilateral treaties.

Entry into force

The Act will enter into force on 21 September 2015.