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DisclaimerThis publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice.Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication.This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations.
Contributing Editor
Continued Overleaf
EDITORIAL
Welcome to the ninth edition of The International Comparative Legal Guide to: Securitisation.This guide provides the international practitioner and in-house counsel with a comprehensive worldwide legal analysis of the laws and regulations of securitisation.It is divided into two main sections:Five general chapters. These chapters are designed to provide readers with a comprehensive overview of key securitisation issues, particularly from the perspective of a multi-jurisdictional transaction.Country question and answer chapters. These provide a broad overview of common issues in securitisation laws and regulations in 34 jurisdictions.All chapters are written by leading securitisation lawyers and industry specialists and we are extremely grateful for their excellent contributions.Special thanks are reserved for the contributing editor, Mark Nicolaides of Latham & Watkins LLP, for his invaluable assistance.Global Legal Group hopes that you find this guide practical and interesting.The International Comparative Legal Guide series is also available online at www.iclg.co.uk.
Alan Falach LL.M. Group Consulting Editor Global Legal Group [email protected]
The International Comparative Legal Guide to: Securitisation 2016
Country Question and Answer Chapters: 32 Portugal Vieira de Almeida & Associados – Sociedade de Advogados, R.L.:
Paula Gomes Freire & Mariana Padinha Ribeiro 339
33 Russia LECAP: Elizaveta Turbina & Ivan Mahalin 353
34 Scotland Brodies LLP: Bruce Stephen & Marion MacInnes 364
35 Singapore Drew & Napier LLC: Petrus Huang & Ron Cheng 374
(c) A range of actions are open to consumers to seek creditor protection, including a procedure for debt rescheduling (collectieve schuldenregeling/règlement collectif des dettes), which may include obtaining from the competent court a moratorium and/or a rescheduling and/or reduction of its debts including principal, interest and costs.
(d) Both credit consumers and residential mortgage borrowers have the right to make an early repayment at any time, but statutory maximum amounts apply to prepayment penalties. Breaches of provisions of the applicable credit or mortgage laws may entail the right of the borrower to repay the loan without penalty and without interest or costs.
1.3 Government Receivables. Where the receivables contract has been entered into with the government or a government agency, are there different requirements and laws that apply to the sale or collection of those receivables?
Governments and government entities will typically be subject to Belgian public procurement (overheidsopdrachten/marches publics) legislation. Where sales are made to entities that are subject to Belgian public procurement rules, particular principles apply for the sale of such receivables.Such a receivable may only be assigned once there has been delivery of the merchandise or service due under the receivables contract. The debtor of the receivable must be given notice by way of a bailiff’s notification or registered letter. Suppliers and contractors of the seller, as well as employees that have been involved in respect of the manufacturing of the merchandise or delivery of the service, will have certain priority rights on the receivable.
2 Choice of Law – Receivables Contracts
2.1 No Law Specified. If the seller and the obligor do not specify a choice of law in their receivables contract, what are the main principles in your jurisdiction that will determine the governing law of the contract?
For civil or commercial contracts concluded as from 17 December 2009, Regulation 593/2008/EC of 17 June 2008 (the Rome I Regulation) applies in determining the law governing the contract. For some categories of contracts, the governing law is outright determined by the Rome I Regulation. For example, contracts for the sale of movable assets or services are governed by the law of the country where the seller has its habitual residence. Contracts that do not fall in one of those categories are governed by the law
1 Receivables Contracts
1.1 Formalities. In order to create an enforceable debt obligation of the obligor to the seller: (a) is it necessary that the sales of goods or services are evidenced by a formal receivables contract; (b) are invoices alone sufficient; and (c) can a receivable “contract” be deemed to exist as a result of the behaviour of the parties?
As a general principle, it is possible to create an enforceable debt obligation without a formal receivables contract. Invoices, an ongoing business relationship or any other way of exchanging consent between the parties can, depending on the factual circumstances, be sufficient to evidence the debt obligation. Notwithstanding such general principle, the enforceability of the debt obligation will depend on ability to evidence its existence and its terms and conditions. Rules on evidence differ depending on the legal status of the parties involved. Between two commercial parties evidence can be provided by any means, including witnesses. Against a non-commercial party, a written document will be required for any sale exceeding the value of EUR 375.It is not uncommon between commercial parties that sales are documented solely by way of an invoice that includes a reference to general terms and conditions of sale.
1.2 Consumer Protections. Do your jurisdiction’s laws: (a) limit rates of interest on consumer credit, loans or other kinds of receivables; (b) provide a statutory right to interest on late payments; (c) permit consumers to cancel receivables for a specified period of time; or (d) provide other noteworthy rights to consumers with respect to receivables owing by them?
(a) Maximum interest rates for consumer credits have to respect the maximum allowed yearly cost percentages, which include the interests and costs of the credit. Maximum variable interest rates for residential mortgage loans are set based on monthly reference rates published by the supervisory authority.
(b) In general, for consumer credits specific interest for late payment can be charged if an applicable default rate is agreed and such rate cannot exceed 110% of the agreed normal interest rate. For residential mortgage loans late payment interest cannot be higher than 100.5% of the contractual interest rate and can be applied only to the outstanding amount of principal.
2.4 CISG. Is the United Nations Convention on the International Sale of Goods in effect in your jurisdiction?
Yes, the CISG entered into force in Belgium on 1 November 1997.
