RIGHT OF PLEDGE : THE NEW SITUATION

tcm-contract-checkingThe purposes of pledges

Pledges allow a business to fund itself by giving guarantees to the lender (often financial institutions). In order to secure their loans, these creditors organise security mechanisms, namely guarantees, which may either apply to real estate (mortgages) or moveable assets (pledges). However, moveable guarantees could be fairly restrictive.

 

New: the non-possessory pledge

Traditionally, a pledge provided for the dispossession of the object serving as the basis for the guarantee. This de facto dispossession disadvantaged the debtor who could no longer use the asset concerned (e.g. a production machine, a vehicle, etc.). One exception to this dispossession condition was the pledging of business assets. This sort of pledge enabled the debtor to continue to use the pledged items and not to have to hand them over to the secured creditor. However, this exception was only valid for financial institutions and was limited to 50% of the debtor company’s stock.

The new legislation on security rights in movable property of 11 July 2013 (‘Pledge Act’), which entered into force on 1 January 2018, modifies this traditional idea of the right of pledge. It introduces a pledge without dispossession, which means that the debtor can pledge a moveable asset without being dispossessed of it and can therefore continue to use it. Moreover, the new law widens the scope of this pledge, as it is now open to all – not just to financial institutions. Another change also allows a company to pledge the entirety of its stock rather than just 50%, as was previously the case, a change that now indirectly increases the funding and production capacities of companies.

Registering pledged assets

The risk with this new system is purchasing an asset without knowing whether it is subject to a right of pledge guaranteeing a loan (here, we can find the same protective mechanism as with the title retention clause). In order to avoid such situations, the legislator has made provision for a registration system of all assets subject to a right of pledge. This means that a third party who wants to purchase an asset can consult Belgium’s national pledge registry (not yet accessible). However, not everyone will need to perform this verification.

Within the framework of a private purchase, consumers will not be subject to this right of pledge, nor to the title retention clause. Similarly, with regular deliveries (‘normal purchases’), in principle, the supplier will not be able to exercise their right of pledge or their title retention clause. However, this verification will be essential when, for example, a company is selling a previously used asset (machine, vehicle, etc.).

Registering a pledge is subject to various conditions set out in the Royal Decree of 14 September 2017. For instance, to access the register, an identity card and an electronic card reader will be required. To obtain an overview of the different secured creditors and the amount of the debts concerned against a transferred debtor, you will need to obtain information on the pledger (e.g. business ID number, legal status, registered office, etc.).

It should also be noted that this national pledge register will not be free to use. To register, modify or delete a pledge, a fee ranging from €8 to €500 will apply, while consulting the register will cost €5. Moreover, this consultation will not be anonymous, as the pledger will be able to check who has requested his data during the previous six months.

RIGHT OF PLEDGE : THE NEW SITUATION

tcm-contract-checkingThe purposes of pledges

Pledges allow a business to fund itself by giving guarantees to the lender (often financial institutions). In order to secure their loans, these creditors organise security mechanisms, namely guarantees, which may either apply to real estate (mortgages) or moveable assets (pledges). However, moveable guarantees could be fairly restrictive.

 

New: the non-possessory pledge

Traditionally, a pledge provided for the dispossession of the object serving as the basis for the guarantee. This de facto dispossession disadvantaged the debtor who could no longer use the asset concerned (e.g. a production machine, a vehicle, etc.). One exception to this dispossession condition was the pledging of business assets. This sort of pledge enabled the debtor to continue to use the pledged items and not to have to hand them over to the secured creditor. However, this exception was only valid for financial institutions and was limited to 50% of the debtor company’s stock.

The new legislation on security rights in movable property of 11 July 2013 (‘Pledge Act’), which entered into force on 1 January 2018, modifies this traditional idea of the right of pledge. It introduces a pledge without dispossession, which means that the debtor can pledge a moveable asset without being dispossessed of it and can therefore continue to use it. Moreover, the new law widens the scope of this pledge, as it is now open to all – not just to financial institutions. Another change also allows a company to pledge the entirety of its stock rather than just 50%, as was previously the case, a change that now indirectly increases the funding and production capacities of companies.

Registering pledged assets

The risk with this new system is purchasing an asset without knowing whether it is subject to a right of pledge guaranteeing a loan (here, we can find the same protective mechanism as with the title retention clause). In order to avoid such situations, the legislator has made provision for a registration system of all assets subject to a right of pledge. This means that a third party who wants to purchase an asset can consult Belgium’s national pledge registry (not yet accessible). However, not everyone will need to perform this verification.

Within the framework of a private purchase, consumers will not be subject to this right of pledge, nor to the title retention clause. Similarly, with regular deliveries (‘normal purchases’), in principle, the supplier will not be able to exercise their right of pledge or their title retention clause. However, this verification will be essential when, for example, a company is selling a previously used asset (machine, vehicle, etc.).

Registering a pledge is subject to various conditions set out in the Royal Decree of 14 September 2017. For instance, to access the register, an identity card and an electronic card reader will be required. To obtain an overview of the different secured creditors and the amount of the debts concerned against a transferred debtor, you will need to obtain information on the pledger (e.g. business ID number, legal status, registered office, etc.).

It should also be noted that this national pledge register will not be free to use. To register, modify or delete a pledge, a fee ranging from €8 to €500 will apply, while consulting the register will cost €5. Moreover, this consultation will not be anonymous, as the pledger will be able to check who has requested his data during the previous six months.

Don’t wait another second – collect your money

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Don’t wait another second – collect your money

Focus on your business, we’ll take care of your outstanding payments. Contact us to find out more.