Secured Lending

Belgium has a myriad of laws that may apply to specific financing transactions and security interests granted thereunder. In addition to general statutes and case law, the most common laws pertaining to specific regimes for security interests are as follows:

• Pledges over movable assets and receivables: Book II, Chapter XVII, “Security on Movable assets”, of the Belgian Civil Code, introduced by the Law of 11 July 2013 on Taking Security on Movable Assets, as amended from time to time) (‘MAS Law’);
• Pledges over financial instruments (shares) and bank accounts: The Law of 15 December 2004 on Financial Collateral;
• Real estate mortgages: The Law of 16 December 1851 on Privileges and Mortgages; and
• Insolvency proceedings: Book XX, “Insolvency of Businesses”, of the Belgian Code of Economic Law.

In addition, there are:

• specific consumer protection laws;
• laws on financial leasing;
• laws on lending to small and medium-sized enterprises;
• usury laws; and
• a banking supervisory regime.

International private law treaties should also be considered with regard to governing law and jurisdiction. In case of bond issuances, additional bodies of law with regard to prospectus obligations and other information and reporting requirements may also apply.

As Belgium is a member state of the European Union, European law has a considerable impact on domestic law.

Treaties of international private law (ie, jurisdiction and governing law) are especially relevant to secured financing (please see question 12).

No.

In addition to the ‘twin peaks’ model, with separate supervisory authorities for prudential and governance supervision, specific supervisory authorities include:

• the Federal Public Service Economy for consumer credit loans and financial leasing; and
• the Federal Public Service Finance.

The government generally considers secured (corporate) finance to be a private matter, although it keeps registers of loans that are granted to Belgian individuals and enterprises.

The Belgian state and its communities also provide corporate lending guarantees (eg, through PMV and Gigarant) and export finance guarantees (through Credendo). During the COVID-19 pandemic, certain support schemes have also been established.

Generally speaking, especially with regard to consumer lending, Belgian law is rather borrower friendly.

The secured finance market is relatively advanced, with several club deals (with two or more of the four major Belgian banks involved) in the mid-cap market and fully syndicated loans in the mid to large-cap market.

However, alternative credit markets are less developed in Belgium and for more ‘novel’ constructions (eg, unitranche, term loan B), Belgian players tend to go ‘shopping’ in international financial hubs (in particular, London and Luxembourg). A limited number of (smaller) players on the Belgian market specialise in providing mezzanine finance.

The Loan Market Association documentation standard is largely adhered to for mid- to large-cap deals.

Smaller financings are typically based on bilateral credit letters which, although lender-specific, are rather similar between lenders.

No official reports on lending transactions are available in Belgium. The main relevant secured finance transactions which have received wide media exposure are:

• the financing of the Belgium-headquartered (listed) multinationals and/or their assets (eg, the recent A$10.1 billion sustainability linked loan revolving credit facility entered into by AB InBev; a €5 billion medium-term note programme by UCB; and secured loans and/or bond issuances by VGP, Euronav, Fagron and Telenet, among others);
• major infrastructure works (eg, offshore wind farms in the North Sea); and
• private equity transactions in relation to Belgian targets or Belgian subsidiaries of international targets.

Key secured finance providers are traditional banks, and in particular the major ‘Belgian’ banks (KBC, ING, BNP Paribas Fortis and Belfius). In larger transactions, these banks often syndicate with international banks and financial institutions. UK, French, Dutch and German banks are often involved in Belgian transactions, but we occasionally also see lenders from other jurisdictions.

Alternative credit markets are less developed in Belgium and Belgian borrowers that wish to utilise more ‘novel’ constructions (eg, term loan B) or avoid syndication for other reasons tend to tap the international financial markets (in particular, London). High-yield bonds are seldom seen on the Belgian market; however, debt financing through bonds (and in particular private placements) is not uncommon.

Lenders (irrespective of home jurisdiction) that combine lending activity with deposit taking are subject to extensive banking legislation and require a banking licence. However, the mere activity of providing loans (by Belgian or foreign lenders) is not a regulated activity.

Specific restrictions apply to leasing, consumer/mortgage lending and lending to small and medium-sized enterprises.

Club deals and syndication are commonly used. Mezzanine finance is not uncommon. Larger financings often combine a (syndicated) credit agreement with the issuance of bonds (through private placement or otherwise).

The structure is typically determined by the amount of financing and the terms required by, and the international footprint of, the borrower. Obviously, involving more parties increases the complexity of the transaction and results in less flexibility on terms and conditions.

