Belgium has adopted new legislation on the creation and enforcement of security interests in moveable assets (the "Act"[1]). The Act significantly reforms and modernises security interests in movable assets. After its entry into force, Belgium will have much more flexible and business-friendly rules, allowing it to attract more asset-based lending.
Amongst the most important changes introduced by the Act are (i) the possibility to perfect a pledge by filing, (ii) simplification of the enforcement procedures, and (iii) the possibility to create a pledge in the name of a security trustee.
The Act will enter into force by 1 December 2014 at the latest and is expected to have far-reaching consequences for both existing and future financing transactions involving assets such as receivables, equipment, inventory, intellectual property rights and businesses located in Belgium.
1. Perfection of a pledge of movable assets by means of filing
Under the existing rules, a pledge of movable assets can only be created if the goods are removed from the pledgor's possession and placed under the control of the pledgee or a third-party pledge holder (the so-called "dispossession requirement"). As the assets are in most cases used in the debtor's day-to-day business, dispossession tends to render the creation of a pledge difficult if not impossible.
The most important change brought about by the Act is therefore undoubtedly the abolishment of this requirement. The Act provides that a pledge of movable assets can be created through mere agreement of the parties and perfected by means of either (i) filing with the national pledge register or (ii) dispossession of the pledged assets, as is currently the case.
The national pledge register will be an electronic register which can be accessed by both the pledgor and the pledgee. Access by third parties will be regulated by royal decree. A fee will be due for each consultation, filing, amendment or deregistration. The amount of the fee has yet to be determined and discussions on this point are still ongoing. Whilst there will most likely be only a nominal fee to consult or amend the register, it is possible that the fee to file a pledge will be tied to the secured amount (and may be the same percentage as is currently applicable for business pledges, i.e. 0.5% over the secured amount ). The ranking of the pledge will be determined by the filing date with the register: the pledge filed first will have priority. Pledges filed on the same date will be ranked equally. Each filed pledge will be assigned an identification number.
A pledge can be filed by either the pledgee or a security agent acting on the latter's behalf. Registered pledgees will benefit from easier access and payment terms. Filing by a representative or proxyholder will also be possible. The pledgor's consent is not required, although the pledgor should be informed in writing of the filing. The information to be filed consists of the names of the parties, a description of the pledged assets and the secured obligations, and the maximum amount of the pledge. The pledgee will be liable for any damage resulting from an incorrect or fraudulent filing.
The registration is valid for up to ten years and can be extended for subsequent ten-year periods. Failure to extend a registration prior to expiry of this period will render the pledge unenforceable, in which case a new registration will be required. In the meantime, if other pledges have been created with respect to the same assets, the pledge will lose its priority.
2. Enforcement of a pledge
Under the Act, the enforcement of pledges will more efficient and less costly.[2] The Act provides that if an event of default occurs, the pledgee has the right to enforce the pledge without prior court authorisation. Enforcement can take the form of a public or private sale, lease of the pledged assets or, if so agreed, appropriation of the same.
The pledgee should inform the debtor or third-party pledgor of its intention to enforce the pledge, by means of a registered letter. Any other pledgees or creditors that have seized the pledged assets should also be notified. The letter should indicate the value of the secured obligations at the time of notification and include a description of the pledged assets, the intended manner of enforcement, and the right of the debtor or pledgor to release the pledged assets by paying the outstanding secured amount. After the registered letter has been sent, a waiting period of ten days should be respected before proceeding with execution against the pledged assets. If the assets are perishable or subject to rapid depreciation, this period is reduced to three days.
After expiry of the abovementioned waiting period, and provided no objections have been filed with the attachments judge (beslagrechter/juge des saisies), the pledgee may appoint publicly or privately sell or lease the pledged assets or appoint a bailiff to do so. In a private sale, the pledgee may not act as purchaser. The sale or lease should take place in good faith and in an economically responsible manner. Enforcement occurs at the risk of the pledgee, whose liability cannot be limited or excluded.
