This country-specific Q&A provides an overview to Lending & Secured Finance laws and regulations that may occur in Belgium.
Do foreign lenders require a licence/regulatory approval to lend into your jurisdiction or take the benefit of security over assets located in your jurisdiction?
Except for consumer credit and mortgage backed credit to individuals for residential purposes, lending money is not a regulated activity in Belgium, provided that the lender does not solicit funds from the public in Belgium. As a result, foreign lenders do not require a licence or regulatory approval to grant a loan to a Belgian company or to take security over assets located in Belgium.
If, however, loans would be granted for consumer credit or mortgage backed credit to individuals for residential purposes, a license may be necessary if the foreign lender does not possess a so-called EU passport. If the lender is located in a member state of the European Union and has obtained a valid authorization from the regulator in its home member state, it will enjoy the benefits of the principle of single authorization whereby it will be able to provide lending services in Belgium through the establishment of a branch or based on the free provision of services without the need to obtain a second authorization from the Belgian regulator.
Are there any laws or regulations limiting the amount of interest that can be charged by lenders?
In principle, the parties to a lending agreement are free to agree upon the rate of interest. Nevertheless, a number of provisions exist under Belgian law which contain restrictions.
A court may, upon the request of the borrower, reduce the interest rate in the agreement if it would exceed a normal or reasonable interest rate and the risks associated with the loan. Under certain conditions, charging excessive rates when a borrower is in a weak position may also be prohibited.
Interest on overdue interest
A lender may only claim interest on overdue interest to the extent that: (i) the overdue interest has accrued over a period of at least one year; and (ii) the lender has sent the borrower a default notice by a judicial summons or both parties specifically agree to compound interest.
The Belgian civil code prohibits an increase of interest on a straight loan in case of late payment of more than 0.5% per year on the outstanding principal amount. The rate in excess of the 0.5% may be held unenforceable.
Indemnity for prepayment
The Belgian civil code limits the indemnity that can be charged upon total or partial prepayment of a straight loan to an amount equal to six months of interest on the amount reimbursed at the interest rate fixed by the agreement. Premium or breakage costs that exceed such amount under the loan agreement may be unenforceable. However, this restriction does not apply in case of a credit facility.
The Act of 21 December 2013 on provisions regarding the financing of small and medium-sized enterprises (SMEs) also contains certain restrictions on break costs for early repayment for loans granted to SMEs.
Are there any laws or regulations relating to the disbursement of foreign currency loan proceeds into, or the repayment of principal, interest or fees in foreign currency from, your jurisdiction?
There are no specific laws or regulations that restrict loans being made or repaid in foreign currency. While claims brought before a Belgian court relating to the disbursement of a loan can be expressed in a foreign currency to the extent that it is a currency of a member state of the Organisation for Economic Co-Operation and Development (OECD), any payment obligation under a judgment from a Belgian court in a currency other than euro will be enforceable only in euro at the exchange rate at the time of payment.
Can security be taken over the following types of asset: i. real property (land), plant and machinery; ii. equipment; iii. inventory; iv. receivables; and v. shares in companies incorporated in your jurisdiction.
In general, security interests are governed by the law of the jurisdiction where the assets are located (lex rei sitae).
Real property (land), plant and machinery
Security over real property is vested by a mortgage which is executed by way of a notarial deed and registered with the mortgage register. Plant, machinery and equipment can be pledged by means of a non-possessory pledge that is registered with the Belgian national pledge register in order to be effective against third parties.
If all conditions are met, equipment can be mortgaged in the same way as real property. Otherwise, it can be pledged by means of a non-possessory pledge.
A non-possessory pledge on inventory can be created which must be registered with the Belgian national pledge register.
A pledge over receivables can be created by a pledge agreement, which is perfected and enforceable against third parties (other than the debtor and creditors with competing claims) upon its execution. In addition, the pledge must be notified to or acknowledged by the debtor in order for the pledged receivable to become enforceable against the debtor and creditors with competing claims.
