Member Article

Professionals dealing with secured lending in Belgium have been looking forward for some time to the new Belgian law of 11 July 2013 on security interests over movable goods (“Wet van 11 juli 2013 tot wijziging van het Burgerlijk Wetboek wat de zakelijke zekerheden op roerende goederen betreft en tot opheffing van diverse bepalingen ter zake” / “Loi du 11 juillet 2013 modifiant le Code civil en ce qui concerne les sûretés réelles mobilières et abrogeant diverses dispositions en cette matière”, the “Law of 11 July 2013”).

The Law of 11 July 2013 was published in the Belgian State Gazette on 2 August 2013 and it’s then date of entry into force, which could not be later than 1 December 2014, had to be determined by a Belgian Royal Decree (the “Royal Decree”). This particular procedure was used due to the creation of the brand new national pledge register (the “Pledge Register”). As the entry into force deadline approached, the Pledge Register had not yet been set-up. So the Belgian Parliament intervened to postpone the original entry into force deadline; the Law of 11 July 2013 will now enter into force at the latest on 1 January 2017. As a result, lenders and borrowers cannot yet benefit from the improvements introduced by the Law of 11 July 2013.

The Law of 11 July 2013’s most important feature is its replacement of the Belgian Civil Code’s entire title dealing with security interests over movable goods. The new Belgian Civil Code title (“Titel XVII. Inpandgeving”/“Titre XVII. Du nantissement”, the “Pledge Law”) will mainly regulate the creation, perfection and enforcement of a right of pledge (the security interest over a movable asset). The Pledge Law will also provide for a more comprehensive legal framework concerning the reservation of title rights and liens over movable goods. Furthermore, the Law of 11 July 2013 will introduce certain changes to rights of preferences and it abolishes certain other laws such as the Belgian law of 25 October 1919 concerning the creation of pledges over a business (the “Law on Business Pledges”).

Pledge Creation

Pledge Agreement 

  Under the Pledge Law, a pledge over movable assets can be created by an agreement between the pledgor and the beneficiary/ies of the pledge or the representative of such beneficiary/ies.  

A written agreement will always be required (either, depending on the situation, concerning the pledge’s validity or to evidence the pledge’s existence), except if the pledgor is not a consumer and such a pledge is perfected by transferring possession over the pledged asset. In the latter case, entering into a written agreement is strongly recommended so there is clarity and agreement about the pledge’s terms.

The written agreement must state precisely the pledged assets, the secured obligations and the maximum secured amount. If the pledgor is a consumer, the written agreement must also state the value of the pledged assets. It is not necessary to notarise the agreement.

Pledge Agreement’s Parties: the Pledgor

  A movable asset can only be pledged by the person who has the power to pledge such an asset, which in most cases will be the owner of the movable asset. Nevertheless, the pledge will be valid and enforceable if the pledgee could, at the time of the entry into the pledge agreement, reasonably assume that the pledgor was authorised to grant such a pledge. The pledgor does not necessarily need to be the secured obligations’ debtor. A consumer granting a pledge will benefit from additional protection under the Pledge Law.

Pledge Agreement’s Parties: the Pledgee 

The person/s (or their representatives) benefitting from the pledge will also be a party to the pledge agreement. Such a person is called the pledgee.

A significant change under the Pledge Law is that a pledge agreement can also be concluded by a representative of the beneficiaries, provided that such beneficiaries  are identifiable. This development is comparable to the regime under the Belgian law of 15 December 2004 on financial collateral. It will therefore be much easier to grant a Belgian pledge to a security agent or security trustee acting on behalf of a fluctuating body of lenders. A parallel debt structure or similar arrangements may still be required if the parties wish to create security over immovable assets located in Belgium.

Another important difference with the current regime on pledges is that the pledgee is no longer subject to licensing requirements. Under the Law on Business Pledges, a business pledge could only be granted to an EEA-licensed credit institution.

Pledge Agreement Parties: the Third Party Pledge Holder 

If the pledge is not registered in the Pledge Register (the first perfection method) and is instead perfected by handing over the possession of the pledged asset (the second perfection method), it may not always be (practically) possible to transfer possession to the pledgee (e.g. a transfer of commodities to a bank). In such a case, the possession over the pledged assets may be transferred to a third party.

Pledged Assets 

Generally-speaking, all movable assets can be pledged, provided that the pledged assets are (i) determined or determinable and (ii) tradable. It does not make any difference if the movable assets are tangible or intangible, present or future, fungible or individualised/non-interchangeable.