Tax factors are a key concern when structuring finance transactions. These factors include withholding taxes on interest payments and dividend payments to non-resident lenders and/or shareholders. Furthermore, Belgian tax law contains certain limitations on interest deductibility and thin capitalisation rules (mainly relevant for interest payments made to non-residents located in so-called ‘tax havens’ and for so-called ‘grandfathered loans’).

Selection of the specific security package is strongly influenced by the cost and practicality of taking and perfecting security. In addition, the exact scope of the package will depend on the activities, creditworthiness and negotiating position of the borrower. The basic security package typically consists of a pledge over shares and a pledge over receivables and bank accounts.

Depending on the circumstances, other security interests are added to this package. A full Belgian law security package consists of:

• a pledge over all movable assets. These typically include shares, receivables (eg, intragroup receivables, loan assignments, claims, contractual rights, insurance rights), cash accounts, securities accounts, intellectual property, other movable assets and the business as a whole. However, they may also include more ‘uncommon’ assets such as rolling stock and vessel cargo; and
• a mortgage and/or a mortgage mandate with respect to real estate (the latter is the more cost-efficient option, although it provides less security to the beneficiary). A mortgage mandate gives the power to the beneficiary to unilaterally register a full mortgage.

Specific security interests exist with regard to intellectual property and vessels, among other things. In consumer credit, retention of title is more commonly used, but it is rarely seen in corporate credit transactions.

Belgian law requires the pledged assets and secured amount to be determinable at the date of the pledge. Hence, a pledge over ‘material’ assets (eg, ‘material bank accounts’) is not possible without having a clearly defined materiality concept. This often causes confusion in an international context.

Perfection requirements vary significantly, depending on:

• the type of security interest;
• the collateral; and
• the preferences of the lenders and the borrower (especially in light of the degree of control that the lenders or borrower wish to acquire or maintain).

The most common perfection actions are as follows:

• A pledge over movable assets can be perfected by:
• • registration in the national pledge register; or
  • dispossession (ie, control in the hands of a third-party warehouse manager);
• A pledge over shares should be inscribed in the share register (in the case of registered shares) or shares should be held on a blocked account (in the case of dematerialised shares);
• A mortgage and mortgage mandate must be inscribed in the mortgage register and (contrary to the other security interests listed here) must be executed before a notary public;
• A pledge over receivables and cash accounts must be notified to the debtor or account bank, but can also be validly taken ‘silent’ (which may entail certain risks vis-à-vis third-party rights). Alternatively, cash may also be held on a blocked account;
• A pledge over intellectual property must be registered in the relevant IP register. Such registration is typically done by specialist third-party service providers; and
• Vessel mortgages must be registered in the relevant vessel register.

See questions 5.1 and 5.2. Depending on the transaction, this security package is typically tailored to the borrower.

This result is typically achieved by combining a real estate mortgage (mandate) with a pledge over all movable assets. Belgian law does not have a ‘floating charge’ concept, but the notion of a pledge over the ‘entire business as a whole’ achieves a fairly similar result.

Yes, by way of non-notarial pledge agreement. The security is perfected by notification to the account bank or the debtor. Security over cash may also be perfected by dispossession (ie, transfer to a blocked account).

Yes, by way of non-notarial pledge agreement. The security is perfected by:

• inscription of the pledge in the pledge register (registered shares); or
• dispossession (dematerialised shares), by way of inscription of the dematerialised shares onto a specific pledged securities account.

Yes, by way of non-notarial pledge agreement. The security is perfected by:

• inscription of the pledge in the pledge register; and/or
• dispossession, typically by way of placing the stock under the control of a third party warehouse manager.

Which perfection option will be used will be determined on a case-by-case basis. Dispossession can in practice ease enforcement (as it gives direct access to the pledged assets), but it is more expensive, may restrict the inventory fluctuations of the borrower and is more susceptible to ‘incomplete’ perfection.

The charges, fees and taxes depend on the type of assets used as collateral. Notarial fees are payable on some security documents. Stamp duties are not material.

Registration fees for a movable assets pledge amount to €500.

Registration and mortgage fees due upon registration of a mortgage agreement are calculated as a percentage of the secured amount and may be high (as a rule of thumb, 1.6% of the secured amount). For a more cost-efficient option, real estate security is typically split over a full mortgage and a (less expensive) mortgage mandate.

Fees for the registration of IP pledges vary widely and depend on the third-party service provider involved for registration.

These vary widely and are generally linked to the conditions of the relevant credit agreement.

Security agreements tend to include a negative pledge and further assurance obligations, as well as perfection obligations with regard to future assets (where relevant). They typically also include representations on the status of the collateral and pre-agreed triggers for control and enforcement.

Security perfection of both movable assets pledges and mortgages must be renewed after 10 and 30 years respectively.

