Debt finance

Lending

Lending is a regulated activity in relation to mortgage credit and consumer credit (Book VII of the Code of Economic Law).

Assuming none of the available exemptions apply, mortgage and consumer credit providers need to be authorized by the FSMA to conduct such business.

Mortgage and consumer loans are subject to a range of regulatory requirements that do not apply to unregulated loans. For example, for regulated mortgage and consumer contracts, specific obligations apply with respect to:

• conduct of business rules;
• provision of information;
• knowledge of the client/borrower; and
• assessment of the creditworthiness of the client/borrower.

There are no additional restrictions that apply to foreign lenders making loans to Belgian borrowers.

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 sometimes activity 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).

Borrowing

While borrowers are generally not regulated, it is advisable for borrowers to consider whether either the mortgage or consumer lending regimes apply to their activities, in which case they will benefit from the protections mentioned above.

Lending in Belgium can be structured in a number of different ways to include a variety of features depending on the commercial needs of the parties.

A loan can either be provided on a bilateral basis (a single lender providing the entire facility) or syndicated basis (multiple lenders each providing parts of the overall facility).

Syndicated facilities by their nature involve more parties (such as agents which fulfil certain roles for the finance parties), are more highly structured and involve more complex documentation. Larger financings will typically be done on a syndicated basis with one of the syndicate taking the lead in coordinating and arranging the financing.

Loans will be structured to achieve specific objectives, eg term loans, working capital loans, equity bridge facilities, project facilities or letter of credit facilities.

Loan durations

The duration of a loan can also vary between:

• a term loan, provided for an agreed period of time but with a short availability period;
• a revolving loan, provided for an agreed period of time with an availability period that extends nearer to maturity of the loan and which may be redrawn if repaid;
• an overdraft, provided on a short term basis to solve short term cash flow issues; or
• a standby or a bridging loan, intended to be used in exceptional circumstances when other forms of finance are unavailable and often attracting a higher margin.

Loan security

A loan can either be secured, unsecured or guaranteed. For more information, see Giving and taking guarantees and security.

Loan repayment

A loan can also be repayable on demand, on an amortizing basis (in instalments over the life of the loan) or scheduled (usually meaning the loan is repayable in full at maturity).

There are no differences except for mortgage credit and consumer credit, which are regulated activities.

The principle of agency is recognized as a matter of Belgian law. It is possible to appoint an agent, who would act in the name and for the account of a single regulated undertaking (as opposed to a broker).

It also 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.

Belgian law does not recognize the principle of trusts. Belgian Courts would, however, recognize foreign trusts validly incorporated to the extent that they are not manifestly incompatible with Belgian mandatory laws.

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.

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write-down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of Belgian or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

Furthermore, 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.