Banking & Finance 2019 Second Edition

Last Updated September 10, 2019

Belgium

Law and Practice

Authors



DLA Piper UK LLP (Brussels) has more than 120 lawyers based in Brussels and Antwerp, and combines DLA Piper's global reach with local know-how. The firm advises national and international companies, national governments and institutions across all areas of law and industry sectors. Based in the heart of the European capital, DLA Piper in Belgium is the EU Centre of Excellence for the firm.  Clients value the international view of the market, consistency of service and the ability to quickly form cross-border multidisciplinary project teams, as well as the dedication to long-term relationships and responsiveness. The Financial Services team consists of 16 lawyers, with an intimate understanding of the business of banks and other market participants.

Loan markets remain solid in Belgium, as in the rest of Europe, despite global geopolitical uncertainties. The market is very competitive, including on terms and pricing. The market is dominated by Belgian/Benelux banks, with large international banks having a fair share of the upper-mid market segment. Institutional investors have entered the lending space, particularly in infrastructure finance and real estate finance.

There have been developments, similar to other European jurisdictions, in relation to negative interest rates, with discussions from some lenders on floors (zero floors).

The high-yield market is still relatively modest in Belgium. Bond issues have seen an increase in recent years, but mostly from large corporates, real estate companies and financial institutions.

There has been growth in the loan market, but it has been relatively modest. The lending market is still largely dominated by traditional bank lenders. As a relatively small economy in which the central role is played by small and mid-sized companies, the market is perhaps not a top priority for alternative lenders.

In the space of infrastructure and real estate, there has been a development of lending activity by insurance companies. Given the Solvency II rules, there is also increasing interest from insurance companies to enter the private equity financing space.

Some niche markets are also more active for some debt funds, such as the diamond trade financing sector (Antwerp), from which most traditional lenders have retreated.

There has been an increase in multiple layer financing techniques, including mezzanine financing, in recent years. Belgium generally follows the example of developments in neighbouring countries such as the Netherlands and the UK, particularly for larger syndicate/club deals.

For smaller ticket work, the financing techniques remain relatively unchanged, and the market is dominated by the local household banks.

The new Belgian Company Code has entered into force, with some consequences for lenders and borrowers in financing transactions. Most companies will have to adapt to the new company code, and amend their articles, in the coming years. Some company forms will disappear, and some mandatory provisions will start to apply from 1 January 2020.

A recent Belgian law on taking security over movable assets has also had a significant impact, by putting in place an efficient and cost-effective electronically registered pledge over movable assets. It has had particular impact on trade and inventory/asset-based finance, and has required lenders holding security to convert such into the new registered pledge.

A reform of contracts and non-contractual obligations is also in preparation, although the timing of it is uncertain.

In Belgium, providing financing to a company (excluding providing consumer credit and mortgage credit to individuals for residential purposes) ("commercial lending") on a stand-alone basis does not require a licence nor any filing and/or registration.

However, specific rules of conduct apply for lending to SMEs, pursuant to the Act of 21 December 2013 on the Financing of SMEs. These rules of conduct include a duty of rigour, a duty of information, restrictions on a number of contractual terms, and a right of prepayment for the enterprise. SMEs are individuals or legal entities pursuing an economic purpose in a sustainable manner or liberal professions (eg, lawyers, notaries, etc) that have no more than one of the following criteria in their last and penultimate closed financial year: (i) 50 employees on an annual basis; (ii) annual turnover of EUR9 million; and (iii) a total balance sheet of EUR4.5 million.

Commercial lending activity sometimes requires a licence – ie, if it is undertaken in combination with deposit taking (which requires a licence as a credit institution) or if it is funded with crowdfunding (which may require a licence as a crowdfunding platform).

Credit Institutions (Banks)

Credit institutions are regulated by the Belgian Act of 25 April 2014 relating to the status and supervision of credit institutions and stockbroking firms.

Credit institutions are undertakings whose business entails deposit-taking activities and granting credits for its own account. Besides deposit-taking and lending, the majority of the activities listed under Annex I of Directive 2013/36 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms may only be carried out by licensed entities and/or are subject to specific regulations.

Before starting their business activities, Belgian and foreign credit institutions must submit an application for an authorisation (the banking licence) to the competent supervising authority (in Belgium, this is the National Bank of Belgium). This authorisation is granted if a wide range of operational conditions and requirements are complied with. In accordance with the principle of single authorisation, an EU credit institution may passport the services, or perform the activities, for which it has been authorised, throughout the EU, through either the establishment of a branch or the free provision of services.

Crowdfunding Platforms

The Act of 18 December 2016 on crowdfunding platforms entered into force on 1 February 2017 and creates a legal framework for crowdfunding and alternative types of funding. This law is applicable to both lending-based and equity-based crowdfunding platforms.

The act only regulates crowd financing for a business or professional project. It is not applicable to platforms that only offer or provide alternative funding services to legal entities, (MiFID) professional investors or fewer than 150 persons.

Crowdfunding platforms offering these types of alternative funding services must be authorised by the Financial Services and Markets Authority (FSMA), and are subject to rules of conduct. However, regulated entities (credit institutions and investment firms) do not need an additional licence in order to provide alternative funding services, but they must notify the FSMA and comply with the same rules of conduct as the platforms.

