Taking security over movable assets has never been so easy
On 1 January 2018, the new law on taking security over movable assets entered into force (the “Law”). As the most important reform, the Law introduces a new general rule, be it the creation of pledges on movable assets without requiring the dispossession of the pledged assets (bezitloos pandrecht / gage sans dépossession) and establishes an online National Pledge Register (Nationaal Pandregister / Registre national des Gages). Below, we will discuss the most significant changes introduced by this new regime.
Pledge without dispossession
Under the new regime, the pledger is no longer required to transfer the physical possession of the pledged movable assets to the pledgee in order to create a valid pledge. A valid pledge can now be created merely by an agreement (wilsovereenstemming / concours de volontés) between the pledger and the pledgee, without requiring the dispossession of the assets concerned. A written agreement is only required to prove the existence of the pledge. However, if the pledger is a consumer, a written agreement is required in order to create a valid pledge.
All movable assets and clusters of such assets are pledgeable
In principle, all tangible and intangible movable assets, as well as clusters thereof, can now be pledged by way of the general pledge without dispossession. By eliminating the requirement of dispossession, numerous individual movable assets, which were de facto unpledgeable under the old regime (e.g. an aircraft, a yacht, production machinery, etc.), can now be pledged.
The Law also provides that clusters of individual movable assets can be pledged. As a result, specific pledges, introduced by and subject to specific legal regimes, were lifted. This is the case for the pledge on the business (pand op de handelszaak / gage sur le fonds de commerce). Please also note that certain restrictions with respect to pledges on the business are also lifted, being that such pledge is no longer reserved to licensed credit institutions and that it is now possible to pledge 100% of a debtor’s stock (instead of only 50% under the previous legal regime). To keep their rank, all existing pledges on the business need to be registered in the National Pledge Register within 12 months as from 1 January 2018.
Legal regime for pledges over financial collateral remains unchanged
The Law does not address security over financial collateral, i.e. security over financial instruments, bank claims and cash booked into bank accounts. This means that the legal regime as set forth in the law of 15 December 2004 on financial collateral remains unchanged.
Right to use and dispose of the pledged movable assets
Unless otherwise agreed between the parties, the pledger has the right to use and dispose of the pledged movable assets. The scope of these rights will vary depending on the type of pledged asset and the use of such pledged asset within the activities of the pledger (e.g. if the delivery truck is pledged, the pledger will still be able to use it for daily deliveries). In this respect, the pledger may also have the right to process pledged assets, which are intended to be processed (e.g. raw materials or semi-finished goods). If by processing of the pledged assets, which is authorized by the pledgee, a new asset is created, the pledge will apply to this new asset. If the pledged assets are processed together with other assets owned by a third party, the pledge will not be affected and apply to this new asset, as long as (i) the assets are not separable and (ii) the pledged asset is either the most important asset or has the greatest value. The third party will be entitled to a compensation for its assets.
Choice between online registration in the National Pledge Register or dispossession
To make a pledge opposable towards third parties, parties can now choose between (i) the online registration of a pledge in the National Pledge Register or (ii) the dispossession of the pledged assets. Although the online registration of a pledge in the National Pledge Register is certainly more practical and cost efficient, certain circumstances may still favor a pledge by way of dispossession (e.g. when pledged assets are located at a warehouse or site operated by a third party and that third party agrees to act as a third party pledge holder).
When registering a pledge in the National Pledge Register, the date of registration determines the rank of the pledge. The registration is valid for a term of ten years, but can be renewed for subsequent terms of ten years. The pledgee is liable for any damage resulting from the registration of incorrect data. Access to the National Pledge Register is restricted to Belgian legal entities and Belgian nationals. If a foreign legal entity or foreign national wishes to register a pledge, he/she/it will need to rely on a Belgian proxy holder in order to carry out all registration formalities. EY Law as a law firm has access to the National Pledge Register.
Furthermore, we point out that (i) a pledge over receivables cannot be registered in the National Pledge Register, as it is only opposable towards third parties by notification, and (ii) creditors can also register their retention of title arrangements (beding van eigendomsvoorbehoud / réserve de propriété) in the National Pledge Register.
Simplified enforcement procedure
Finally, the Law also introduces a simplified enforcement procedure, which allows the pledgee to enforce the pledge without having to have prior court approval. The pledgee who wishes to enforce a pledge, must give the pledger at least ten days prior notice thereof by registered mail. The pledgee is able to enforce its pledge by (i) selling or renting part of or all the pledged assets and (ii) appropriating the pledged assets upon the pledger’s consent. If the pledger is a consumer, more consumer-protective rules apply.
We believe that the increased ease with which security can now be established, will boost asset-based lending possibilities and will have a significant impact on the structuring of security packages.