Shares in Belgian companies
Shares in Belgian companies can be pledged (without a notarial deed), unless this is prohibited by the company’s articles of association, and such pledge shall be perfected upon recordation in the company’s share register (in case of registered shares), or it is registered in a special financial account (in case of dematerialised securities).
Can a company that is incorporated in your jurisdiction grant security over its future assets or for future obligations?
Future movable assets
Provided that the assets are determined or determinable at the entry into force of the security agreement, a security over future movable assets is possible. A pledge over business assets will cover the assets of the business on a floating basis so that future assets of the business are included.
Future immovable assets
The parties to a mortgage will in most cases agree that the future constructions on a mortgaged land and fitting to the mortgaged real estate will also be covered by the mortgage.
Provided that the receivables are determinable when the pledge is granted, a pledge over future receivables is also possible. Pledge agreements will commonly oblige the pledger to periodically provide lists of the receivables.
Can a single security agreement be used to take security over all of a company’s assets or are separate agreements required in relation to each type of asset?
Most commonly, separate pledge agreements will be used for each type of asset. However, an omnibus pledge agreement can be used for all types of movable assets (such as equipment, receivables, bank accounts and shares).
Are there any notarisation or legalisation requirements in your jurisdiction? If so, what is the process for execution?
The most important notarisation requirement is that mortgages must be created by way of a notarial deed before a public notary. For other types of security, a notary is not required. Legalisation requirements will normally not apply.
Are there any security registration requirements in your jurisdiction?
A pledge on movable assets must be registered with the Belgian national pledge register to be effective against third parties.
A mortgage will need to be registered with the tax registration office.
A pledge over shares must be recorded in the share register (in case of registered shares) or in a special financial account (in case of dematerialised shares).
Are there any material costs that lenders should be aware of when structuring deals (for example, stamp duty on security, notarial fees, registration costs or any other charges or duties), either at the outset or upon enforcement?
The vesting of a mortgage by notarial deed and the registration thereof will entail the payment of registration duties (1.30% of the secured amount), notary fees and possible additional costs.
In order to avoid the costs of a mortgage, often a mortgage mandate is used instead, which is an irrevocable proxy to vest a mortgage. It does not create any security and will only become perfected and take rank as of the moment of its conversion.
The registration of a pledge on movable assets in the national pledge register costs up to €500 per registration.
The costs will typically be borne by the borrower.
Can a company guarantee or secure the obligations of another group company; are there limitations in this regard?
A company can guarantee the obligations of another group company, provided that such guarantee (i) falls within the guarantor’s corporate purpose and (ii) is not contrary to its corporate benefit.
The guarantee must in the first place serve the guarantor’s corporate purpose, as set out in its articles of association. If this corporate purpose test is not met, the guarantee can only be held void towards a third party if that party knew or should have known that the transaction was ultra vires. Professionals lenders are deemed to verify a borrower’s or guarantor’s articles of association prior to granting a loan.
Secondly, the guarantee must also be in the corporate benefit of the guarantor. Hereto, the guarantor’s board of directors must assess the corporate benefit of the guarantor, typically by taking into account: (i) any direct and/or indirect benefits the guarantor derives from the loan; (ii) the balance between the risk relating to the guarantee and the benefit for the guarantor; and (iii) the guarantor’s financial capacity.
Belgian subsidiaries that grant cross-stream or up-stream guarantee will often include limitation language in credit agreements, guarantees and security documents which reduces the risk of violating Belgian corporate benefit rules. Such limitation wording is not imposed by law, but is based on market practice.
Are there any issues that lenders should be aware of when requesting guarantees (for example, financial assistance or lack of corporate benefit)?
Apart from the restrictions of corporate benefit for the granting of a guarantee as set out above, lenders should also take the Belgian rules on financial assistance into account when requesting guarantees (see below).
Are there any restrictions against providing security to support borrowings incurred for the purposes of acquiring shares: (i) of the company; (ii) of any company which directly/indirectly owns shares in the company; or (iii) in a related company?