As set forth above, commercial lending on a stand-alone basis does not require a licence, nor any filing or registration.

Foreign lenders willing to offer banking services (a combination of deposit-taking activities and lending) must have all the necessary authorisation to conduct banking business operations in Belgium. An EU credit institution may provide banking services for which it has been authorised across the EU, either through the establishment of a branch or the free provision of services, by a mere notification procedure activating its European passport.

There are no restrictions on granting security rights to foreign lenders.

There are no foreign exchange limitations on the transfer of capital or profits in Belgium, except in exceptional situations (eg, UN sanctions). Outbound payments to foreign countries can be subject to disclosure or registration, for statistical purposes.

Aside from contractual restrictions on the borrower’s use of proceeds for a specific purpose, borrowers are obliged to use the proceeds from loans and debt securities in accordance with Belgian law, complying with rules against corruption, money laundering, terrorism financing and the breach of country-specific sanctions and, as the case may be, in accordance with the borrower's corporate purpose.

Belgian law does not recognise the concept of trusts. It explicitly recognises the concept of a collateral agent/security agent, but only in relation to security taken over financial collateral and movable assets. This allows for the creation of security over such assets for the benefit of the agent (acting as representative of the secured parties), provided that the secured parties are determinable on the basis of the security agreement.

However, Belgian law does not recognise the concept of a security agent with respect to security over real estate. Therefore, when a mortgage is being granted to a security agent on behalf of a consortium of lenders, or in a situation where there is only one lender but the intention is to subsequently syndicate the facilities, a parallel debt structure can be considered. Although Belgian law does not recognise the concept of parallel debt as such, the use thereof has been common practice, and the concept and validity thereof has been supported by Belgian legal authors.

The assignment of the rights under the loan agreement can be done by way of agreement between the initial lender and the transferee, and should be notified to the debtor. In principle, all security rights that have been put in place in connection with the transferred debt are automatically transferred.

However, for each transfer of (part of) a loan secured by a mortgage, a marginal note (kantmelding/inscription marginale) in the Mortgage Registry must be made, which will involve the payment of a 1% registration tax (calculated against the secured amount) unless the transfer is made between certain categories of lenders (such as an EEA-licensed credit institution or mobilisation institutions).

Novation can be done by way of agreement between the debtor, the initial lender and the transferee, and will result in the successor replacing the initial lender and the creation of a new debt (as between the debtor and transferee). As a result, all security rights relating to the initial debt are extinguished, unless explicitly preserved. A clause containing this preservation can be included in the original facility agreement.

Sub-participation is also commonly used among lenders, whereby the original lender will remain the only creditor of the borrower, and the only beneficiary of the security package. Based on the sub-participation agreement, the sub-participant has a contractual right to amounts received by the principal lender, but no direct in rem right against the borrower, nor over the security assets.

Debt buy-back by a borrower or a sponsor is generally permitted under Belgian law, provided that either a repayment is due or early prepayments are permitted on a contractual basis.

Under Belgian voluntary takeover rules, the bidder freely sets the price of its offer. The Act of 1 April 2007 on takeover bids requires that the conditions of the offer – particularly the price – must allow the bidder to achieve the desired result. All the funds representing the full consideration must be blocked in an account with a financial institution registered in Belgium, or an irrevocable and unconditional credit facility must be available from such an institution. In both cases, the funds must be blocked to guarantee the payment. In the case of an exchange offer, the bidder must hold the securities to be offered, be authorised to issue them in a sufficient number within the time prescribed, or have the means to procure their issuance.

The type of documentation used in Belgian financing depends on the circumstances. Short-form documentation is widely used by Belgian banks for the financing of local businesses, or for even larger financings where no syndication is envisaged to take place. Syndicated and large-scale financing, on the other hand, is usually documented by long-form documentation, often based upon the forms published by the London Loan Market Association (LMA).

The attribution or payment of interest that is sourced in Belgium is, in principle, subject to withholding tax at a rate of 30%. Belgian domestic law provides for numerous exemptions depending on the type of debt as well as the status of the lender and the creditor. If no such exemption applies, a reduced rate or exemption may be available under one of Belgium's many double taxation treaties.

In principle, there is no withholding tax due on the payment of principal and other payments, such as a guarantee payment.

The establishment of a mortgage on an immovable good located in Belgium is subject to a registration duty of 1% and an inscription duty of 0.3%. The establishment of a mortgage on a ship that is not designated for sea transport triggers a 0.50% registration duty.

Deeds related to loans or credits granted by banks are subject to a documentary right of EUR0.15 per original copy.

The legislator prohibits usury – ie, an abnormally high interest rate. Usury rules apply very rarely. Applicable interest rates tend to be quite high, and can be recharacterised as a prohibited private penalty. In that case, courts can reduce the applicable rate to a more reasonable level. According to case law, interest rates up to 20% have not been considered abnormal (please note, however, that in the current low interest rate environment, courts could consider lower interest rates as being usury).