Finally, the Act allows the pledgee to appropriate the pledged assets, if this possibility is expressly provided for in the pledge agreement or a later agreement between the pledgor and the pledgee. The value of the pledged assets must be determined at the time of appropriation, either by an expert or based on the fair market value of the same or similar goods.
At any time during the enforcement proceedings and at the latest within one year from the end thereof, any interested party can petition the attachments judge if it objects to the manner in which the pledge is being or was executed or the proceeds distributed.
3. Possibility to create a pledge in the name of a security trustee, on behalf of a third-party beneficiary
Another important change is the possibility to create a pledge in the name of a security trustee, for the benefit of third parties, such as lenders. The pledge is created on behalf of the beneficiaries, and the bankruptcy of the security trustee will not affect their rights.
The security trustee can exercise all rights of the beneficiaries, on whose behalf it acts, including the right to register the pledge agreement. Unless agreed otherwise, the security trustee and the beneficiaries can be held jointly liable for any shortcomings committed by the security trustee in exercising these rights.
Thus, upon the entry into force of the Act, the use of legal structures allowing changes of lenders (such as a parallel debt structure) will no longer be required, and the rights and possible enforcement remedies can be exercised by and consolidated in the hands of the security trustee.
4. Possibility to create a new type of business pledge and registration of existing business pledges
Under the Act, it will be possible to pledge all present and future assets (i.e. the totality of assets) of a business. Unless the pledge agreement provides otherwise, all aspects of the business (including equipment, receivables, inventory, goodwill, agreements, bank accounts, etc.) will fall under the pledge. Unlike an existing business pledge (pand op handelszaak/gage sur fonds de commerce), which covers only 50% of inventory (voorraad /stock), the new business pledge will cover all of the pledgor's inventory. In addition, unlike existing business pledges, the initial beneficiary need not be a bank or financial institution. If the business pledge is filed with the abovementioned electronic pledge register, the pledgor will still be allowed to use the pledged assets and to dispose of these assets in the ordinary course of business, unless agreed otherwise.
Upon the entry into force of the Act, the business pledge in its current form will become obsolete. All existing business pledges will need to be registered with the new pledge register within one year from the date of entry into force of the Act. Failure to do so will result in a loss of the pledge's ranking. An existing authorisation to create a business pledge (mandaat pand op handelszaak/mandat gage sur fonds de commerce) will be deemed to allow the creation of a pledge under the Act, within the limits of the authorisation.
5. Legal certainty
The Act provides a statutory basis for several commonly used structures as well as much-needed rules on the pledge of intellectual property rights, the processing, mixing and incorporation and transfer of pledged assets, the retention of title and assets, and recovery/revindication rights. The Act grants a super priority right to sellers who benefit from a reservation of title clause.
Once the Act enters into force and in light of the legislation already passed in 2004[3] Belgium will have more business-friendly and predictable rules for the creation and enforcement of security interests in receivables, inventory, equipment, intellectual property rights, financial instruments, shares, bank accounts and businesses. All such security interests can be created in the name of a security trustee with minimum formalities, will enjoy heightened legal certainty and benefit from swift, cost-efficient enforcement procedures. The new rules on moveable assets will enter into force on a date to be determined by Royal Decree but by 1 December 2014, at the latest. The delay can be attributed to the need to first set up the abovementioned electronic pledge register. It is hoped that the ongoing discussion of the costs associated with the registration of pledges will be settled in favour of low filing fees in order to give maximum effect to the Act.
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[1] Wet van 30 mei 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 30 mai 2013 modifiant le Code civil en ce qui concerne les sûretés réelles mobilières et abrogeant diverses dispositions en cette matière, unpublished, adopted on 30 May 2013.
[2] Please note that the simplified enforcement proceedings will not be available for pledges granted by consumers, the enforcement of which will remain more or less the same.
[3] Wet van 15 december 2004 betreffende financiële zekerheden en houdende diverse fiscal bepalingen inzake zakelijke zekerheidsovereenkomsten en leningen met betrekking tot financiële instrumenten/Loi du 15 décembre 2004 relative aux sûretés financières et portant les dispositions fiscales diverses en matière de conventions constitutives de sûreté réelle et de prêts portant sur des instruments financiers.