Under Belgian company law, a company is allowed to grant financial assistance to support the acquisition of its own shares, provided that such financial assistance does not disregard the rights of minority shareholders and does not jeopardise the continuity of the company. Financial assistance may further only be granted using funds that are eligible for distribution. In order to avoid that available funds are distributed several times, the company must create an unavailable reserve for the value of the financial assistance. Finally, the transaction will have to be authorised by the shareholders’ meeting and will then be carried out under the responsibility of the management body, which is also required to draw up a special report for this purpose.
These rules do, however, not apply to a situation whereby a Belgian company guarantees or secures borrowings to acquire shares in a parent or sister company.
Can lenders in a syndicate appoint a trustee or agent to (i) hold security on the syndicate’s behalf, (ii) enforce the syndicate’s rights under the loan documentation and (iii) apply any enforcement proceeds to the claims of all lenders in the syndicate?
Belgian law recognises the concept of a security agent with respect to pledges on movable assets and pledges on financial instruments (bank accounts, securities and shares). However, for mortgages this concept does not exist yet and a parallel debt structure may be required.
The concept of trust does not exist in Belgian law.
If your jurisdiction does not recognise the role of an agent or trustee, are there any other ways to achieve the same effect and avoid individual lenders having to enforce their security separately?
Especially in the case of mortgages alternative mechanisms may be used which allow a party to enforce the loan documentation and collateral security, such as parallel debt structures or joint creditorship.
Does withholding tax arise on (i) payments of interest to domestic or foreign lenders, or (ii) the proceeds of enforcing security or claiming under a guarantee?
A 30% withholding tax rate applies to interest payments to domestic and foreign lenders, unless exceptions or reductions from withholding taxes apply based on Belgian law provisions or double-tax treaties. US and EEA credit institutions are, in principle, exempt.
In principle, no withholding tax arises on the proceeds of enforcing security or claiming under a guarantee.
If payments of interest to foreign lenders are generally subject to withholding tax, what is the standard rate and what is the minimum rate possible under double taxation treaties?
As set out above, the standard rate in such case is 30%. In most cases, US and EEA credit institutions are exempt. In most cases, the rate under double taxation treaties will amount to more or less 15%.
Are there any other tax issues that foreign lenders should be aware of when lending into your jurisdiction?
Generally, there are no other important tax considerations than those set out above. In principle, no income will become taxable in Belgium solely because a loan, guarantee and/or security was granted from a company in Belgium.
Are there any tax incentives available for foreign lenders lending into your jurisdiction?
There are no special tax incentives for foreign lenders lending in Belgium, except for a possible reduction or exempt of withholding taxes. The same taxes apply to Belgian and foreign lenders.
Is there a history in your jurisdiction of financing structures being challenged by tax authorities, and if so, can you give examples.
Belgian tax law has a general anti-abuse rule (Article 344, Section 1 of the Income Tax Code) which aims to prevent tax evasion or avoidance. However, secured lending transactions are in general not challenged on the basis of this anti-abuse rule (especially because interest payments are normally tax exempt).
Do the courts in your jurisdiction generally give effect to the choice of other laws (in particular, English law) to govern the terms of any agreement entered into by a company incorporated in your jurisdiction?
A Belgian court will recognise the foreign law chosen by the parties to govern the agreement (including English law), except for any mandatory provisions of other jurisdictions, applicable EU law, overriding mandatory provisions of the jurisdiction in which the obligations out of the contract are performed, Belgian overriding mandatory provisions or Belgian public policy provisions that might override the foreign governing law and apply direct to the contract.
Do the courts in your jurisdiction generally enforce the judgments of courts in other jurisdictions and is your country a member of The Convention on the Recognition and Enforcement of Foreign Arbitral Awards?
In principle, a Belgian court will recognise and enforce a judgment of a foreign court without re-examining the merits of the case, save for some exceptions (e.g. if the judgment is manifestly contrary to Belgian public policy or if it violated the rights of defence).
Belgium is a member of the New York Arbitration Convention. An arbitral award will be recognised and enforced without re-examination of the merits, subject to the provisions of the New York Arbitration Convention and the Belgian Judicial Code. The latter includes certain reasons based on which the recognition of an arbitral award can be refused (e.g. if the arbitral award infringes Belgian public policy or if it has been insufficiently motivated).