Receivables

Receivables can be pledged for the benefit of the pledgee. A pledge over receivables is effected by private agreement and, under Belgian law, is valid between parties and enforceable against third parties (other than the debtor of the receivables) as from the date of its conclusion. However, in order to be valid against the debtors of the receivables, the debtors must be notified of the pledge, by lack whereof a payment to the pledger is valid and the debtor cannot be held liable to make a second payment to the pledgee.

Bank Accounts

For a pledge over bank accounts, the same principles as set out above apply. 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 general conditions or otherwise (a bank usually benefits from a right of pledge over the accounts held by its clients, which must be waived in favour of the pledgee).

Shares

A pledge over shares is also effected by private agreement. A pledge over registered shares should be recorded in the share register of the pledgor in order to be enforceable towards third parties. Pledged dematerialised shares should be booked on a separate special financial account.

IP Rights

Rights over intellectual property can be pledged, taking into account the formalities prescribed by the relevant law governing the specific type of intellectual property.

Pledge Over Movable Assets

Tangible and intangible movable assets, including inventory, can be pledged by way of a "register pledge". This security will be valid between the parties from the date it is concluded by a private agreement but the pledge must be registered in the National Pledge Register in order to be enforceable against third parties. This registration will be valid for a renewable period of ten years. A pledge over tangible movable assets can also be concluded by way of "possessory pledge", which will be enforceable towards third parties simply by the pledgee taking possession of the relevant assets.

Real Estate

Mortgage

Security over immovable assets can only be done by way of a notarial mortgage deed. The mortgage will need to be registered by the notary in the Mortgage Registry in order to be enforceable towards third parties. This registration will be valid for 30 years. The notary will need to notify the tax authorities, which then have 12 business days to respond to such notification, and will need to carry out lien searches by requesting official documentation from the competent local authority (depending on where the asset is located). Without these documents, the notary will not be able to execute the mortgage deed. Obtaining these documents usually takes three to four weeks. The granting of a mortgage entails a significant cost (taxes, registration fees, notary fees, etc) of approximately 1.6% of the secured amount, with the biggest cost relating to the registration of the mortgage in the Mortgage Registry. To lower this cost, it is common practice in Belgium to split the mortgage into a mandate and an effective mortgage, whereby the lenders only hold effective security for a portion of the secured obligations, and a mandate for the remainder.

Mortgage mandate

In order to reduce the costs related to the granting of a mortgage, parties may agree to (also) conclude a mortgage mandate, which will be executed in front of a notary public. 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. It is only at the moment of the conversion of the mortgage mandate into an actual mortgage that the mortgage will be registered in the Mortgage Registry, the accompanied fees and costs will be due and the security will obtain ranking.

A pledge on the business of a company can be granted by way of a registered pledge (see above). The pledgor shall be allowed to trade the pledged assets in the ordinary course of its business, unless otherwise agreed between the parties in the pledge agreement. This pledge will need to be registered in the National Pledge Registry.

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 merely showing that the security would be in the interest of the group is not sufficient.

As the corporate benefit can be shown by the company receiving an indirect financial or commercial benefit from the granting of the security, granting a guarantee for a facility being made available to a parent, sister or subsidiary company will generally satisfy the corporate benefit test. Corporate benefit justifications may be that the guarantor is able to benefit from lower interest rates or better conditions, or that the parent company will provide intercompany loans to the subsidiary. To further support the premise that the granting of security is in the company's interest, it is general practice in Belgium to include guarantee limitations, which may include any or a combination of the following:

  • to an absolute figure to be determined by the directors;
  • to one or more tranches of the facility (for instance, the tranches that are available to the guarantor – whether as direct borrower or as beneficiary of an on-loan);
  • to a percentage of the net assets of the guarantor; or
  • to amounts borrowed by the guarantor, directly or indirectly through intercompany loans.

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. Transactions entered into by a Belgian company that are deemed not to fall within its corporate purpose can be nullified and result in liability for the directors.

A Belgian company is only allowed to advance funds, grant loans or provide security with a view to the acquisition of its own shares, or with a view to the acquisition or subscription by others of certificates relating to the shares, if that company complies with a specific procedure, including several stringent conditions.

Given the cumbersome nature of these conditions, it is not common for companies to choose to comply with the procedure, as they will usually structure a transaction so as to avoid financial assistance. This involves providing for guarantee limitations to avoid the target guaranteeing the debt raised to finance its own acquisition.

Financing transactions do not involve consultation of the works council, as such.

The release of security is usually effected by the pledgee unconditionally and irrevocably releasing the security in a release letter or release agreement. However, the parties can determine specific conditions to the release in the relevant security documents.

Certain types of security require additional perfection actions, as follows:

  • share pledge – the existing share pledge should be deregistered from the share register;
  • register pledge – the pledge over the movable assets (or the business) should be deregistered from the National Pledge Registry; and
  • mortgage – a notary public must be instructed to deregister the mortgage from the Mortgage Registry.

The priority of competing security interests will depend on when the validly created security is made enforceable towards third parties. Once the borrower goes into bankruptcy, the mortgagees or creditors will be paid off according to their rank and the timing of the registration of their respective secured interests.

