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Trends and regulatory climate
What is the current state of the lending market in your jurisdiction and have any new trends emerged over the last 12 months?
According to the Belgian Financial Sector Federation (Febelfin), the amount of outstanding credit owed to companies reached a new high in December 2017 – €147.7 billion. On an annual basis, this amount represents an increase of 5.2%. According to several National Bank of Belgium publications, companies are increasingly opting for long-term (credit) loans. Companies in Belgium generally consider that access to credit is not one of their main concerns, particularly as interest rates continue to remain relatively low. This is one of the reasons why companies have been investing more in recent years.
The New Belgian Pledge Law 2013 on security interests over movable assets finally entered into force on January 1 2018. A royal decree implementing the new law and establishing the rules regarding use of the national online pledge register was published on September 14 2017 and entered into force at the same time as the New Belgian Pledge Law. The new law makes it easier to create security interests over movable assets located in Belgium and ensure that such interests are effective against third parties, while greatly reducing the costs for doing so.
The Law of December 21 2017 brought certain amendments to the Law of December 21 2013 on the financing of SMEs. The main changes include:
- limitations on the scope of application;
- a reduction in the value threshold for the penalty payment of six months (from €2 million to €1 million);
- no modification fee if the provided security interests or guarantees are modified; and
- additional information obligations on the lender.
Most of the provisions entered into force on January 8 2018; the remaining provisions entered into force on March 1 2018.
Crowdfunding is an emerging trend in Belgium and has received special attention from the Belgian government, the Belgian financial supervisor (the FSMA) and legal practitioners. On December 18 2016 a new law concerning the rules for alternative financing platforms was adopted to regulate certain crowdfunding platforms. Such platforms – which allow the public to invest to gain a profit – must now obtain FSMA authorisation and comply with certain rules of conduct. Nevertheless, the amount of credit and equity raised by crowdfunding remains low. According to Fintech Belgium, the total amount invested on crowdfunding platforms in 2017 was approximately €22 million.
Regarding the blockchain phenomenon, the FSMA recently turned its attention to the growing investments in digital tokens for initial coin offerings (ICOs) and published a communication addressed to tokens offerors and investors. The communication specified that, in addition to the EU legislation provided in the European Securities and Markets Authority’s statements on ICOs, the following regulations may apply depending on the structure of an ICO:
- The FSMA Regulation of April 3 2014 on the ban on the distribution of certain financial products to retail clients;
- The Law of June 16 2006 on public offers of investment instruments and the admission of investment instruments to trading on regulated markets; and
- The Law of December 18 2016 on the recognition and definition of crowdfunding and finance.
The communication is also intended to raise investor awareness about the complexity and risks of ICOs, as well as the speculation that may exist around them.
Is secured lending a regulated activity in your jurisdiction?
Secured lending to commercial entities as such is not a regulated activity. However, if a lender also takes deposits or other repayable funds from the public, it will qualify as a credit institution and require a banking licence. In addition, only authorised entities may enter into financial lease arrangements. Further, lending to consumers is regulated. Lenders that grant loans to consumers in Belgium also must be authorised.
In addition, granting loans or credit facilities to SMEs is subject to specific rules under the SME financing law. However, lending to SMEs is not subject to specific authorisation or licensing requirements.
Are there any specific regulatory issues which a prospective borrower should consider when arranging or entering into a secured loan facility?
There are no specific financial regulatory issues that a prospective borrower should consider. However, prospective borrowers from certain industries may be subject to specific regulations.
Are there any specific regulatory issues which a prospective lender should consider when arranging or entering into a secured loan facility?
There are no specific financial regulatory issues that a prospective lender should consider when arranging or entering into a secured loan facility.
Before the entry into force of the New Belgian Pledge Law, business pledges could be granted only for the benefit of EEA-licensed credit institutions or certain financial institutions. This condition has now been abolished.
Are there plans or proposals for reform or significant changes to the regulatory landscape in this area?
The SME financing law is subject to review, although it is not expected to be extensively amended in near future.
Structuring a lending transaction
Who are the active providers of secured finance in your jurisdiction (eg, international banks, local banks or non-bank financial institutions)?
The most active providers of secured finance in Belgium are international and local banks.
Much attention has been given to alternative financing methods (eg, crowdfunding, credit granted by alternative investment funds and other forms of direct lending), but the total amount of credit granted by such alternative financing methods remains relatively low compared to traditional bank lending.