If perfection is achieved through dispossession, the requirements of dispossession (eg, clear designation of pledged assets) should be observed at all times during the lifetime of the pledge.

Specific attention is due where assets would need to be transferred and/or processed during the course of the pledge.

The coverage of future assets under the existing pledge should be clear.

The pledge agreement should provide a mechanism to cover amendments to the underlying credit documentation.

In line with Loan Market Association practice, secured finance arrangements typically include joint and several personal guarantees pursuant to which the obligors guarantee the obligations under the finance documents with all their assets. The beneficiary can turn to the guarantor for the full amount of the guaranteed amounts.

Alternatively, with an ‘in rem’ guarantee, a guarantee is granted up to (the value of) a certain asset. In the context of secured finance arrangements, this type of guarantee is often used where third parties own certain group assets (eg, minority shareholders, real estate owned in part by a shareholder).

A surety is typically avoided. A surety is an accessory to the main obligation, whereas a guarantee is a separate and independent obligation (although dependence on a ‘main’ document can to a certain degree be added to a guarantee).

There are no specific requirements.

There are no specific requirements.

This is very much dependent on the specific guarantee agreement. Belgian law is rather flexible in this respect.

Beneficiaries (including the security agent) are jointly liable for the wrongful exercise of rights under the guarantee or security interests. Typically, corporate finance agreements include indemnity clauses between the security agent and the other lenders in this regard. Liability vis-à-vis the guarantors cannot be waived until it has arisen.

A Belgian company may grant guarantees or security (or, for that matter, enter into any transaction) only if entry into such transaction is in accordance with its legal purpose, its corporate object and its corporate interest. If these conditions are not met, the guarantee is voidable.

For a guarantee to accord with the corporate interest of the guarantor, it should not be disproportionate to the financial means and the benefits enjoyed by the guarantor thanks to the guarantee. Especially in upstream or downstream transactions, this must be assessed taking into account the specifics of the transaction.

For these purposes, in practice, we see that cross-stream and upstream guarantees granted by a Belgian guarantor will typically be subject to certain limitations, calculated on the base of the net assets of such guarantor, among other things.

Subject to certain strict and limited exceptions, limited liability companies in Belgium are generally not allowed to advance funds, make loans or provide security with a view to the acquisition of their own shares. It is generally considered that subsequent refinancings also fall within this prohibition.

Financial assistance rules may have an impact on debt push-downs and cross-guarantees, among other things. This should therefore be considered at an early stage of transaction structuring.

Breach of financial assistance provisions renders the transaction voidable. Hence, lenders and their counsel typically also keep a close eye on this. Nevertheless, structuring with tranches and guarantee/security limitations often allow parties to work around this hurdle.

The concept of an agent is generally recognised in Belgium. A legal security agent concept has been introduced in Belgian law, initially for financial collateral (shares, bank accounts), but now also more broadly for pledges over movable assets. Previously, the lack of a legally defined agency concept was typically solved by including parallel debt wording.

The trust does not exist in Belgium. Under Belgian conflict of law rules, a foreign trust will be recognised if certain conditions are met. However, it is typically accepted that this will not govern ‘in rem’ aspects on Belgian collateral. This would in fact render a trust ineffective with respect to Belgian security interests. Hence, in case of Belgian collateral, it is preferable to add agency wording to agreements where there is a security trustee.

However, it remains subject to debate to what extent agent or trust concepts are recognised with respect to real estate mortgages (which generally require a notarial deed). Typically, mortgages are granted to each lender individually, in addition to a parallel debt construction which should cover additional lenders. However, although these parallel debt constructions were once rather common, to our knowledge there is no case law explicitly recognising such construction.

There are no specific restrictions or requirements. European competition rules should be taken into account in the syndication process. In this regard, we refer to the final report of the European Commission on “EU Loan Syndication and its Impact on Competition in Credit Markets” (available on https://ec.europa.eu/competition/publications/reports/kd0419330enn.pdf)

It is important to ensure that no lenders which are part of the syndicate (or guarantors) are covered by Belgian or EU financial sanctions regimes, as this may have a severe impact on enforceability, anti-money laundering (AML) and tax treatment of the transaction as a whole. AML rules must be observed at all times.

If the security agent is not a Belgian entity, choice of domicile with a Belgian bailiff may be required or preferable. A mortgagee must obtain a registration number at the Belgian crossroad bank for enterprises (the commercial registry). This is a formality and can be done at the moment of taking the security. The costs relating to such choice of domicile or registration are not material.