If several pledges are established over the same shares, the pledge that was registered first in the share register will have the highest rank. In the case of a pledge over the same receivables, the pledge that was notified to the debtor first will rank first. If several mortgages are granted over the same property, the ranking of the mortgages will depend upon the time of their registration in the Mortgage Registry. However, all mortgage securities registered on the same day are creditors of equal rank and will be paid off pro rata.

Although there are no specific provisions under Belgian law in relation to contractual subordination, it is common practice in Belgium to work with subordination or intercreditor agreements, the specific contents of which will be determined by the relevant parties, taking into account the particular transaction.

Unsecured and unsubordinated payment obligations (so other than those preferred by law and to the extent not otherwise provided in a subordination or intercreditor agreement) will rank pari passu.

A collateral can only be enforced if the debtor has failed to meet a payment obligation on its maturity date, or any other obligation deemed to be of essence under the loan agreement.

A collateral can also be enforced if it is obvious in the circumstances, beyond any reasonable doubt, that the debtor will fail to meet his obligations in the near future. The debtor should be given notice that he must comply with his obligations on the due date. The secured lender can enforce his rights and start enforcement proceedings in any of the following circumstances:

  • if the debtor fails to remedy his breach within the cure period granted to him;
  • if the debtor does not respond; or
  • if it is obvious that the debtor is no longer able to meet his obligations.

According to Regulation (EC) No 593/2008 of 17 June 2008 on the law applicable to contractual obligations (“Regulation Rome I”), which is applicable to contracts that are entered into after 17 December 2009, contracts are governed by the law elected by the parties.

The law elected by the parties may be set aside by virtue of the application of other conflicts of law rules contained in the Regulation Rome I, as follows:

  • the application of lex contractus may be set aside by the principles of Belgian international public policy;
  • if at the time of the choice-in-law, all elements relevant to the situation (except the lex contractus elected by the parties) are connected with a particular country, a court may need to apply mandatory provisions of the law of such country;
  • the law elected by the parties cannot interfere with mandatory rules of lex fori, which are applicable to the situation regardless of which law governs the contract. This implies that the law elected by the parties is likely to be set aside if, inter alia, it interferes with insolvency laws; and
  • the law elected by the parties may also be affected by overriding mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, insofar as those overriding mandatory provisions render the performance of the contract unlawful.

Generally, a judgment given in another country would be recognised and enforceable in Belgium without a retrial of the merits of the case.

With respect to a judgment given in another EU Member State, Article 45 of Regulation 1215/2012 provides that recognition shall be refused in specific circumstances – ie, if the recognition is manifestly contrary to Belgian public policy, or if the judgment is irreconcilable with a Belgian judgment given in a dispute between the same parties.

A decision of a court of a state which is not an EU Member State will not be recognised and enforced in specific circumstances, such as if the consequences of the decision would be manifestly contrary to Belgian public policy, if the rights of defence were not respected, or if the judgment is not final pursuant to the laws of such state.

Belgium is a contracting state to the New York Convention on the recognition and enforcement of foreign arbitral awards.

Belgian law does not distinguish between local and foreign awards. A party can enforce a foreign or local award if the award can no longer be contested before the arbitrator(s), or if it is declared provisionally enforceable. The grounds for refusal of the recognition or enforcement of an award are limited to those listed in the Judicial Code, such as the party to the arbitration agreement was under some incapacity, the arbitration agreement was invalid under the law agreed by the parties, due process was violated (unless it can be established that the irregularity had no effect on the arbitral award), or the award relates to a dispute not provided for in the arbitration agreement or contains matters beyond the scope of the agreement.

A foreign lender is recommended to pay attention to issues of corporate interest and capacity, and the legal status of the collateral provider. Certain Belgian companies may only buy, hold and/or take security on shares and certificates issued by them up to a threshold and subject to certain conditions.

Moreover, a secured lender's exercise of its enforcement right could also be restricted if it would constitute an abuse of right – ie, if the damage caused to one party upon the exercise of this right by another party is not in proportion with the advantage the latter party derives therefrom.

Finally, reorganisation proceedings and bankruptcy proceedings under Book XX of the Code of Economic Law have an impact on the ability to enforce rights (see 7 Bankruptcy and Insolvency).

Apart from the traditional insolvency proceedings (ie, bankruptcy and liquidation), Belgian insolvency law provides for a number of other restructuring options, which can be divided into two groups:

  • formal, court-supervised reorganisation proceedings (ie, reorganisation through an amicable/collective agreement or a transfer of undertaking under judicial authority) – the amicable settlement; and
  • informal, out-of-court work-outs – the appointment of a company mediator.

If the company does not face immediate enforcement actions or bankruptcy filings by its creditors, it could negotiate a debt restructuring agreement with its most important creditors (usually banks) and, by doing so, successfully shield off insolvency. If the debtor concludes an amicable settlement with at least two of its creditors with a (motivated) view to preserving the continuity of the business and then files it with the clerk’s office of the Enterprise Court, it will be protected against certain claw-back actions if the company subsequently enters into bankruptcy.

A second work-out involves the appointment of a company mediator by the president of the Enterprise Court or the chamber of commercial investigation in order to facilitate the reorganisation of all or part of the company’s assets or activities. The debtor itself may propose a company mediator to the court. The Enterprise Court will define the assignment of the appointed company mediator.

