Recently (at the beginning of 2018) the new Belgian pledge act entered into force, opening new opportunities to finance and secure contractual obligations.
The most important changes resulting from the new Belgian pledge act are the following: (i) it is now possible to establish a non-possessory pledge on movable goods and (ii) pledges on movable goods can now be registered in a National pledge register, which is accessible to Belgians or foreigners acting through Belgian agents (e.g. lawyers, notaries, etc.).
The non-possessory pledge on movable goods, makes it possible for people to grant a pledge over their movable assets while being able to continue to use them. Until now this was only possible when granting a pledge on one’s commercial business (pand op handelszaak). All other pledges required a dispossession of assets and thus involved practical problems when pledging core business assets.
Under the new act it is now possible to pledge assets without being deprived of the possession thereof. Once such pledge is registered in the new National pledge register becomes enforceable towards third parties. Such registration is not only to the benefit of the pledgee but also enhances awareness for counterparties considering entering into business with the pledgor. We assume that every (major) business transaction will inevitably require a preliminary search in the National pledge register as part of the (risk)audit process.
Notwithstanding the above, parties will still be able to choose for a dispossession of goods and make these subject to a pledge, without any registration in the pledge register.
The new Belgian pledge act is without doubt an improvement compared to the former Belgian pledge regime and is likely to lead to an increase of financing transactions and to innovation in financing structures.
Important to note when considering a non-possessory pledge is that such pledge must be laid down in a written agreement between parties describing in detail the pledged assets, the triggering events for execution of the pledge and the maximum amount secured by the pledge. Further, parties will need to reflect as to whether the pledgee will be entitled to appropriate the pledged assets for his own upon exercise or whether he will need to sell the assets.
We welcome this new Belgian pledge act, as we believe that it will allow fast-growing enterprises to benefit from increasingly innovative financing mechanisms which could fit their needs, without having to rely on either traditional bank financing or equity financing, which may both result in a loss of autonomy. In our view the Belgian pledge act will enhance peer-to-peer lending and hopefully result in a business environment in which such type of financing will no longer be considered as outside the ordinary course of business.
On the other hand, one should be careful when entering into such an innovative financing transaction whereby pledges on assets are granted without dispossession. Parties will have to carefully negotiate the terms and conditions of the pledge agreement, and then correctly implement them. Further, in order to be effective, such pledge will need to be properly registered in the national pledge register.
Are you currently seeking financing, and do you wish to brainstorm these new types of securities rather than the traditional ones (e.g. pledge on business, personal guarantees, pledge on shares), please feel free to contact us.