The Act of 21 December 2013 on the financing of SMEs (the “SME Financing Act”) introduced legislation that regulates how SMEs are financed . On 8 January of this year, the law amending the SME Financing Act has entered into force (the “Amending Act”).
The Amending Act, as published in the Belgian Official Gazette on 29 December 2017 (Dutch/French), resolves some (but not all) points of contention regarding the scope of application, makes more credit agreements subject to prepayment penalty restrictions, and it introduces some additional limitations and obligations for lenders.
Scope of application narrowed
As before, the law applies to SMEs only. Following the implementation of Directive 2013/34/EU (the “Accounting Directive"), a company is regarded as an SME if a maximum of one of the following criteria (based on the balance sheet date of the last-closed financial year) is met:
- average number of employees is 50;
- annual turnover (VAT excluded) is EUR 9,000,000;
- balance sheet total is EUR 4,500,000.
The Amending Act does not alter these criteria, but it does resolve two points of contention:
- a company will only be considered an SME if the group of companies of which it is part also meets these criteria on a consolidated basis; and
- if multiple parties seek financing together, they will only benefit from the SME Financing Act if each and every one of them can be considered an SME.
More loans subjected to prepayment penalty cap
The Amending Act now caps any prepayment penalty at six months of interest on the prepaid amount for all financings up to an original principal amount of EUR 2,000.000. Previously, this cap only applied to financings up to EUR 1,000,000.
Other additional terms for prepayment penalties
With regard to loans to SMEs above EUR 2,000.000, the prepayment penalty will – as before – have to be determined by the parties, in accordance with the formula set out in the code of conduct drafted by sector organisations representing both Undertakings and Providers of Credit (the “Code of Conduct").
However, the Amending Act specifies that the amount determined in accordance with the Code of Conduct is only a maximum so that parties can agree on a lower amount.
If the prepayment penalty stipulated in the contract exceeds the amount permitted by the SME Financing Act, the penalty will be determined ex aequo et bono by a court.
The Amending Act clarifies that the amount determined by a court no longer has to be equal to the amount calculated using the formula in the Code of Conduct, but that it can be lower.
No modification fee
The Amending Act further specifies that no penalty or fee may be charged if security interests and/or guarantees provided for the financing are modified, unless such modification involves an actual termination of the financing (entirely or partly).
Regulation of security interests and guarantees
Additional obligation to inform
If a lender proposes to extend credit to an SME on the condition that certain security interests or guarantees are provided, then the lender will henceforth have to inform the SME in a transparent and clear way about the most significant characteristics of the relevant security interests and/or guarantees and their impact on the credit request.
Right to seek release of security interest and/or guarantee
Under the amended rules, an SME will have the right to seek the (partial or full) release of the security interests or the guarantees if the financing has been repaid partly or fully.
The lender may refuse this request, but only if its refusal is expressed in writing and contains the most significant elements that led to that decision.
Enhanced obligation duties
The obligation of a lender to inform the borrower is enhanced through additional specifications:
- at the time of the financing request: the lender must give the SME a written overview of all of the different forms of financing that it could offer (and their characteristics and specific consequences) that could be appropriate for the SME;
- at the time of the financing offer: the lender needs to give an information document to the SME, the contents of which are set out in the Code of Conduct.
The lender's particular obligations to inform under the SME Financing Act will not apply to future financings below EUR 25,000 if the contract does not include a prepayment penalty clause and no security interests or guarantees are involved.
Additional unfair contract terms
Contract clauses that give the lender the right to unilaterally change the interest rate or formula, costs, provisions or any other form of fee or remuneration will henceforth also be considered unfair and therefore null, unless such right is subject to reasonable prior notice and is exercisable only with reference to objective criteria.
Code of Conduct
As a consequence of the Amending Act, the Code of Conduct will need to be adapted by the respective organizations representing the SMEs and professional lenders.
Entry into force
The Amended Act entered into force on 8 January 2018 and will apply to all financing agreements entered into on or after this date.