These informal work-outs are never publicly disclosed, which has proven to be a useful feature for turnarounds in practice.

With regard to insolvency processes with a view to liquidating the company (ie, bankruptcy and liquidation), the general rule is that the enforcement rights of individual creditors are suspended once the process has been declared open.

The opening of bankruptcy proceedings generally entails all claims against the debtor being halted, enforcement being suspended, and interest no longer accruing (concursus creditorum). In certain circumstances, secured creditors are entitled to enforce their rights, without being subject to the bankruptcy proceedings and even without the intervention of the bankruptcy receiver (ie, the so-called ‘separatists’). In any case, creditors whose debt claims are secured by movable assets (eg, a pledge) cannot enforce their claims until the first verification of claims (usually one month after the bankruptcy judgment). In practice, however, it will usually be the bankruptcy receiver that takes all necessary actions and then pays these creditors according to their preferential rights from the proceeds of the asset sale. Creditors whose claims are secured by immovable assets – in particular, a first ranking mortgagee – will generally be able to pursue the sale of the mortgaged asset after the first verification of the debt claims.

In the case of a liquidation, whether it is judicial or voluntary, unsecured creditors and creditors with a general privilege on all assets lose their enforcement rights, except to the extent that the enforcement would not prejudice other creditors or the proper course of the liquidation. In principle, secured creditors do not lose their enforcement rights.

The opening of reorganisation proceedings (reorganisation through an amicable or collective agreement, or the transfer of undertaking under judicial authority) entails a moratorium protecting the debtor against all enforcement by its creditors, both secured and unsecured, but interest continues to accrue on the outstanding claims.

In bankruptcy, the debts will generally be ranked according to the following set of priority rules:

  • Estate’s debt: all cost and debt incurred by the bankruptcy receiver during the bankruptcy proceedings will have ultimate priority. Additionally, fees and costs of the receiver relating to the sale of encumbered assets (eg, fees of an auction house) will be paid from the proceeds of these assets before they are distributed to the concerned secured creditor(s).
  • Secured creditors: creditors that have been granted a security interest in a certain asset have a preferential right on the encumbered assets, whether by means of appropriation or on the proceeds of the sale of that asset. For the part of their claim that exceeds the encumbered, they will be considered as ordinary (unsecured) creditors. Claims will be ranked in accordance with the date on which the security interest was perfected (eg, registration or filing). As mentioned above, certain specific preferential rights may rank ahead of these secured claims (eg, legal costs or costs made for the preservation of the asset concerned).
  • Preferential rights: certain creditors may have a preferential right on certain or all assets of the estate (eg, tax authorities, unpaid seller, unpaid landlord, etc). Preferential rights on a specific asset (eg, unpaid seller, unpaid landlord) rank before general preferential rights (eg, tax and social security authorities, employees) and sometimes even before secured creditors with a security interest on that specific assets (eg, pledgeholder). Between secured creditors and creditors with a specific preferential right, the principle is that the oldest right takes precedence ('prior tempore potior iure'), although some creditors might have a specific preferential right prescribed by law and their claims may therefore rank ahead of earlier perfected secured claims (eg, legal costs incurred in the interest of all creditors or costs made for the preservation of an asset).
  • Ordinary creditors: once the creditors mentioned above have been paid in full or to the extent that they were secured, the sale proceeds of the remaining assets will be distributed among the unsecured creditors, who will rank pari passu (unless a creditor agrees to be subordinated).

Belgian legislation does not recognise the concept of equitable subordination. However, Belgian courts may order the subordination of a claim as a sanction – eg, if a lender granted a loan to a company that was far from creditworthy. Only a few courts have decided to subordinate a creditor’s claim due to unlawful conduct by the concerned creditor.

With regard to intra-group claims, if the claims are not contractually subordinated, they will not be treated differently from claims of third party creditors. In line with what is mentioned above, only intra-group debt structures established with the intent to prejudice third party claims may be challenged before the courts and as a result be treated as subordinated claims.

When a borrower, security provider or guarantor becomes insolvent, the related claims and security rights of lenders might lose value, because the lenders need to compete with other privileged creditors or the collateral is insufficient to cover the total debt. In addition, enforcement might be delayed or no longer possible.

In the case of bankruptcy, any payments or security granted to lenders might also become subject to claw-back actions, upon the opening of insolvency proceedings.

Certain transactions may be declared ineffective vis-à-vis third parties if they are concluded or performed by the debtor during the hardening period (a period of up to a maximum of six months prior to the date of the bankruptcy judgment). There is an exhaustive list of automatic and non-discretionary claw-back events, as follows:

  • gifts and undervalued contracts;
  • payments made for amounts that are not due at the date of payment;
  • new security granted for existing debt; and
  • all other payments made to creditors.

These can be challenged by the bankruptcy receiver if the creditor that accepted payment was aware of the financial distress of the company at the time of the event.