3 Choice of Law – Receivables Purchase Agreement
3.1 Base Case. Does your jurisdiction’s law generally require the sale of receivables to be governed by the same law as the law governing the receivables themselves? If so, does that general rule apply irrespective of which law governs the receivables (i.e., your jurisdiction’s laws or foreign laws)?
Belgian law does not require that the sale of receivables be governed by the law governing the receivables. Such freedom of choice applies irrespective of the governing law of the receivables.
3.2 Example 1: If (a) the seller and the obligor are located in your jurisdiction, (b) the receivable is governed by the law of your jurisdiction, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of your jurisdiction to govern the receivables purchase agreement, and (e) the sale complies with the requirements of your jurisdiction, will a court in your jurisdiction recognise that sale as being effective against the seller, the obligor and other third parties (such as creditors or insolvency administrators of the seller and the obligor)?
Yes, the court will recognise the sale as being fully effective following notice of the sale to the debtor and with limited exceptions prior to such notification (as to such limitations, see question 4.2 below).
3.3 Example 2: Assuming that the facts are the same as Example 1, but either the obligor or the purchaser or both are located outside your jurisdiction, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller), or must the foreign law requirements of the obligor’s country or the purchaser’s country (or both) be taken into account?
Yes, the answer is the same as for question 3.2.
3.4 Example 3: If (a) the seller is located in your jurisdiction but the obligor is located in another country, (b) the receivable is governed by the law of the obligor’s country, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of the obligor’s country to govern the receivables purchase agreement, and (e) the sale complies with the requirements of the obligor’s country, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller) without the need to comply with your jurisdiction’s own sale requirements?
The effectiveness against the seller and the obligor will be determined by the laws of the obligor’s country (including any
of the country where the party required to effect the characteristic performance has its habitual residence. However, if the contract is manifestly more closely connected with another country than the one indicated by the aforementioned rules, the contract will be governed by the law of the country that is manifestly more closely connected with the contract. If the governing law cannot be determined using the aforementioned rules, the contract will be governed by the law with which it is most closely connected.The Rome I Regulation contains specific rules for consumer contracts, insurance contracts and individual employment contracts.Even if a contract is determined to be governed by foreign law, Belgian courts may apply overriding mandatory provisions of Belgian law. A Belgian court may also apply mandatory provisions of the law of the country where the obligations arising out of the contract have to be or have been performed, in so far as those overriding mandatory provisions render the performance of the contract unlawful.
2.2 Base Case. If the seller and the obligor are both resident in your jurisdiction, and the transactions giving rise to the receivables and the payment of the receivables take place in your jurisdiction, and the seller and the obligor choose the law of your jurisdiction to govern the receivables contract, is there any reason why a court in your jurisdiction would not give effect to their choice of law?
No, there is no reason why a Belgian court would not do so.
2.3 Freedom to Choose Foreign Law of Non-Resident Seller or Obligor. If the seller is resident in your jurisdiction but the obligor is not, or if the obligor is resident in your jurisdiction but the seller is not, and the seller and the obligor choose the foreign law of the obligor/seller to govern their receivables contract, will a court in your jurisdiction give effect to the choice of foreign law? Are there any limitations to the recognition of foreign law (such as public policy or mandatory principles of law) that would typically apply in commercial relationships such as that between the seller and the obligor under the receivables contract?
As a general principle of the Rome I Regulation, Belgian courts will give effect to the choice of foreign law, subject to the following rules:(a) where all elements relevant to the situation at the time of the
choice of law (other than the choice itself) are located in a country other than the country whose law has been chosen, the choice of the parties shall not prejudice the application of provisions of the law of that other country which cannot be derogated from by agreement;
(b) where all elements relevant to the situation at the time of the choice of law (other than the choice itself) are located in one or more EU Member States, the parties’ choice of applicable law other than that of an EU Member State shall not prejudice the application of provisions of EU law, where appropriate as implemented in the EU Member State of the forum, which cannot be derogated from by agreement;
(c) Belgian courts may apply certain overriding mandatory rules of Belgian or foreign law (other than the chosen law) as described in question 2.1 above; and
(d) Belgian courts may refuse to apply foreign law provisions that are incompatible with Belgian public policy (ordre public).
4.2 Perfection Generally. What formalities are required generally for perfecting a sale of receivables? Are there any additional or other formalities required for the sale of receivables to be perfected against any subsequent good faith purchasers for value of the same receivables from the seller?
The mere conclusion of a valid sale and assignment agreement is sufficient to transfer receivables between a seller and a purchaser in a way which is also effective against third parties (other than the assigned debtor and certain third parties with a vested right in the receivables). In order to be enforceable against the assigned debtor, the assignment needs to be notified to the assigned debtor or be acknowledged by it. As long as this has occurred, the debtor may validly discharge its obligations by payment to the assignor and will be entitled to invoke all types of defences which have accrued up to the date of the notification or acknowledgment. Certain other third parties also benefit from an exception to the general rule that an assignment will be effective against them as from the mere conclusion of the assignment. This is the case where a same receivable is successively assigned to different assignees. The claim of the assignee that first notifies the assignment to the assigned debtor (or is first acknowledged by the assigned debtor), will take priority provided such assignee acts in good faith. An assignment of a receivable will also not be effective against a third party creditor of the assignor who has attached (saisi/beslag) the receivable and has received payment, in good faith, from the debtor (also acting in good faith) prior to notification or acknowledgment of the assignment.