Is well-established market-standard facility documentation used in your jurisdiction for secured lending transactions?
Loan Market Association-style documentation is often used for larger and syndicated transactions. However, depending on the loan size and the deal structure, Belgian banks may also use their own templates to document secured lending transactions.
Are syndicated secured loan facilities typical in your jurisdiction?
Yes. Syndicated secured loan facilities are typical in Belgium, especially for larger loans.
How are syndicated facilities normally structured? Does the law in your jurisdiction allow a facility agent to be appointed to act on behalf of other banking syndicate members?
Yes. A facility agent may be appointed under a syndicated facility to act on behalf of other banking syndicate members.
Does the law in your jurisdiction allow security and guarantees to be held on trust by a security trustee for the benefit of the banking syndicate?
A security interest must be granted to the creditor(s) of the secured claims and cannot be held by a person acting on account of one or more creditors. Therefore, a parallel debt undertaking is often used to create a security interest in favour of a security agent. Under such a parallel debt, the security agent has its own independent claim against the obligors that corresponds to the amount owed by such obligors. The Belgian security interest will secure such a parallel debt undertaking.
Nevertheless, under the Belgian Law of December 15 2004 on financial collateral, a security interest over financial instruments (including shares and bank accounts) may be granted in favour of a representative of one or more creditors.
Since the New Belgian Pledge Law entered into force on January 1 2018, it has also been possible to grant security interests over all types of movable asset in favour of such a representative, provided that the beneficiaries have been identified in the pledge agreement. The representative may exercise all rights usually assigned to the pledgee and – unless otherwise agreed – will be severally liable with the beneficiaries.
Special purpose vehicle financing
Is it common in secured finance transactions for special purpose vehicles (SPVs) to be used to hold the assets being financed? Would security generally be given over the shares in the SPV or would lenders require direct asset security?
A special purpose vehicle may be used depending on the type of transaction. Security is generally given over the shares in the SPV as well as a direct asset security.
Is interest most commonly calculated by reference to a bank base rate or a market standard variable reference rate (eg, LIBOR, EURIBOR or HIBOR)? If the latter, which is the most commonly used reference rate in your jurisdiction?
Interest is most commonly calculated by reference to the EURIBOR variable reference rate.
Are there any regulatory restrictions on the rate of interest that can be charged on bank loans?
Generally speaking, commercial parties are free to determine the rate of interest. The loan agreement must expressly state that interest must be paid and it is also recommended that the interest rate be stated. Only the following limited number of regulatory restrictions on the rate of interest can be applied to bank loans.
First, a lender may not claim interest on overdue interest, unless:
- the overdue interest has accrued over a period of more than one year; and
- the interest has formally been claimed by the creditor, or the debtor has agreed to pay it, after such a period has effectively passed.
In addition, certain restrictions on early repayment charges apply to loans that qualify as loans under the Civil Code (excluding credit facilities) and loans that are granted to SMEs and are subject to the SME financing law. Loans qualifying as loans under the Civil Code (excluding credit facilities) are also subject to the following restrictions:
- If the interest exceeds the statutory interest rate and the risks associated with the loan, it may be reduced if the lender abused the borrower’s weaknesses.
- Any interest increases charged for such loans in case of late payment are subject to certain restrictions.
Further, a lender may not abuse a borrower’s weak position by charging excessive interest. Such abuse may constitute a crime if certain conditions are met.
The rate of interest that can be charged on bank loans or other forms of credit granted to consumers may not exceed a certain cap and is also subject to certain other restrictions.
Use and creation of guarantees
Are guarantees used in your jurisdiction?
Yes. Guarantees are often used in Belgium.
What is the procedure for their creation?
A guarantee is usually created in writing, with no further specific formalities. However, a guarantee granted by a natural person qualifying as a surety without charge is subject to specific formalities and conditions.
Do any laws affect or restrict the granting or enforceability of guarantees in your jurisdiction (eg, upstream guarantees)?
Yes. Certain laws may affect or restrict the granting or enforceability of guarantees in Belgium.
The grant of a guarantee by a Belgian company may be challenged if:
- the company granted the guarantee with no intention of making a profit;
- the grant of guarantees does not serve the company’s corporate purpose as stated in its articles of association; or
- the grant of the guarantee is not for the company’s corporate benefit.