In addition, at the request of the bankruptcy receiver, the court can declare other transactions that have been entered into or performed during the hardening period ineffective, provided the counterparty was aware of the fact that the debtor was virtually bankrupt and the court determines that this declaration would benefit the bankruptcy estate (ie, the challenged transaction was detrimental to the rights of the creditors).

Moreover, "fraudulent transactions" (ie, abnormal transactions that are detrimental to the rights of the creditors and where there is fraud on the part of both the debtor and the other party) can be declared ineffective, regardless of whether they occurred during or before the hardening period.

If the lender acts as a credit institution, it has an obligation to inquire about its client's ability to repay his debt, and must evaluate the validity of the securities granted to him. If the institution does not comply with that provision, it may be ordered to reimburse the sums resulting from the call on the guarantee or the enforcement of the securities.

Over the past several years, and especially since the entry into force of the European Fund for Strategic Investment (EFSI) and the publication by Eurostat of its Guide to the Statistical Treatment of public-private partnerships (PPP) in September 2016, a number of major projects have successfully reached financial close, following several years in which a number of projects were delayed because of discussions on the off-balance sheet treatment of Belgian projects. This has led to Belgium becoming a completely mature market for both private and public project finance, which is being used across a variety of sectors and projects such as transport infrastructure, energy and social infrastructure.

Large projects in Belgium are mostly realised through the classic procurement model, where an employer contracts with a consortium for the design, construction, maintenance and financing of the asset. The use of integrated contracts and sub-contracts such as design-build contracts, engineering, procurement and construction contracts, and operation and maintenance contracts is common practice.

In Belgium, public authorities on all levels have been entering into PPPs as such partnerships offer an attractive solution to realising much-needed public infrastructure projects, such as roads, rail, schools and hospitals, while allowing for an off-balance sheet treatment of the project debt, which is an important element in the success of the use of PPPs in Belgium, and is duly scrutinised by Eurostat to ensure that the project structure complies with the criteria of the Europe System of Accounts rules of 2010 (ESA2010). In the past, this scrutiny has led to a number of projects being requalified or abandoned, as they no longer qualified for an off-balance sheet treatment. Following the legal certainty offered by the Eurostat guidelines on statistical analysis, the Belgian PPP market has seen a new rise in PPP projects, including the retender in 2017 of the Liège tram project, which had previously been aborted due to an unfavourable Eurostat ruling in 2015. The project reached financial close in early 2019, and was the first major PPP project procured by the Walloon region, followed shortly by the Walloon motorway lighting project, which reached financial close one month later.

Typically, a PPP involves a selection phase followed by one or more offer phases, which are basically rounds of negotiations that lead to subsequent offers and culminate in a 'best and final offer'. Occasionally, Belgian tendering authorities have used the competitive dialogue procedure to tender projects. The preferred bidder is selected based on its best and final offer, and will be able to conduct final negotiations. However, any decision by a public authority in relation to PPP may be brought before the courts for suspension or annulment actions.

In addition to the Belgian procurement rules, an important point of attention in Belgian project finance (both public and private) is permit risk. Belgium has extremely broad and detailed legislation regarding urban development, environmental issues and sustainability, and the procedure for obtaining the necessary environmental and building permits for large projects is rigid, long and complex. Although in PPPs it is often the public authority that will apply for the necessary permits, third parties have easy access to challenge such permits, which on some occasions forces the public authority to postpone the projects for long periods due to the slow resolution of such challenges.

The transaction documentation in a Belgian project finance transaction will most often be governed by Belgian law. Typically, no special government approvals are required for private projects. Apart from a documentary duty per original of any credit agreement entered into with a bank in Belgium, no special taxes, fees or other charges will be specifically payable under a typical project financing.

Oil

The responsible government body will depend on the activity in question, and on the competent government (notably the federal government or one of the regional governments) for that specific activity:

  • Federal: Ministry of Energy, the advisory committee, the National Oil Office, FAPETRO and APETRA;
  • Flemish region: Ministry of Energy; and
  • Walloon region: Ministry of Energy.

The primary laws and regulations (irrespective of any applicable European legislation) are as follows:

  • Federal: Act of 13 June 1969 on the exploration and exploitation of non-living resources of the territorial sea and the continental shelf;
  • Federal: Royal Decree of 30 October 1997 on the granting of exclusive licences for the exploration and exploitation of hydrocarbons on the continental shelf and in the territorial sea;
  • Federal: Act of 26 January 2006 on the stockholding of a mandatory stock of petroleum and petroleum products and the establishment of an agency to manage part of this stock and amending the Act of 10 June 1997 on the general arrangements for products subject to excise duty and on the holding, movement and monitoring of such products;
  • Flemish region: Decree of 8 May 2009 on the deep subsoil; and
  • Flemish region: Decree of the Flemish Government of 15 July 2011 implementing the decree of 8 May 2009 on the deep subsoil and amending various decrees.

Gas

The responsible government body will depend on the activity in question, and on the competent government (notably the federal government or one of the regional governments) for that specific activity:

  • Federal: Ministry of Energy and CREG;
  • Flemish region: Ministry of Energy and VREG;
  • Walloon region: Ministry of Energy and CWaPE; and
  • Brussels region: Ministry of Energy and BRUGEL.