4.3 Perfection for Promissory Notes, etc. What additional or different requirements for sale and perfection apply to sales of promissory notes, mortgage loans, consumer loans or marketable debt securities?
Different methods and/or additional formalities may apply to the sale and transfer of specific types of receivables.This is, inter alia, the case for sale and transfer of:(a) promissory notes (or other types of instruments whereby
a receivable is embedded in the instrument) whereby the transfer of the receivables is achieved in the same way as the transfer of the instrument, i.e. by endorsing the name of the transferee on the instrument;
(b) mortgage loan receivables which in principle require a notarial deed that is registered with the fiscal administration and transcribed at the relevant mortgage registry. The Belgian act of 3 August 2012 on certain measures facilitating the mobilisation of receivables in the financial sector (the Mobilisation Act) provides for a wide range of exceptions, however, which set aside these additional formalities in the case of a transfer of bank receivables secured by a mortgage by or to different types of entities active in the financial sector. It is furthermore debated whether these requirements apply if the seller has its habitual residence outside Belgium;
(c) consumer loan receivables which can only be transferred to a limited number of licensed institutions. In order to make the assignment enforceable against the assigned debtor, a notification by registered letter is furthermore required unless the original credit provider in such case continues to service the receivables.
(d) invoices, insurance receivables and salary claims which are all subject to specific legislations.
restrictions on assignment). The effectiveness against other third parties will be governed by Belgian law.
3.5 Example 4: If (a) the obligor is located in your jurisdiction but the seller is located in another country, (b) the receivable is governed by the law of the seller’s country, (c) the seller and the purchaser choose the law of the seller’s country to govern the receivables purchase agreement, and (d) the sale complies with the requirements of the seller’s country, will a court in your jurisdiction recognise that sale as being effective against the obligor and other third parties (such as creditors or insolvency administrators of the obligor) without the need to comply with your jurisdiction’s own sale requirements?
Yes, the Belgian courts will recognise the effectiveness of the sale in accordance with the laws of the seller’s jurisdiction.
3.6 Example 5: If (a) the seller is located in your jurisdiction (irrespective of the obligor’s location), (b) the receivable is governed by the law of your jurisdiction, (c) the seller sells the receivable to a purchaser located in a third country, (d) the seller and the purchaser choose the law of the purchaser’s country to govern the receivables purchase agreement, and (e) the sale complies with the requirements of the purchaser’s country, will a court in your jurisdiction recognise that sale as being effective against the seller and other third parties (such as creditors or insolvency administrators of the seller, any obligor located in your jurisdiction and any third party creditor or insolvency administrator of any such obligor)?
The effectiveness against the seller will be determined by the laws of the purchaser’s country. The effectiveness against the obligor and other third parties will be governed by Belgian law (including any restrictions on assignment).
4 Asset Sales
4.1 Sale Methods Generally. In your jurisdiction what are the customary methods for a seller to sell receivables to a purchaser? What is the customary terminology – is it called a sale, transfer, assignment or something else?
The customary method to sell a receivable under Belgian law is by making use of an assignment (cession de créance/overdracht van schuldvordering) governed by art. 1689 et seq. of Belgian civil code (the BCC). Although these articles can be found in the section of the BCC governing sales, the assignment more generically refers to a technique to transfer receivables. An assignment can thereby occur within the context of a sale if receivables are transferred against a price, but may also be used to transfer receivables for other purposes (e.g. as a payment, as gift, etc.).Since 1994, the BCC allows for the organisation of an assignment and sale of receivables which is valid between the parties (i.e. assignor/seller and assignee/purchaser) and effective against third parties (other than the assigned debtor and subject to limited other exceptions, see question 4.2 below) solo consensus. This means no other formalities are required for the transfer of the receivables than a mere agreement of the parties on the receivables that are transferred and the transfer price. Both aspects need to be identified in, or be identifiable on the basis of, the assignment agreement.
4.6 Restrictions on Assignment – General Interpretation. Will a restriction in a receivables contract to the effect that “None of the [seller’s] rights or obligations under this Agreement may be transferred or assigned without the consent of the [obligor]” be interpreted as prohibiting a transfer of receivables by the seller to the purchaser? Is the result the same if the restriction says “This Agreement may not be transferred or assigned by the [seller] without the consent of the [obligor]” (i.e., the restriction does not refer to rights or obligations)? Is the result the same if the restriction says “The obligations of the [seller] under this Agreement may not be transferred or assigned by the [seller] without the consent of the [obligor]” (i.e., the restriction does not refer to rights)?
Under Belgian law, a receivable is a claim, i.e. a personal right of a creditor against a debtor resulting from a contractual relationship. A receivable is, in principle, freely assignable unless statutory assignment restrictions exist or a receivable is considered to be inituitu personae, i.e. specifically linked to the person of the creditor. Parties may however contractually restrict the freedom to assign receivables existing between them. In this respect, only the following provision should be construed as a restriction prohibiting the transfer of receivables: “None of the [seller’s] rights or obligations under this Agreement may be transferred or assigned without the consent of the [obligor].”
4.7 Restrictions on Assignment; Liability to Obligor. If any of the restrictions in question 4.6 are binding, or if the receivables contract explicitly prohibits an assignment of receivables or “seller’s rights” under the receivables contract, are such restrictions generally enforceable in your jurisdiction? Are there exceptions to this rule (e.g., for contracts between commercial entities)? If your jurisdiction recognises restrictions on sale or assignment of receivables and the seller nevertheless sells receivables to the purchaser, will either the seller or the purchaser be liable to the obligor for breach of contract or tort, or on any other basis?
