Belgium
Generally
Loan agreements and other finance documents are subject to general contractual principles. For example, Belgian courts may decide not to enforce a penalty or may decide to reduce the agreed amount. Lenders hence have to be careful about the rate of default interest charged on a loan.
Specific types of lending
Specific to the area of mortgage lending is the issue of whether a lender falls within the new Belgian mortgage regime. The Mortgage Credit Directive, implemented in Belgium through the law of 22 April 2016 amending the provisions on consumer credit and mortgage credit in the Code of Economic Law, aims to prevent the irresponsible lending and borrowing practices that were exposed during the global financial crisis. The Law imposes a number of requirements on lenders including the need to:
- assess the creditworthiness of the consumer;
- provide the consumer with the personalized information needed to compare the credits available on the market; and
- ensure that the relevant staff of creditors, credit intermediaries and appointed representatives possess an adequate level of knowledge and competence, in order to achieve a high level of professionalism.
Consumer credit is regulated in the Code of Economic Law. The Consumer Credit Directive (2008/48/EC) was implemented in Belgian law by the Act of 13 June 2010 and amended by the law of 22 April 2016 amending the provisions on consumer credit and mortgage credit in the Code of Economic Law. The Law also imposes a number of requirements on credit providers.
Are there any restrictions on giving and taking guarantees and security?
The main issues involved in a company granting any downstream, upstream or cross-stream guarantee/security in respect of any obligation of a company belonging to the same group concern the existence of a valid and direct corporate benefit for that subsidiary. Under Belgian law there is no legal concept of group interest and only showing that the security would be in the interest of the group is not sufficient.
The granting of an intra-group guarantee/security must also fall within the corporate purpose of that company. The corporate purpose of a Belgian company is set out in its articles of association and Belgian companies can only act within the boundaries of this corporate purpose.
In the context of a target being acquired, the target is restricted from granting guarantees or security (financial assistance) for the acquisition of its own shares. However, this can be permitted following the adoption of a particular procedure. Given the cumbersome nature of such procedure, it is not common that companies choose to comply with the procedure and they will usually structure a transaction avoiding financial assistance.
Other conditions and/or restrictions depend on the type of guarantees/security.
All security interests under Belgian law can be created by means of a private agreement, except mortgages and mortgage mandates that must be created by means of a notarial deed and, in case of a mortgage, registered at the competent mortgage registry.
General validity requirements that are applicable to all agreements
- Consent of the parties
- Capacity of the parties
- Determination of the object of the security taking (a determined or determinable asset)
- Legitimate cause (the cause of the agreement must not be prohibited by law or contrary to morals and public order)
- In the case that security is granted by an individual – restrictions on security granted without consideration and limitations resulting from the marital status (which may require spousal consent)
- In the case that security is granted by a legal entity – authorization by the competent bodies, conformity with corporate interest, no violation of specific restrictions (eg financial assistance rules or prohibition on ‘misuse’ of corporate assets
Specific validity requirements
- Mortgages – formal notarial deed, secures a specific amount, must accurately define the mortgaged real estate
- Register pledge – all moveable assets, tangible and intangible, in whole or in part, can be pledged by private agreement (a register pledge will be valid between the parties to it from the date it is concluded but, in order to be valid and enforceable against third parties, the pledge should be registered in the yet to be established National Pledge Register)
- Pledge over receivables – effected by private agreement (under Belgian law, a pledge over receivables is valid between parties and enforceable against third parties (other than the debtor of the receivables) as from the date of its conclusion; in order to be valid and enforceable against the debtors of the receivables the debtors must be notified of the pledge)
- Pledge over bank account – an acknowledgement by the bank holding the pledged accounts is required in order to protect the pledgee against risks arising out of rights afforded to the bank pursuant to its standard account terms and conditions or otherwise
- Pledge over shares – articles of association must be reviewed, may contain restrictions to the granting of a pledge over shares; pledge needs to be registered in the shareholders register of the company
What are common types of guarantees and security?
The most common forms of guarantees and security are:
- security interest in rem:
- pledge over tangible assets
- pledge over receivables, bank accounts, securities or business);
- title transfer as security interest;
- mortgage over real estate;
- mortgage mandate (however, the mortgage mandate does not provide for an actual security right on the assets but only gives the right to establish a mortgage at a later point in time);
- security interest over ships and planes; and
- personal security interest – a third party (such as a guarantor) will secure the claim of the creditor on the debtor, by committing its estate or by granting one of the security interests listed above.
Are there any other notable risks or issues around giving and taking guarantees and security?
All sums security interests
A security interest on conditional or future debts is valid under Belgian law as long as the future debt is sufficiently determined or determinable which is the case if the agreement creating the security interest allows to define and identify the debt, and it results from the elements of the cause that the (future) debt was part of what the parties intended to secure.
Mortgages
Mortgage requires registration of the mortgage with the appropriate local mortgage register for it to be effective vis-à-vis third parties.
Other
Other security interests may require specific perfection requirements.
Ilse Van de Mierop
Partner
DLA Piper LLP
[email protected]
T +32 (0) 2 500 1576
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