Whether a specific transaction is for a company’s corporate benefit is a factual matter. Generally speaking, the grant of downstream guarantees presents few problems, but the corporate benefit test may not always be easily satisfied when a Belgian company grants upstream or side-stream guarantees.
Financial assistance (eg, the advancement of funds, the grant of loans or provision of security interests, or guarantees by a Belgian company to facilitate the acquisition of shares held in that company) is permitted only if the Belgian company complies with a specific ‘whitewash’ procedure. Unfortunately, it is often impossible to rely on this procedure in practice, as the procedure’s conditions are very strict and cumbersome. Therefore, it is often impossible for a Belgian company to grant a guarantee to secure a loan used to finance the acquisition of shares held in that company.
Lenders should also pay particular attention to guarantees granted by natural persons. Such guarantees may be subject to specific formalities or conditions.
Subordination and priority
Describe the most common methods of structuring the priority of debts and security.
Subordination can be achieved contractually between creditors and is the most commonly used method of structuring priority debts and security under Belgian law. In practice, intercreditor agreements or subordination agreements are used to document the priority of debts and security. Certain additional formalities may need to be complied with to structure the priority of security interests.
Documentary taxes and stamp duty
Are any taxes, stamp duty or other fees payable on the granting of a loan, guarantee or security interest, or on its enforcement?
As a rule, no documentary taxes, stamp duty or other fees are payable on the grant of a loan, guarantee or security interest, other than:
- a €0.15 duty under the Belgian Code on Certain Rights and Taxes of September 29 1938 (as amended) for transaction documents executed or registered in Belgium;
- various taxes and fees payable in connection with the grant of a mortgage and a mortgage mandate;
- retributions ranging from €20 to €500 for the registration of pledges over movable assets; and
- the notification or registration of a pledge over IP rights with the competent authorities.
Is it more common for local law to govern the terms of the facility documentation or is the law of another jurisdiction often elected by the parties (eg, English law or New York law)?
If all of the lenders are located in Belgium, Belgian law often governs the terms of the facility documentation. English law is often elected by the parties if the loan is granted on a cross-border basis – for example, if the lender(s) and/or borrower(s) are located in various jurisdictions) (excluding in public-private partnership transactions, where the law governing the credit facility is mostly Belgian law). The law of another jurisdiction (eg, New York law) is often elected if one or more parties are located in that jurisdiction.
Security interest documentation is governed by Belgian law if the secured assets are located in Belgium.
Are there any restrictions on the making of loans by foreign lenders or the granting of security or guarantees to foreign lenders?
There are no Belgian restrictions on the making of loans by foreign lenders or the grant of security or guarantees to foreign lenders.
Are there any exchange controls that restrict payments to a foreign lender under a security document, guarantee or loan agreement?
Security – general
Is it possible to create a security interest over all assets of an entity? If so, would a single security agreement suffice or is a separate agreement required for each type of asset?
Yes, a security interest can be created over movable (tangible and intangible) and immovable assets located in Belgium, provided that such assets can be validly transferred under Belgian law.
A separate security agreement is usually entered into for each type of asset. A movable assets pledge agreement, which is similar to a floating charge, covers all of a company’s movable assets, unless a more restrictive pledge of movable assets has been agreed on.
Release of security
What are the formalities for releasing security over the most common forms of assets?
A security interest is released if the beneficiary of the security interest has given its consent for such release, unless the security agreement provides otherwise. In addition, a security interest is released by operation of law if all secured obligations have been repaid and there is no possibility that any new secured obligations could come into existence.
The following formalities are usually observed following the release:
- Mortgage– the release is recorded in the mortgage register.
- Bank accounts and receivables pledge agreement – the debtors that have been notified of the pledge may also be notified of the release.
- Share pledge agreement – the release is recorded in the company’s share register.
- Business pledge agreement – the release is recorded in the mortgage register until December 30 2017. After December 31 2018, only the national pledge register will be relevant.
- Movable assets pledge agreement – the release is recorded in the national pledge register.
- IP rights pledge agreement – the release is recorded in the relevant IP rights register (if any).
- Pledge agreement for tangible movable assets by the transfer of possession – possession over the pledged assets is transferred back to the pledgor.
Asset classes used as collateral for security
Can security be granted over real estate? If so, what are the most common forms of security granted over real estate and what is the procedure?