The effectiveness of contractual assignment restrictions towards third parties has long time been debated under Belgian law. In legal doctrine, two major views exist: one view argues that such clauses are not effective against third parties; another view argues that receivables only exist in the way they are formed between the contractual parties and that therefore a non-assignment provision that is an integral part of the receivables contract should also be effective against third parties. Based on the recently enacted amendments to the BCC relating to security rights in rem on movable assets, Belgian law seems to have taken the view that contractual assignment restrictions are not effective against third parties, but an assignee may be held liable as an accomplice to another party’s contractual breach if it knowingly assists such party in breaching a contractual assignment restriction.
4.8 Identification. Must the sale document specifically identify each of the receivables to be sold? If so, what specific information is required (e.g., obligor name, invoice number, invoice date, payment date, etc.)? Do the receivables being sold have to share objective characteristics? Alternatively, if the seller sells all of its receivables to the purchaser, is this sufficient identification of receivables? Finally, if the seller sells all of its receivables other than receivables owing by one or more specifically identified obligors, is this sufficient identification of receivables?
As a general principle under Belgian law, the object of the sale
4.4 Obligor Notification or Consent. Must the seller or the purchaser notify obligors of the sale of receivables in order for the sale to be effective against the obligors and/or creditors of the seller? Must the seller or the purchaser obtain the obligors’ consent to the sale of receivables in order for the sale to be an effective sale against the obligors? Whether or not notice is required to perfect a sale, are there any benefits to giving notice – such as cutting off obligor set-off rights and other obligor defences?
In order for a sale and assignment to be enforceable against the assigned debtor, the assignment must be notified to or acknowledged by the assigned debtor (see question 4.2). Unless contractually provided otherwise, consent from the assigned debtor is however not required.Whereas the sale and assignment of receivables is valid between the parties and effective against third parties (other than the assigned debtor – see question 4.2 above) as from the mere conclusion of the assignment agreement, the notification of the assignment to the assigned debtor may be delayed for commercial reasons. In such case, the debtor may validly continue to discharge its obligations by payment to the assignor and will be entitled to invoke all types of defences, including set-off rights, until such time as the assignment is notified to or acknowledged by it.
4.5 Notice Mechanics. If notice is to be delivered to obligors, whether at the time of sale or later, are there any requirements regarding the form the notice must take or how it must be delivered? Is there any time limit beyond which notice is ineffective – for example, can a notice of sale be delivered after the sale, and can notice be delivered after insolvency proceedings against the obligor or the seller have commenced? Does the notice apply only to specific receivables or can it apply to any and all (including future) receivables? Are there any other limitations or considerations?
The form of the notice of an assignment is not subject to any specific formalities. For evidentiary purposes, a notice by registered letter may in certain circumstances, however, be recommended (e.g. in case there is a risk competing claims may be exercised on the receivables, see question 4.2). Although there is no published case law confirming this, authoritative legal writers take the view that notice can still be validly given after the start of insolvency proceedings.There are no requirements as to the content of the notice. What the assigned debtor needs to be notified of is the fact of the assignment of the receivable, not the content of the assignment agreement. Provided the assigned debtors of the receivables are known, the notice can relate to any and all existing and future receivables of an assignor (see, however, question 4.11).
A question that still remains under debate, however, is whether the assignment of future receivables will also be effective to transfer ownership to receivables which only come into existence after the seller has been declared bankrupt.
4.12 Related Security. Must any additional formalities be fulfilled in order for the related security to be transferred concurrently with the sale of receivables? If not all related security can be enforceably transferred, what methods are customarily adopted to provide the purchaser the benefits of such related security?
Pursuant to art. 1692 BCC, a sale and assignment of receivables also includes all ancillary items (accessoires/bijhorigheden) of such receivables. These ancillary items include, inter alia, all rights and title of the assignor to the benefit of any guarantees, privileges, pledges and mortgages. For mortgages, see, however, the additional formalities which may impact on the assignment of the receivables secured by such mortgages set out under question 4.3 above.
4.13 Set-Off; Liability to Obligor. Assuming that a receivables contract does not contain a provision whereby the obligor waives its right to set-off against amounts it owes to the seller, do the obligor’s set-off rights terminate upon its receipt of notice of a sale? At any other time? If a receivables contract does not waive set-off but the obligor’s set-off rights are terminated due to notice or some other action, will either the seller or the purchaser be liable to the obligor for damages caused by such termination?
In accordance with § 1295 of the BCC, the assigned debtor is no longer entitled to invoke any set-off rights in respect of which the conditions were only satisfied after the assignment was notified to, or acknowledged by, it (including the condition that the respective claims of the assigned debtor and the seller which are to be set-off are due and payable). Set-off rights in respect of which all conditions were satisfied prior to such notification or acknowledgment remain unaffected by the notification or acknowledgment of the assignment. Furthermore, in accordance with § 1298 of the BCC, the assigned debtor is no longer able to invoke set-off rights, the conditions of which are only satisfied following the insolvency of the seller unless the claim of the assigned debtor and the claim of the seller are closely connected. In respect of bank receivables, the Mobilisation Act has further clarified the limitation on set-off rights and confirmed set-off is no longer possible following notification of the assignment or the insolvency of the seller, regardless of whether claims are closely connected or not.
