The Belgian Act of 11 July 2013 on security over movables (the Security over Movables Act) will modernise Belgium's legislation in respect of security over movables. On 7 November 2016, a draft bill has been published postponing the entry into effect of the Security over Movables Act until 1 January 2018 at the latest. In addition to the postponement, the draft bill also fine-tunes certain technical aspects of the Security over Movables Act to achieve maximum legal certainty and practical usefulness. Although the written report is not available yet, we understand that the draft bill was approved by the Belgian Parliament on 15 December 2016. Publication is to be expected shortly.
In light of these developments, this client alert seeks to provide more detail on the way the Security over Movables Act is expected to have a beneficial effect on borrowing base/asset-based lending in Belgium.
Under the current legislation, the creation of a possessory pledge (vuistpand/gage avec dépossession) is subject to various restrictions. For example:
- the essence of a possessory pledge is the dispossession requirement. Although various structures can be envisaged to satisfy this requirement without the need for the pledgee/bank to enter into possession of the goods, these structures may be cumbersome for the pledgor or come at the cost of legal certainty for the pledgee;
- the substitution of pledged assets (e.g. as a result of the sale and purchase of pledged inventory) may restart the bankruptcy law hardening periods (verdachte periode/période suspecte), exposing the pledgee to the risk that the security could be challenged;
- the possessory pledge may not survive the co-mingling of pledged assets with other assets; and
- the floating charge alternative (pand op handelszaak/gage sur fonds de commerce) can only capture up to 50 percent of a pledgor's inventory and the registration duties are high at about 0.60 percent of the secured amount.
The Security over Movables Act will resolve the above issues as follows:
- a pledge under the Security over Movables Act will no longer require dispossession, but can instead be perfected by entry into a national register of pledges;
- the substitution of pledged assets prior to bankruptcy will no longer restart the hardening periods;
- a pledge under the Security over Movables Act will, in principle, no longer be affected by the co-mingling or transformation of the pledged assets;
- the new pledge can capture up to 100 percent of the pledgor's inventory; and
- although there will be a fee for the registration of pledges, it is expected to be significantly lower than the registration duties currently imposed on floating charges.
In light of the above and the many other improvements proposed by the Security over Movables Act, borrowing base/asset-based lending is set to become a significantly more important source of financing in Belgium than at present.
For those interested in a more detailed analysis, we recommend the (Dutch language) article E. Blomme, "Borrowing Base kredietverlening onder de nieuwe Pandwet", Bank. Fin. R. 2016, afl. IV, pp. 298-310.