The most important tax considerations are as follows:

• A 30% withholding tax is due on interest payments made by a Belgian borrower to a non-resident lender. Certain (domestic) exemptions are available – for example, for Belgian intra-group banks, loans contracted with credit institutions which are resident in or acting through a facility office in the European Economic Area or with which Belgian has a double tax treaty, and for certain EU-intra group loans. A withholding tax exemption or reduction can also be based on an applicable double tax treaty. Interest paid to a Belgian (corporate) lender should in principle be exempt from withholding tax.
• A 30% withholding tax is due on dividend payments made by a Belgian company to certain resident and non-resident shareholders. A withholding tax reduction or exemption might be available, based on domestic law (eg, the Belgian implementation of the EU Parent-Subsidiary Directive) or an applicable double tax treaty.

Yes, as discussed under question 9.1.

No specific costs are related to corporate lending activities per se.

Generally, corporate finance agreements contain gross-up and indemnity clauses to cover these risks.

Most security interests (except for mortgages) can be enforced out of court, although any interested party can contest enforcement (a priori and a posteriori) in court. A priori contest of enforcement may trigger suspension of enforcement. Specific enforcement proceedings depend on the collateral and the regime governing the security interest (see question 10.2).

Severe enforcement restrictions come into place in case of judicial reorganisation or the commencement of bankruptcy proceedings (see below). Certain additional restrictions may apply depending on the specific pledged asset (eg, vessel security) or the pledgor (eg, in case of public entities).

The duration of the enforcement process mainly depends on the type of security that is enforced and whether enforcement is contested in court (and whether decisions are appealed), and can vary from a couple of weeks to several months or years. The following steps should be followed in case of enforcement of the main security interests:

• In case of a pledge over movable assets, a notice of default must be sent to the debtor, pledgor and other pledgees and attaching creditors, after which a waiting period of three days (for rapidly depreciating goods) or 10 days (for all other goods) must be observed. Enforcement occurs by public or private sale, among others, or (under certain conditions which are typically included in pledge agreements) by appropriation.
• A pledge over receivables can be directly collected by the creditor, without a waiting period. Pledge agreements typically contain template notice forms and proceedings for such collection.
• A pledge over financial collateral (including shares and bank accounts) can be enforced without a waiting period by private sale or (under certain conditions – notably a valuation method, which is to be set in the pledge agreements) by appropriation.
• A real estate mortgage mandate can be enforced by registering a mortgage.
• Enforcement of a real estate mortgage is subject to a strict and cumbersome proceeding, with a mandatory public sale.

Pledge agreements typically set out specific procedures (eg, with regard to control triggers and valuation methods) to be followed in case of enforcement.

The main other considerations to be borne in mind in case of enforcement are as follows:

• International private law plays a major role in (especially cross-border) enforcement and should always be considered before opening any bankruptcy or similar proceedings.
• Directors of Belgian companies must file for bankruptcy within one month once the conditions for bankruptcy are met. These conditions are twofold:
• • suspension of payment of obligations that have become due and payable; and
  • loss of credit.
• When enforcing, it should be considered whether this will trigger bankruptcy.
• Undue enforcement of security (ie, not in good faith) may lead to an ‘abuse of rights’ claim in torts. This will be the case if, among other things:
• • enforcement is performed without reasonable and sufficient interest while causing damage; or
  • the damage is disproportionate to the obtained or intended advantage.
• This doctrine may prevent accelerations and enforcements for minor defaults or temporary problems, among other things. Similarly, enforcement which would jeopardise the continuity of the debtor’s enterprise may also be considered an abuse of rights, depending on the circumstances. The pledgee cannot limit its liability in this context.
• The transfer of assets as a consequence of enforcement may lead to taxation on the realised added value.
• The Belgian courts may require a sworn translation of documents used as evidence and file in a language other than the language of the court.

Yes. Direct agreements are well used in the context of public-private partnerships and project finance transactions.

This should be considered on a case-by-case basis, such as seeking temporary relief or seizing assets.

During bankruptcy proceedings and judicial reorganisations, enforcement of security is in principle suspended, subject to limited exceptions – for example, for security falling under the Financial Collateral Law (eg, bank accounts and shares) and first ranking mortgages.

Transactions can be unwound for preference in case of, among other things:

• fraud against (other) creditors;
• new security granted for a pre-existing debt, if granted during the six-month hardening period
• transactions for no consideration or at an undervalue, if done during the six-month hardening period;
• payments for debt which is not yet due and payments made by means other than in cash or by way of commercial paper (with certain safe harbours in the case of court-approved arrangements with creditors); and
• other payments where the lender was aware of a bankruptcy.

Security over financial collateral (eg, bank accounts and shares) is generally exempt from these provisions.