5 Security Issues
5.1 Back-up Security. Is it customary in your jurisdiction to take a “back-up” security interest over the seller’s ownership interest in the receivables and the related security, in the event that an outright sale is deemed by a court (for whatever reason) not to have occurred and have been perfected?
No, it is not.
and assignment must be identified or identifiable. A global sale and assignment of all existing and future receivables is deemed sufficiently identifiable. Also, a sale and assignment of all receivables other than those owed by one or more specifically identified obligors should be sufficiently identifiable.
4.9 Respect for Intent of Parties; Economic Effects on Sale. If the parties describe their transaction in the relevant documents as an outright sale and explicitly state their intention that it be treated as an outright sale, will this description and statement of intent automatically be respected or will a court enquire into the economic characteristics of the transaction? If the latter, what economic characteristics of a sale, if any, might prevent the sale from being perfected? Among other things, to what extent may the seller retain: (a) credit risk; (b) interest rate risk; (c) control of collections of receivables; or (d) a right of repurchase/redemption without jeopardising perfection?
The description of a transaction by the parties thereto as an outright sale is one element that will be taken into account by a court when the characterisation of the transaction would be challenged before such court. This could, for example, occur if an assignment of receivables would be contested on the basis that it would not constitute a sale of such receivables but rather the creation of a security interest over the receivables. The statement that the transaction is an outright sale would, however, not prevent the relevant court from reviewing the characterisation of the transaction, where the court would conclude that this characterisation as sale does not correspond to the real intention of the parties. Although there is no pre-determined list a court would look at in order to determine whether a transaction constitutes an outright sale, elements that a court would likely take into account to include, without limitation: (i) whether credit risk to the assigned debtor is effectively transferred to the purchaser or whether the purchaser retains recourse for such credit risk on the seller; (ii) whether the purchaser has any option rights to resell the receivables to the seller; (iii) whether the seller has any option rights to repurchase the receivables from the purchaser; and (iv) the level of the purchase price paid to the seller.
4.10 Continuous Sales of Receivables. Can the seller agree in an enforceable manner to continuous sales of receivables (i.e., sales of receivables as and when they arise)? Would such an agreement survive and continue to transfer receivables to the purchaser following the seller’s insolvency?
Yes, provided the sale and assignment agreement allows one to identify the receivables that are sold.Such agreement will not, however, survive the seller’s insolvency. Upon being declared bankrupt the seller will, by operation of law, lose the power to administer its asset and hence will no longer be entitled to sell its receivables as from such date.
4.11 Future Receivables. Can the seller commit in an enforceable manner to sell receivables to the purchaser that come into existence after the date of the receivables purchase agreement (e.g., “future flow” securitisation)? If so, how must the sale of future receivables be structured to be valid and enforceable? Is there a distinction between future receivables that arise prior to or after the seller’s insolvency?
Belgian law allows for an effective sale and assignment of future receivables provided such receivables are sufficiently identifiable.
(c) security over insurance would typically involve the drawing up of a supplement to the policy providing for a pledge or assignment to the creditor or appointing the creditor as loss payee or beneficiary.
5.6 Trusts. Does your jurisdiction recognise trusts? If not, is there a mechanism whereby collections received by the seller in respect of sold receivables can be held or be deemed to be held separate and apart from the seller’s own assets until turned over to the purchaser?
Belgian law does not have a general legal concept of trust. However, although the position is not entirely clear, it is broadly recognised that an insolvency official of the seller should turn over collections of sold receivables coming in, in the accounts of the seller after the bankruptcy, provided that he is made of aware of the assignment and the amounts remain sufficiently identifiable. In practice, commingling risk can be mitigated by taking a pledge on the collection account(s) of the seller.
5.7 Bank Accounts. Does your jurisdiction recognise escrow accounts? Can security be taken over a bank account located in your jurisdiction? If so, what is the typical method? Would courts in your jurisdiction recognise a foreign law grant of security (for example, an English law debenture) taken over a bank account located in your jurisdiction?
Belgian law recognises escrow accounts as a contractual construct, but does not protect the beneficiary against the insolvency of the owner of the escrow account (except in limited circumstances such as a lawyers’ or notary public’s third-party account).A pledge over bank accounts is typically granted by way of a pledge over the receivables owed by the account bank. According to Belgian private international law, the property law aspects of the security, which include the effectiveness and enforceability of the pledge against third parties, are governed by the law of the habitual residence of the pledgor. Therefore, foreign law security over a bank account located in Belgium will be recognised by Belgian courts provided that the pledgor is located in the jurisdiction that governs the security. For example, Belgian courts will recognise an English law security interest on a Belgian bank account if the grantor of the security is located in England. Arguably, a similar approach should be applied to security assignments or declarations of trust under the laws of that jurisdiction.
5.8 Enforcement over Bank Accounts. If security over a bank account is possible and the secured party enforces that security, does the secured party control all cash flowing into the bank account from enforcement forward until the secured party is repaid in full, or are there limitations? If there are limitations, what are they?
The beneficiary of a pledge on a bank account is entitled to control the bank account and to enforce the pledge by applying the cash on the pledged account against the secured obligations.
5.9 Use of Cash Bank Accounts. If security over a bank account is possible, can the owner of the account have access to the funds in the account prior to enforcement without affecting the security?
Yes, they can.
5.2 Seller Security. If it is customary to take back-up security, what are the formalities for the seller granting a security interest in receivables and related security under the laws of your jurisdiction, and for such security interest to be perfected?
This is not applicable in Belgium.