The primary laws and regulations (irrespective of any applicable European legislation) are as follows:

  • Federal: Act of 13 June 1969 on the exploration and exploitation of non-living resources of the territorial sea and the continental shelf;
  • Federal: Royal Decree of 30 October 1997 on the granting of exclusive licences for the exploration and exploitation of hydrocarbons on the continental shelf and in the territorial sea;
  • Federal: Act of 12 April 1965 on the transport of gaseous and other products by pipeline;
  • Federal: Royal Decree of 12 June 2001 on the general conditions for the supply of natural gas and the conditions for granting natural gas supply permits;
  • Flemish region: Decree of 8 May 2009 on the deep subsoil;
  • Flemish region: Decree of the Flemish Government of 15 July 2011 implementing the decree of 8 May 2009 on the deep subsoil and amending various decrees;
  • Flemish region: Decree of 8 May 2009 containing general provisions on energy policy;
  • Flemish region: Decision of the Flemish Government of 19 November 2010 containing general provisions on energy policy;
  • Walloon region: Decree of 19 December 2002 on the organisation of the regional gas market;
  • Walloon region: Order of the Walloon Government of 16 October 2003 on the gas supply licence;
  • Brussels region: Ordinance of 1 April 2004 on the organisation of the gas market in the Brussels-Capital Region, on road charges for gas and electricity and amending the Ordinance of 19 July 2001 on the organisation of the electricity market in the Brussels-Capital Region; and
  • Brussels region: Decree of the Government of the Brussels-Capital Region of 6 May 2004 on the criteria and procedure for granting, renewing, transferring and withdrawing a gas supply permit and amending the Decree of the Government of the Brussels-Capital Region of 18 July 2002 on the criteria and procedure for granting, renewing, transferring and withdrawing a electricity supply permit.

Power

The responsible government body will depend on the activity in question, and on the competent government (notably the federal government or one of the regional governments) for that specific activity:

  • Federal: Ministry of Energy, CREG, Commission for Nuclear Facilities, Federal Agency for Nuclear Control;
  • Flemish region: Ministry of Energy and VREG;
  • Walloon region: Ministry of Energy and CWaPE; and
  • Brussels region: Ministry of Energy and BRUGEL.

The primary laws and regulations (irrespective of any applicable European legislation) are as follows:

  • Federal: Act of 19 April 1999 on the organisation of the electricity market;
  • Federal: Royal Decree of 2 April 2003 on the licences for the supply of electricity by intermediaries and on the rules of conduct applicable to them;
  • Federal: Act of 31 January 2003 on the gradual phasing out of nuclear energy for industrial electricity production;
  • Flemish region: Decree of 8 May 2009 containing general provisions on energy policy;
  • Flemish region: Decision of the Flemish Government of 19 November 2010 containing general provisions on energy policy;
  • Walloon region: Decree of 12 April 2001 on the organisation of the regional electricity market;
  • Walloon region: Decree of the Walloon Government of 21 March 2002 on the electricity supply licence;
  • Brussels region: Ordinance of 19 July 2001 on the organisation of the electricity market in the Brussels-Capital Region; and
  • Brussels region: Decision of the Government of the Brussels-Capital Region of 18 July 2002 on the criteria and procedure for granting, renewing, transferring and withdrawing an electricity supply licence.

Mining

The responsible government body will depend on the activity in question, and on the competent government (notably the federal government or one of the regional governments) for that specific activity:

  • Federal: Ministry of Energy;
  • Flemish region: Ministry of Energy;
  • Walloon region: Ministry of Energy; and
  • Brussels region: Ministry of Energy.

The primary laws and regulations (irrespective of any applicable European legislation) are as follows:

  • Federal: Act of 13 June 1969 on the exploration and exploitation of non-living resources of the territorial sea and the continental shelf;
  • Flemish region: Decree of 8 May 2009 on the deep subsoil;
  • Flemish Region: Decree of the Flemish Government of 15 July 2011 implementing the decree of 8 May 2009 on the deep subsoil and amending various decrees;
  • Walloon region: Mining Decree of 7 July 1988;
  • Walloon region: Royal Decree of 5 May 1919 on the general police regulations on mines, mines and underground quarries; and
  • Walloon region: Co-ordinated legislation of 15 September 1919 on mines, mines and quarries.

In Belgium, the special purpose vehicles (SPV) created for the purpose of realising the project will be either a limited liability company with limited liability for the shareholders, or a partnership where the partners will themselves remain liable for the entirety of the project. Sponsors will have to choose between the limited liability offered by the limited liability company and the flexibility and absence of rigid corporate housekeeping offered by the partnership. In addition, the purpose of a partnership can easily be limited to the realisation of the project, even by limiting its life span to the duration of the project.

An important point of action when structuring a deal will be the allocation and management of the different risks relating to the project. Risks such as the risk of insolvency of the other party, the risk of a force majeure event or the risk of the loss of the infrastructure or building being constructed can be managed contractually. Liability caps and limitations of liability are common, to the extent they are permissible by law.

On the funding side, lenders will often request specific step-in rights on the project, allowing them to step in if the financial sustainability of the project is degrading or if the project company is underperforming. The exact conditions and timing of this step-in right will often be subject to negotiation, and will be part of the broader security package requested by the lenders.