What (briefly) is the insolvency process in your jurisdiction?
A company’s state of bankruptcy (understood as the situation wherein the company has ceased to pay its debts persistently as they become due and that is no longer in a position to obtain credit) will be determined by the court in a bankruptcy judgment which suspends the enforcement rights of individual creditors. Creditors will then file their claims with the trustee in bankruptcy, who will verify the claims. The trustee in bankruptcy will try to gain proceeds from the company’s assets that are sold and from the debts to the company recovered. These proceeds will be distributed amongst the creditors holding security interests, privilege rights and unsecured creditors, based on their rank which is established by a complex set of rules.
What impact does the insolvency process have on the ability of a lender to enforce its rights as a secured party over the security?
A bankruptcy judgment suspends the enforcement rights of individual creditors. However, the suspension for creditors holding a security interest on specific movable assets and mortgagees will usually be limited up to the closing of the first minutes of the verification of the claims, unless this period is extended up to one year from the bankruptcy judgment at the request of the trustee in bankruptcy.
Notwithstanding, pledges and security assignments of bank accounts and certain financial instruments, as well as close-out netting agreements, remain enforceable immediately despite the opening of bankruptcy.
Please comment on transactions voidable upon insolvency.
Under Belgian law, transactions that are concluded or performed within maximum six months before the date of the bankruptcy judgment (the so-called hardening period) may be declared ineffective against third parties.
Such transactions include i.a.: (i) payments for debts which are not due; (ii) payments other than in cash for debts due; (ii) gratuitous transactions entered into at an undervalue or an extremely beneficial terms for the counterparty; and (iv) security provided for pre-existing debts.
If the counterparty was aware of the debtor’s cessation of payments and the court determines that such declaration would benefit the debtor’s estate, the court may, at the request of the trustee in bankruptcy and in its discretion, declare other transactions entered into or performed during the hardening period ineffective against third parties.
In addition, fraudulent transactions that are abnormal and were entered into with the knowledge that the transaction would prejudice the company’s creditors, are also ineffective if the company goes bankrupt, even if the transactions dates back from before the hardening period mentioned above.
Is set off recognised on insolvency?
Following insolvency it will in principle no longer be possible to set off debts against the receivables of the company in a state of bankruptcy, except for statutory netting (e.g. under certain conditions, such as a close connection between the receivables) or contractual netting (unless the netting agreement was entered into during the hardening period prior to bankruptcy).
Can you comment generally on the success of foreign creditors in enforcing their security and successfully recovering their outstandings on insolvency?
Foreign and Belgian creditors are treated equally with respect to enforcing their security and recovering their outstandings on insolvency. Unsecured creditors are in principle treated pari passu.
Are there any impending reforms in your jurisdiction which will make lending into your jurisdiction easier or harder for foreign lenders?
Belgium is currently implementing possibly the largest reforms in various fields of law in its legal history.
In 2018, a new act on security assets on movable assets entered into force, which modernised and simplified, and significantly modified the rules on the creation, perfection and enforcement of security interests on movable assets. One of the most important innovations was the introduction of a non-possessory pledge which is subject to registration in the national pledge register.
Last year, a new Code of Companies and Associations introduced a significantly revised company law which entails more flexibility and also facilitates financial transactions in certain respects (e.g. the rules of financial assistance have been simplified). Its provisions have fully entered into force on 1 January 2020.
Currently, efforts are underway to introduce a new Belgian civil code, which may also entail certain changes for lending in Belgium.
What proportion of the lending provided to companies consists of traditional bank debt versus alternative credit providers (including credit funds) and/or capital markets, and do you see any trends emerging in your jurisdiction?
According to the latest survey (the Deloitte Alternative Lender Tracker), lending in Belgium consists in most cases of traditional bank debt, although alternative credit providers are on the rise. Due to a large competition between the four main domestic banks, loans are easy to come by and on favourable conditions. Crowdfunding, credit funds and other forms of direct lending are on the rise, but their share in the financing market remains low compared to traditional bank lending.