5.3 Purchaser Security. If the purchaser grants security over all of its assets (including purchased receivables) in favour of the providers of its funding, what formalities must the purchaser comply with in your jurisdiction to grant and perfect a security interest in purchased receivables governed by the laws of your jurisdiction and the related security?
Receivables can be pledged under Belgian law by entering into a receivables pledge agreement on the basis of which the pledged receivables can be sufficiently identified. As from the entry into the receivables pledge agreement, the pledge is valid and enforceable against third parties, including creditors generally and insolvency officials of the pledgor, but not against the obligor of the pledged receivable nor against any other assignee that would give prior notice to the obligor. The pledge will only be enforceable against the obligor as from the notification to or acknowledgement by the pledgor of the pledge. In respect of future receivables, the pledge will only be valid and enforceable as from the origination or acquisition by the pledgor of the future receivable.
5.4 Recognition. If the purchaser grants a security interest in receivables governed by the laws of your jurisdiction, and that security interest is valid and perfected under the laws of the purchaser’s country, will it be treated as valid and perfected in your jurisdiction or must additional steps be taken in your jurisdiction?
Yes it would be recognised and no additional steps would be required, if the purchaser has its habitual residence (see below) in that jurisdiction at the time of the creation of the security interest and under their governing law the receivables are not subject to limitations (contractual or statutory) as to their assignment or as to creation of a security interest. However, in order to be enforceable against the obligors of the receivables, notification or acknowledgement would be required (see question 5.3 above).
5.5 Additional Formalities. What additional or different requirements apply to security interests in or connected to insurance policies, promissory notes, mortgage loans, consumer loans or marketable debt securities?
As is the case for a sale and assignment (see question 4.3), additional formalities may apply to the vesting of security interest over specific types of receivables: (a) security over mortgage loans and consumer loans is typically
granted by way of a pledge over receivables subject to the requirements as set out under question 5.3 above. For mortgage loan receivables, the pledge in principle also requires a notarial deed that is registered with the fiscal administration and transcribed at the relevant mortgage registry. The exceptions introduced by the Mobilisation Act (as listed in question 4.3) apply;
(b) security over promissory notes would require a pledge agreement and the transfer of the promissory notes to the pledgee or a third party acting for its account;
6.4 Substantive Consolidation. Under what facts or circumstances, if any, could the insolvency official consolidate the assets and liabilities of the purchaser with those of the seller or its affiliates in the insolvency proceeding?
Belgian law does not have a concept of bankruptcy consolidation. Consequently, a Belgian purchaser company can only be declared bankrupt itself if it meets the relevant criteria, i.e. (i) sustained inability to pay its debts as they become due, and (ii) no possibility to obtain further credit. There is case law, however, on the basis of which the bankruptcy of the parent company could legally provoke the bankruptcy of the subsidiary if there is substantial commingling of assets and liabilities between these two entities in such a way that the companies can no longer be clearly distinguished as separate entities.
6.5 Effect of Insolvency on Receivables Sales. If insolvency proceedings are commenced against the seller in your jurisdiction, what effect do those proceedings have on (a) sales of receivables that would otherwise occur after the commencement of such proceedings, or (b) sales of receivables that only come into existence after the commencement of such proceedings?
Upon being declared bankrupt a seller will lose by operation of law the power to administer its asset. Hence a seller will no longer be entitled to sell receivables as from the date of the bankruptcy declaration (see question 4.10 above). The effect of a bankruptcy declaration on the sale of future receivables that only come into existence after the seller being declared bankrupt, remains under debate (see question 4.11 above).
6.6 Effect of Limited Recourse Provisions. If a debtor’s contract contains a limited recourse provision (see question 7.3 below), can the debtor nevertheless be declared insolvent on the grounds that it cannot pay its debts as they become due?
No case law or other official guidance is available on this issue. Generally, practitioners expect that if appropriately-drafted, limited recourse provisions apply to all material liabilities of the debtor entity, the conditions for bankruptcy could not be met since this would mean that debt will only be due and payable to the extent sufficient assets or funds are available.
7 Special Rules
7.1 Securitisation Law. Is there a special securitisation law (and/or special provisions in other laws) in your jurisdiction establishing a legal framework for securitisation transactions? If so, what are the basics?
Belgian law provides for a special legal framework for securitisation transactions. Such framework provides for (i) dedicated special purpose entities for securitisation, (ii) particular provisions to enhance the possibilities for securitisation of certain types of receivables (in particular, loan receivables), and (iii) provisions to enhance the possibilities for securitisation or mobilisation more generally (e.g. covered bonds, secured funding, etc.) of loan receivables. The provisions dealing with the institutional framework
6 Insolvency Laws
6.1 Stay of Action. If, after a sale of receivables that is otherwise perfected, the seller becomes subject to an insolvency proceeding, will your jurisdiction’s insolvency laws automatically prohibit the purchaser from collecting, transferring or otherwise exercising ownership rights over the purchased receivables (a “stay of action”)? If so, what generally is the length of that stay of action? Does the insolvency official have the ability to stay collection and enforcement actions until he determines that the sale is perfected? Would the answer be different if the purchaser is deemed to only be a secured party rather than the owner of the receivables?
No, the start of insolvency proceedings against the seller should not affect the exercise by the purchaser of its ownership rights over the receivables which were sold and assigned to it prior to the start of such proceedings. Provided the characterisation of an outright sale is not challenged (see question 4.9), the purchased receivables will fall outside of the insolvent estate and the purchaser will, upon notification of the seller, be entitled to collect the receivables directly from the assigned debtor.
