Security Rights in Movable Assets in Belgium

The Belgian legislative framework for security rights is going through an interesting transition. The Belgian legislator acknowledges the importance of a strong but flexible set of instruments to effectively secure creditors and –indirectly- to offer companies (cheaper) access to funds to invest in growth.

In 2004, with the promulgation of the financial collateral law (wet financiële zekerheden / loi relative aux sûretés financières), the Belgian legislator (pursuant to a European Directive) took an important step in offering creditors solutions tailored to today’s reality by simplifying and unifying the rules on cash pledges and pledges on financial instruments.
Today, Belgium is ready for a next big step: the modernization of the rules on security interests over movable assets. The Belgian minister of justice set out two main goals, which were implemented by a group of experts in a first draft of law. First goal was to abolish the still prevailing requirement under Belgian law that, in order to pledge movable assets, the pledged asset is not allowed to remain in the possession of the pledgor. The second goal had a more general nature, i.e., to improve coherence and to simplify the current Belgian provisions which apply to security interests over moveable assets.
Without having the intention to provide an exhaustive overview of the novelties of the current draft law, we will focus on some of the most striking innovations.

Pledge
Without any doubt, the most important proposed reform relates to the pledge over movable assets (pand). Under current Belgian legislation, the required dispossession (buitenbezitstelling / dépossession) of the pledged asset out of the hands of the pledgor is often an impediment for the pledgor in running its day-to-day business and often results in less funds being made available to the company or at higher interest rates. The draft law provides that pledges over moveable assets can be created without the need for such dispossession, but by means of a simple pledge agreement (on a solo consensu basis) with the enforceability towards third parties (tegenwerpelijkheid aan derden / opposabilité aux tiers) being effected through a registration of the pledge in an electronic pledge register, which is publicly available for consultation. A pledge registration will remain valid for a period of 5 years following which the registration will have to be renewed if the pledge is required to continue to secure a financing. The physical dispossession remains an alternative to the electronic registration.
Conflicts between pledges will continue to be solved based on the ‘prior tempore’ rule, which will be easier to apply with a registration system in place. In case of dispossession, the date of dispossession will be conclusive. Two types of creditors shall be able to benefit from a superpriority position, taking rank before any other pledge (despite the date of ranking), i.e., the unpaid creditor for costs made to safeguard or restore the pledged asset (kosten tot behoud van de zaak / frais de conservation de la chose) and the unpaid seller of the pledged asset (onbetaalde verkoper / vendeur impayé).
A pledge over inventory, equipment and machinery, car fleets, receivables and other moveable assets will therefore be easy to create.  Even a pledge over the business (pand handelszaak / gage sur fonds de commerce), which qualifies as a moveable asset, will be easy to create against more or less no cost. The latter would mean that a pledge over the business will no longer require a 0.50% registration fee over the secured amount, 100% of the inventory can be pledged (which is only 50% under the current business pledge regime), and the beneficiary of a business pledge can be any creditor (and thus no longer only EU licensed credit institutions).
Agent
Another important innovation of the proposed new pledge regime is the possibility for creditors to appoint an agent (vertegenwoordiger / représentant). Such agent will have the benefit of the pledge for and on behalf of the underlying creditors. This is in line with a similar provision of the 2004 financial collateral law.
Complicated parallel debt or other structures used to circumvent the uncertainty related to granting security interests to someone who is not your direct creditor, will become superfluous when vesting security interests over movable assets in Belgium.
Enforcement of the pledge
A key element of the reform, also in line with the philosophy behind the reform introduced via the 2004 financial collateral law, is that the enforcement (uitwinning / réalisation) of pledges will no longer require the intervention of a judge. Pledgor and pledgee will be able to agree on the terms of enforcement, including the possibility to appropriate or sell the pledged assets. If the parties do not provide for a procedure, the pledgee will be entitled to call a bailiff to sell or rent out the pledged assets.
Lien
Also other Belgian law securities have been under the scrutiny of the Belgian legislator. The lien (retentierecht) is a generally accepted concept under Belgian law, but its nature and enforceability have remained subject to discussion. Under the draft law, the enforceability of the lien is now brought in line with the pledge provisions: the lien finally has a well-defined status under Belgian law.
Retention of title
Finally, a short note on retention of title (eigendomsvoorbehoud / réserve de la propriété). The existing retention of title provisions which are currently imbedded in the bankruptcy code (faillissementswet / loi sur les faillites) are transferred to the civil code (burgerlijk wetboek / code civil), where they fit in better with the other provisions on security interests over movable assets. The legislator has grasped the opportunity to bring the rules governing retention of title in line with the rules on pledges. First of all and as is the case for pledges, retention of title agreements will be able to be registered in the newly set up electronic registration system.
This will enable the retentor to protect its rights against other creditors more efficiently. Secondly, by extracting the retention of title provisions from the bankruptcy code, it will finally be beyond doubt that retention of title agreements will be enforceable in all circumstances  and not only in case of bankruptcy.
Transition period
Immediately upon the entry into force of the new law, security interests will be able to be vested under the new regime.
Security interests that are being abolished by the new law, such as the pledge over the business, will need to be registered in the new electronic pledge register. In order to safeguard the ranking of the existing security, this will have to be done within a 12 months period after the entry into force of the new law.
Conclusion
The proposed new securities law creates a lender-friendly, transparent and modern securities system.  Compared to other European jurisdictions, Belgium will be able to convince foreign lenders to route new financings through Belgium, and companies will be able to use their commodities, work-in-progress and inventory (and other moveable assets) to back-up their working capital financing, lower the financing risk based on the collateral provided, and consequently attract cheaper financing.