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Criteria for enforcement

What are the common enforcement triggers for loans, guarantees and security documents?

The occurrence of one or more events of default under the finance documentation will usually trigger enforcement. Such default events may include, among other things:

  • the non-payment of an amount payable under the finance documentation;
  • the misrepresentation or breach of an obligation; or
  • insolvency and change of control.

Process for enforcement

What are the most common procedures for enforcement? Are there any specific requirements with which lenders must comply?

There are specific enforcement procedures for each type of security interest, which may depend on what has been agreed between the security provider and the security beneficiary, so the security documentation will need to be reviewed. The time of enforcement – before or during an insolvency procedure – will also be relevant.

The general rules on the enforcement of Belgian law security interests are as follows:

  • Mortgage (immovable property) – the procedure to enforce a mortgage is subject to certain formalities and conditions. Prior court authorisation is required, unless the loan agreement is also notarised. Enforcement of a mortgage starts with a formal order for payment to be served on the debtor. A bailiff must be involved and the mortgage property must be seized. The court must supervise the sale of the mortgaged property.
  • Bank account pledge – the pledge agreement will usually allow the pledgee to appropriate the cash standing to the credit of the pledged bank account if a certain event occurs by sending a notice to the credit institution or other financial institution holding the pledged bank account.
  • Receivables pledge – a receivables pledge agreement will often allow the pledgee to collect the receivables if a certain event occurs by sending a notice to the debtors of the pledged receivables.
  • Share pledge – unless the pledge agreement provides otherwise, the pledgee may enforce a share pledge without prior notification or court approval. The pledgee may appropriate the shares if the pledgor(s) and the pledgee agreed that the pledgee may appropriate the shares if the pledge is enforced, provided that the pledgor(s) and the pledgee agreed on a method to value the pledged shares (which is rarely the case).
  • Other security interests – as a rule, prior court authorisation is required and the court must supervise the sale. Under the New Belgian Pledge Law, the procedure to enforce such other security interests is simplified and prior court approval will no longer be required, unless the pledgor is a consumer).

Enforcement of security granted by a Belgian security provider may be subject to additional formalities or requirements or even be suspended if the security provider is subject to an insolvency procedure.

Ranking in insolvency

In what order do creditors rank in case of the insolvency of a borrower?

The ranking of creditors in case of the insolvency of a Belgian borrower or guarantor is a complex matter under Belgian law. In general, a creditor benefiting from a security interest or another specific lien over an asset will have priority over the proceeds of the sale of such an asset. If several creditors obtained a valid security interest over a specific asset, the secured creditor that made its security interest effective against third parties first will usually have first priority. However, certain creditors benefit from a super-priority lien and will rank ahead of other creditors, including first-ranking secured creditors. Creditors benefiting from such a super-priority lien include creditors of certain judicial costs or the creditor of costs made to maintain or preserve assets.

This article was co-authored by Kasper Van Landeghem.