6.2 Insolvency Official’s Powers. If there is no stay of action under what circumstances, if any, does the insolvency official have the power to prohibit the purchaser’s exercise of rights (by means of injunction, stay order or other action)?
In case of an outright sale, the insolvency official will not have the power to prohibit the purchaser’s exercise of rights.
6.3 Suspect Period (Clawback). Under what facts or circumstances could the insolvency official rescind or reverse transactions that took place during a “suspect” or “preference” period before the commencement of the insolvency proceeding? What are the lengths of the “suspect” or “preference” periods in your jurisdiction for (a) transactions between unrelated parties, and (b) transactions between related parties?
The sale of receivables could be challenged if completed during the suspect period (période suspecte). A necessary condition for a bankruptcy order (faillietverklaring/déclaration de faillite) is that the company must be in a situation of cessation of payments (staking van betaling/cessation de paiement). In principle, the cessation of payments is deemed to have occurred as from the date of the bankruptcy order. The court issuing the bankruptcy order may determine that the cessation of payments occurred on an earlier date if there are serious and objective indications that such was the case. Such earlier date may not be earlier than six months before the date of the bankruptcy order, save in certain circumstances. The length of the suspect period is not different for transactions between unrelated parties and transactions between related parties.A sale entered into during the suspect period may be declared ineffective against the mass of creditors of the bankrupt party if (i) the counterparty under the transaction was aware (or should have been aware) of the cessation of payment and the sale is prejudicial to the mass of creditors, and/or (ii) the value given by the bankrupt company substantially exceeded the value received in consideration. Finally, any sale entered into to the fraudulent detriment of the mass of creditors is not effective against the mass of creditors, regardless when they took place.
7.4 Non-Petition Clause. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement’s governing law is the law of another country) prohibiting the parties from: (a) taking legal action against the purchaser or another person; or (b) commencing an insolvency proceeding against the purchaser or another person?
The validity and enforceability of such provision is debatable under Belgian law to the extent such clauses could be deemed to conflict with public policy considerations. The validity and enforceability of clauses that limit the right to seek the liquidation or bankruptcy are, however, expressly recognised for agreements entered into by SICs.
7.5 Priority of Payments “Waterfall”. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement’s governing law is the law of another country) distributing payments to parties in a certain order specified in the contract?
Such provisions will be recognised as binding on the creditors that have agreed to such provisions. In order to secure the enforceability against other creditors and officials of an insolvency of the debtor of such payments, it is advisable to create an effective security interest over the assets of the debtor and to include the “waterfall” in such security arrangements.
7.6 Independent Director. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement’s governing law is the law of another country) or a provision in a party’s organisational documents prohibiting the directors from taking specified actions (including commencing an insolvency proceeding) without the affirmative vote of an independent director?
Such provisions may be included in agreements and/or organisational documents. However, depending on the type of action, the type of company and the way the company is otherwise organised, such provisions may not be enforceable against third parties. A particular point of attention is the statutory obligation on directors, under their personal liability, to file for bankruptcy if the conditions for such proceedings are in fact met.
8 Regulatory Issues
8.1 Required Authorisations, etc. Assuming that the purchaser does no other business in your jurisdiction, will its purchase and ownership or its collection and enforcement of receivables result in its being required to qualify to do business or to obtain any licence or its being subject to regulation as a financial institution in your jurisdiction? Does the answer to the preceding question change if the purchaser does business with other sellers in your jurisdiction?
The purchase of receivables is in itself not a licensed activity in Belgium. The acquisition of certain specific types of receivables will however require the purchaser to obtain a licence. This is the case for the acquisition of mortgage loan receivables, for which the purchaser will need to have a licence as a provider of mortgage credit under Book VII of the Belgian Code of Economic Law. For certain types of institutions (such as mobilisation vehicles under
(which date back in essence to 1994) are currently set out in the Act of 3 August 2012 on collective investment institutions under EU Directive 2009/65/EF and institutions for investment in receivables (the UCITS Act). Various provisions to enhance securitisation and mobilisation generally were introduced and updated by the Mobilisation Act (see question 4.3).
7.2 Securitisation Entities. Does your jurisdiction have laws specifically providing for establishment of special purpose entities for securitisation? If so, what does the law provide as to: (a) requirements for establishment and management of such an entity; (b) legal attributes and benefits of the entity; and (c) any specific requirements as to the status of directors or shareholders?
The UCITS Act provides the framework for the creation of two types of institutions for investing in receivables: first, a company for investing in receivables (vennootschap voor belegging in schuldvorderingen/sociétée d’investissement en créances) (hereafter SIC) and second a mutual fund for investing in receivables. In practice the SIC is always used. Such SIC:(a) may only commence its activities following a registration
with the Federal Ministry of Finance;(b) must only invest in receivables, subject to a principle of risk
diversification;(c) may only be funded by institutional or professional investors,
provided that, save for certain exceptions, it has at least two investors;
(d) may have its securities listed on a regulated market, provided that adequate selling restrictions are included in the issuing and placement documentation;
(e) enjoys a particular tax status, under which it does not pay corporate income tax (except for gratuitous advantages received or disallowed expenses) and enjoys broad exemptions from withholding tax on interest collections and from VAT on all its management related expenses (see section 9 below);
(f) can benefit from a range of special Belgian law provisions to facilitate the sale of (loan) receivables (incl. assignability, exemption of formalities, protection against set-off, etc.); and
(g) is, in practice, funded either (principally) through the issuance of asset-backed securities or under a limited recourse credit line (in most cases granted by a separate issuing vehicle).