Access to the Belgian market for foreign lenders, investors and contractors is open, and there are no specific restrictions on foreign investments and ownership. For public projects, however, foreign contractors should be 'licensed to build' or at least be able to prove that they have the equivalent skills and experience to apply for a licence.

Typically, Belgian projects will be financed through a combination of both debt and equity, with banks, funds and insurance companies offering both fixed and floating-rate facilities combined with IRS hedging. Equity is contributed through capital or subordinated shareholder loans, but equity bridge facilities are very common as well.

Performance bonds have become customary in the form of bank guarantees, sometimes in addition to or in replacement of parent company guarantees.

In Belgium, the following issues and considerations regarding the acquisition and export of natural resources can be identified, among others:

  • in order for an undertaking to perform mining activities, the necessary permits must be obtained. The required permits will depend on the natural resource in question and on the applicable legislation (federal/regional);
  • users of the gas transmission/distribution grid have certain balancing obligations;
  • when trading energy derivatives, it should be assured that such trading is in accordance with MIFID II, EMIR, REMIT and SFTR;
  • specific permits are required for working with radioactive products;
  • a permit is needed in order to transport gas via pipelines; and
  • biomass will be treated differently (eg, in respect of obtaining certain subsidies), depending on whether or not the biomass complies with certain sustainability criteria.

Various regulatory constraints apply to projects in the field of environment, health and safety.

As far as the environment is concerned, constraints range from urban planning rules and permitting, and potential soil obligations linked to lands, to environmental permitting. These matters are regionalised and are therefore different in each of the three Regions of Belgium. The regulatory bodies overseeing these matters are Bruxelles Environnement and Urban.Brussels in the Brussels Region; several specific general directorates of the Walloon Region administration in the Walloon Region; and the Environment, Nature and Energy Department and the Openbare Vlaamse Afvalstoffenmaatschappij in the Flemish Region.

The relevant regulations are mainly the following:

  • Brussels ordinance of 5 June 1997 on environmental permits, Brussels Code of Spatial Planning and Brussels ordinance of 5 March 2009 on the management and remediation of polluted soil;
  • Walloon decree of 11 March 1999 on environmental permits, Walloon Code of Territorial Development and Walloon decree of 1 March 2018 on soil management and remediation; and
  • Flemish decree of 25 April 2014 on environmental permits, Flemish Code of Spatial Planning and Flemish decree of 27 October 2006 on soil remediation and soil protection.

As far as health and safety are concerned, diverse constraints may apply depending on the specificities of the project. The relevant rules are still, in general, harmonised at the federal level. The Federal Public Service Public Health, Food Chain Safety and Environment (FPS Health) is the regulatory body overseeing these rules.

The relevant regulations are mainly the following:

  • Royal Decree of 21 May 2001 establishing the Federal Public Service Public Health, Food Chain Safety and Environment;
  • General regulation for the protection of work; and
  • General regulation for electrical installations.

While Islamic finance is seen as an opportunity because the growth rate is potentially high with an important pool of new clients, and there is a political initiative in Belgium to create a friendly environment for Islamic finance, it seems that so far there has been limited demand, potentially because of low awareness of Islamic products, and a limited success of investment products (eg, Islamic funds).

The regulatory regime applicable to credit institutions in Belgium is mainly shaped by the European directives and regulations dealing with the banking and investment sector, as further completed by national legislation. All the provisions and requirements in force in Belgium that are relevant for credit institutions would apply to Islamic banks as no specific regime is provided, or indeed required, for this type of institution. There is no specific legal or tax framework for Islamic finance in Belgium; any offering of Islamic-compliant banking services would have to comply with the Belgian legal framework.

A few years ago, a leading Belgian bank enabled Muslims to invest in made-to-order investment funds. These were shares that were carefully selected on the basis of Islamic Shari'a law, with companies linked to alcohol, tobacco, pork, financial services, weapons and entertainment being excluded. However, this fund reportedly only had limited success.

There is no specific regulatory framework for Shari'a-compliant products. Since there are no sukuk instruments available in Belgium per se, the issue of how the claims of sukuk holders would be treated in insolvency or restructuring proceedings is of a solely hypothetical nature. The classification of sukuk instruments as equity or debt instruments would depend on the specific form of the respective sukuk instrument.

There have not been any notable cases on jurisdictional issues, the applicability of Shari'a or the conflict of Shari'a and local law that are relevant to the banking and finance sector.

DLA Piper UK LLP (Brussels)

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Law and Practice

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DLA Piper UK LLP (Brussels) has more than 120 lawyers based in Brussels and Antwerp, and combines DLA Piper's global reach with local know-how. The firm advises national and international companies, national governments and institutions across all areas of law and industry sectors. Based in the heart of the European capital, DLA Piper in Belgium is the EU Centre of Excellence for the firm.  Clients value the international view of the market, consistency of service and the ability to quickly form cross-border multidisciplinary project teams, as well as the dedication to long-term relationships and responsiveness. The Financial Services team consists of 16 lawyers, with an intimate understanding of the business of banks and other market participants.

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