There are only a few restrictions as to which movable assets can be pledged. Security over certain Belgium-registered ships can only be achieved through a Belgian law mortgage that must be registered in the relevant mortgage register. Furthermore, the pledged assets’ value may not exceed twice the value of the secured obligations if a consumer grants a pledge.

Secured Obligations

  The obligations secured by the pledge must be included in the written pledge agreement. The written agreement must also set a maximum limit on the amount for which the pledged assets can be encumbered as security for the secured obligations.

Pledge’s Perfection

Two Methods to Achieve Perfection 

Under the Pledge Law, there are two methods to perfect the pledge and make it effective against third parties: either the pledge is registered in the Pledge Register or the pledgor transfers possession over the pledged assets to the pledgee or a third party pledge holder. Both methods are alternatives, meaning that it is important to note that the Pledge Register will not show all Belgian law pledges.

First Method: Perfection by Way of Registration 

Any Belgian law pledge can be registered in the Pledge Register for a renewable term of ten years. Registering a pledge incurs a fee and the amount will be determined by the Royal Decree. A high registration fee could lead parties to look for alternatives. Renewing, changing or removing the registration will also incur certain costs, which are also to be determined by the Royal Decree. Consulting the Pledge Register will only be free for certain persons.

Second Method: Perfection by Way of Transferring Possession 

It remains possible to perfect a pledge by transferring possession over the pledged assets to the pledgee or a third party who will hold the pledged assets on behalf of the pledgee. The way the transfer of possession must be achieved has not been changed: the transfer of possession must alert third parties that the assets have been pledged and the pledgee must have control over the pledged assets. A pledge over receivables can still be perfected by a fictitious transfer of possession: the entry into the pledge agreement perfects a pledge over receivables provided that the pledgee has the power to notify the debtors of the pledged assets.

Ranking

If a pledgor has pledged an asset more than once, it must be determined which pledge will rank before the others. The Pledge Law provides that the date of registration and/or the date of taking of possession over the pledged asset will determine the ranking. Pledges perfected on the same day will have the same ranking. Certain creditors will benefit from a super priority status.

Enforcement Procedures

The Pledge Law significantly simplifies the procedure to enforce a pledge.

The enforcement procedure starts with a prior notice given by the pledgee to the debtor and, if applicable, the third party pledgor. Such notice will start a waiting period during which time the pledgor or any interested party will have the opportunity to avoid enforcement and release the pledge by paying the secured obligations.

The methods of enforcement can be determined by the parties in the pledge agreement or at a later time. The Pledge Law provides that the pledgee may sell or rent the pledged assets. Appropriation of the pledged assets is also possible provided that the pledgor consented to this step and the pledgor and the pledgee have reached an agreement on the valuation of the pledged assets. The pledgee must enforce the pledge in good faith and in an economically-justified manner, and the pledgee cannot limit its liability in this respect.

A pledge can be enforced without prior court approval, unless the pledgor is a consumer. Judicial control remains possible during and after the enforcement procedure.

Actions to be Undertaken Concerning Belgian Business Pledges

The Law on Business Pledges currently allows the creation of a pledge over the business of a commercial company. A business pledge is similar to a floating charge and covers, subject to certain restrictions, all movable assets that constitute the pledgor’s business. A business pledge is only perfected if it has been recorded in the appropriate mortgage register(s) of each judicial district in which the pledgor has a place of business.

Following the entry into force of the Pledge Law, the Law on Business Pledges will be abolished. A business pledge that has been validly created and perfected before such entry into force remains valid and enforceable, but it will lose its rank unless it has been registered in the Pledge Register within 1-year after the Pledge Law enters into force. This registration can be made in the same way as a new pledge registration, although it is not yet certain which costs, if any, will apply. Existing business pledge mandates will still allow establishing pledges that will be subject to the new rules introduced by the Pledge Law.

Entry into Force – 1 January 2017 at the Latest

The Pledge Law’s entry into force will be determined by the Royal Decree that will also regulate the Pledge Register’s operation. The Pledge Law will not only apply to pledge agreements entered into on or after such entry into force, but also, unless there is already a situation of concursus creditorum, to the pledge agreements entered into before such a date.

Given the delays in setting up the Pledge Register, the Belgian Parliament has changed the deadline for the entry into force of the pledge Law. Following the law of 26 November 2014, the Pledge Law will enter into force at the latest on 1 January 2017. This delay is unfortunate, as the Pledge Law would significantly improve the regime on creating security interests over movable assets in Belgium. The possibility of perfecting a pledge without transferring possession may give borrowers in Belgium the opportunity to obtain better financing by pledging certain assets that are difficult to pledge under the current pledge regime. The success of the new Pledge Law will mainly depend on the costs associated with the registration of a pledge under the new regime.