Certain public authorities may be exempt. In addition, assets ‘required for public service’ are exempt from enforcement.

Finance agreements granted by Belgian lenders (especially in a club deal structure) are typically governed by Belgian law.

Cross-border transactions are typically (but not exclusively) governed by English law or New York law.

This will vary depending on the applicable treaties.

Jurisdiction:

• Belgium is a party to EU Regulation 1215/2012 (‘Brussels Ibis’) on jurisdiction and the recognition and enforcement of judgments in civil and commercial matters, as well as to the Lugano and Hague Conventions.
• A choice of foreign forum by the parties will typically be upheld and cannot be rendered ineffective, unless:
• • the matter has a close connection to Belgium; and
  • a procedure outside Belgium would be impossible; or
  • it would be unreasonable to demand that the case is commenced abroad.
• Submission to foreign jurisdiction may not prevent a party from instituting summary proceedings in Belgium to obtain urgent conservatory measures.
• Validity of unilateral optional jurisdiction clauses under Belgian law is contested.

Governing law:

• Belgium is a party to the Rome I Regulation on governing law between contracting parties. The Rome I Regulation recognises a choice of law between the parties, subject to the limits set out therein.
• In rem security rights are in principle governed by the law of the state where the collateral is located at the time a party invokes these rights. Similarly, the opposability of the creation and loss of such rights is determined by the law of the state of the location of the collateral at the time of the facts or deeds causing the creation or loss. The applicable law depends on the nature of the collateral.

In principle, yes. Waivers may not be enforceable if they would impede the exercise of public functions. The application of criminal law, among others, cannot be waived.

Belgium is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, but has made a reciprocity reservation under Article I(3) of the convention. The recognition and enforcement of any arbitral awards will be limited to the confines set out in the New York Arbitration Convention, as implemented, and may require the filing of a translation of the arbitral award, among other things.

The enforcement of arbitral awards is subject to a declaration of enforceability obtained from the Belgian competent court (and subject to any appeal thereof) (see Articles 1719 and 1720 of the Belgian Judicial Code). In principle, this declaration will not involve a re-examination of the merits, subject to the conditions of the 1958 New York Convention and the provisions of the Belgian Judicial Code. These conditions include that the award may not infringe Belgian public policy and must be sufficiently motivated.

A clause providing for submission to arbitration jurisdiction may not prevent a party from instituting summary proceedings in Belgium to obtain urgent conservatory measures.

• Since 2018, Belgian has seen an increase in credits granted to non-financial institutions, with a (high) peak in early 2020 and a new peak in Q3 2021 (as per reporting by the European Central Bank and the National Bank of Belgium). These peaks can be attributed (i) to prudence in a COVID-19-related context, with many financings being taken out or extended to ensure continuity of business and (ii) to high dealflow thanks to fast moving markets, cheap financing combined with a lot of ‘dry powder’ and an up-tick on delayed deals after Covid-19 (see next bullets).
• Financing is still relatively cheap. Nevertheless, due to an increased perception of risk and high demand for funding, lenders have slightly tightened lending criteria.
• In 2020, multiple covenant waivers and extensions were granted within the framework of COVID-19. These will need to be addressed and/or reassessed when business flows stabilise and ratios become predictable again. Especially in heavy-hit sectors, this might be problematic where amend-and-extend is no longer a feasible option.
• Post COVID-19, increased deal flow may be expected, as a number of transactions were put on hold, on a slower track or held on the market, awaiting stabilisation. This has already started to materialize in Q2-Q3 2021.
• A number of legislative reforms are in the works. In particular, the procedure of judicial reorganisation will be updated, improving on COVID-19-era trial legislation on pre-packs. A new civil code will soon enter into force, although the specific impact thereof on secured finance transactions is still to be seen. Legislative reforms with respect to covered bonds are in the making as well.

Tips:

• If the issuance of bonds is considered in addition to a (syndicated) loan, prospectus rules and consumer protection rules should be considered.
• Generally corporate finance agreements contain gross-up and indemnity clauses to cover tax risks.
• When dealing with (semi-)public entities, the immunity and liability of such entities should be considered.
• For export finance credit to Belgian borrowers, a Credendo (state) guarantee may be considered. Typically, Belgian borrowers will be aware of this.

Sticking points:

• The grant of real estate mortgages often leads to discussions, given the high cost for the borrower.
• Lenders should tread carefully when enforcing, to avoid triggering (unwanted?) bankruptcy and generally avoid lender liability.
• The validity of unilateral optional jurisdiction clauses under Belgian law is contested.
• A syndicate should not include lenders in sanctioned countries.