Structuring a lending transaction

General

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.

Syndication

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.

Interest

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.

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This article was co-authored by Kasper Van Landeghem.