Security over real estate is created by entering into a Dutch, French or German language mortgage deed to be executed before a notary. The notary will then register the mortgage with the tax authorities and have it recorded in the appropriate mortgage registers of each judicial district in which the real estate is located.
A mortgage incurs certain costs (eg, notary fees, registration rights and mortgage registry fees), which are approximately 1.3% to 1.6% of the amount secured by the mortgage. The amount secured by the mortgage can be freely determined by the parties. To limit – or at least postpone – the costs associated with a mortgage, the parties may limit the amount secured by it and cover a significantly higher amount by way of a mortgage mandate. The value of the real estate, the amount of the loan and the associated costs are usually taken into account to determine the secured amount. A mortgage mandate is not a security interest and offers no right of priority; it is only a power of attorney to create additional mortgage(s).
Machinery and equipment
Can security be granted over machinery and equipment? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Security over immovable machinery and equipment may be created by a mortgage deed.
Movable machinery and equipment is often secured under a movable assets pledge agreement. From January 1 2018, a valid and enforceable pledge over tangible movable assets can be created without the need to transfer possession. Generally speaking, all movable assets can be pledged, provided that they are determined or determinable, and tradable. It makes no difference whether the movable assets are:
- tangible or intangible;
- present or future; or
- fungible or individualised or non-interchangeable.
The mere conclusion of an agreement between the pledgor and the beneficiaries of the pledge creates a valid pledge. A written pledge agreement is necessary for consumers and to prove the pledge’s existence. The movable assets pledge (a company’s entire business, excluding real estate) must be registered in the national pledge register. The pledge can no longer be granted only by entities with an EEA banking licence and costs significantly less. Depending on the amount secured, retributions can range between:
- €20 (if the secured amount is less than €10,000) and €500 (if the secured amount exceeds €500,000) for the registration of the pledge; and
- €12 (if the secured amount is less than €10,000) and €300 (if the secured amount exceeds €500,000) for a change of the registration in the national register.
The register can be consulted freely and costs €5 per (negative) search result and €5 per additional search result. However, the register must not be used improperly or for commercial reasons. To counter this risk, the pledgor and the buyer can access a history of the parties that have consulted their data during the last six months. Consultation for commercial prospecting is prohibited and parties involved may be held liable for any damages incurred.
The amount secured by the movable assets pledge can be freely determined by the parties but must be registered in the national pledge register. The value of the business, the amount of the loan and the associated costs are usually taken into account to determine the secured amount.
Following the introduction of the new pledge register, all existing business pledge agreements must be registered within 12 months after the entry into force of the New Belgian Pledge Law (ie, December 31 2018) in order to maintain their ranking. Until that date, a search of the relevant mortgage registry as the online national pledge register will be needed to provide conclusive evidence regarding the existing pledges of a company.
Can security be granted over receivables? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Security over receivables is granted under a pledge agreement that need not be notarised. To the extent that Belgian law applies, the pledge will be valid and effective against third parties (except the debtor of the pledged receivables) once the pledge agreement has been entered into. The pledge will be effective against the debtor of the pledged receivables only if the debtor has been notified or has acknowledged the pledge.
Under the New Belgian Pledge Law, a pledge over receivables cannot be registered in the national pledge register and the parties can rely on only the current rules when pledging receivables.
Financial instruments and cash
Can security be granted over financial instruments? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Security over financial instruments is created by entering into a pledge agreement that need not be notarised. A pledge over registered shares is valid and effective against third parties once the pledge has been registered in the company’s share register. A pledge over book-entry shares is valid and effective against third parties once the shares have been transferred to a special pledged account held by the pledgee or the pledgee’s representative.
Can security be granted over cash deposits? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Security over cash deposits (eg, money credited to an account held with a credit institution or other financial institution) is created in a similar way to a pledge over receivables. The pledge over cash is valid and effective against third parties once the pledge agreement has been entered into. The pledge will be effective against the credit institution or financial institution holding the pledge account only if the institution has been notified or has acknowledged the pledge.
Can security be granted over intellectual property? If so, what are the most common forms of security granted over this kind of property and what is the procedure?
Security over IP rights is created by entering into a pledge agreement that need not be notarised. A pledge agreement over IP rights may need to be notified or registered with the competent authorities, depending on the type of intellectual property being pledged.
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.