Shareholders must also be institutional or professional investors. No particular requirements apply to directors, except where the SIC would invest in residential mortgage loans, in which case it will need to obtain a licence.
7.3 Limited-Recourse Clause. Will a court in your jurisdiction give effect to a contractual provision in an agreement (even if that agreement’s governing law is the law of another country) limiting the recourse of parties to that agreement to the available assets of the relevant debtor, and providing that to the extent of any shortfall the debt of the relevant debtor is extinguished?
Yes, provided such provision and agreement are otherwise valid and enforceable under the governing law and subject to insolvency laws that may be applicable to the creditor, whose rights of recourse are subject to the contractual limitation.
9.1 Withholding Taxes. Will any part of payments on receivables by the obligors to the seller or the purchaser be subject to withholding taxes in your jurisdiction? Does the answer depend on the nature of the receivables, whether they bear interest, their term to maturity, or where the seller or the purchaser is located? In the case of a sale of trade receivables at a discount, is there a risk that the discount will be recharacterised in whole or in part as interest? In the case of a sale of trade receivables where a portion of the purchase price is payable upon collection of the receivable, is there a risk that the deferred purchase price will be recharacterised in whole or in part as interest?
Interest payments on loan receivables made by Belgian resident obligors or Belgian establishments of foreign obligors, or through the intervention of a Belgian financial intermediary, are generally subject to a 27% Belgian interest withholding tax. Belgian domestic tax laws, however, provide for a full exemption from Belgian withholding tax for interest payments made to the benefit of Belgian resident corporations (including financial institutions and securitisation vehicles) and of Belgian establishments of foreign corporations. Moreover, the tax treaties that Belgium has concluded with Luxembourg, the Netherlands, Germany, the United Kingdom and the United States of America currently provide for a full exemption from Belgian withholding tax on interest payments made to enterprises that are tax residents of the aforementioned countries (subject to certain conditions). Non-interest-bearing receivables as a rule do not trigger any Belgian withholding tax (possible interest for late payment generally not being considered as actual “interest” for withholding tax purposes).In the event that trade receivables are sold at a discount, such discount is generally regarded as a capital loss realised by the originator rather than as an interest payment made by the latter. Even though, depending on the concrete circumstances, a characterisation of the discount as an interest payment cannot be totally excluded, such characterisation could only effectively trigger Belgian interest withholding tax if (i) the originator is a Belgian resident entity, and (ii) the purchaser is a non-Belgian entity that is a resident of any country other than Luxembourg, the Netherlands, Germany, the United Kingdom and the United States of America.A deferred purchase price is typically not considered as an interest payment for Belgian tax purposes.
9.2 Seller Tax Accounting. Does your jurisdiction require that a specific accounting policy is adopted for tax purposes by the seller or purchaser in the context of a securitisation?
No, it does not.
9.3 Stamp Duty, etc. Does your jurisdiction impose stamp duty or other documentary taxes on sales of receivables?
There is no transfer tax, stamp duty or other documentary tax on the assignment of receivables (unless the assignment is voluntarily registered with a Tax Registration Office, in which case a nominal stamp duty of EUR 50 per registered document is due).
the Belgian Mobilisation Act) reduced requirements may however apply. The transfer of consumer loan receivables is only allowed to a limited number of entities (including, inter alia, licensed consumer credit providers under Book VII of the Belgian Code of Economic Law or a Belgian securitisation vehicle).The answer remains the same regardless of whether the purchaser does business with other sellers in Belgium.
8.2 Servicing. Does the seller require any licences, etc., in order to continue to enforce and collect receivables following their sale to the purchaser, including to appear before a court? Does a third party replacement servicer require any licences, etc., in order to enforce and collect sold receivables?
The amicable collection of receivables owed by consumers is a regulated activity in Belgium if performed for the account of third parties. The activity is subject to the registration requirements of the Ministry of Economic Affairs in accordance with the provisions of the law of 20 December 2002 relating to the amicable collection of debts due by consumers. Other servicing activities are, in principle, not subject to any licence requirement.
8.3 Data Protection. Does your jurisdiction have laws restricting the use or dissemination of data about or provided by obligors? If so, do these laws apply only to consumer obligors or also to enterprises?
The Belgian Data Protection Act of 8 December 1992 governs the processing of personal data. Personal data is defined as all data relating to an identified or identifiable individual person. The definition is very broad and not only covers data on consumers, but on any individual person. If a transfer of a receivables entails the transfer of personal data (not necessarily related to the assigned debtor, but also, for example, relating to an employee of a corporate debtor), the rules of the Belgian Data Protection Act will apply. The processing of personal data is only permitted on certain permissibility grounds, including following the consent of the data subject.
8.4 Consumer Protection. If the obligors are consumers, will the purchaser (including a bank acting as purchaser) be required to comply with any consumer protection law of your jurisdiction? Briefly, what is required?
In the case of a sale and assignment of consumer loan receivables, the purchaser will not be subject to any additional consumer protection rules other than those already applicable to the receivables prior to the assignment and sale (as to which, we refer to question 1.2).
8.5 Currency Restrictions. Does your jurisdiction have laws restricting the exchange of your jurisdiction’s currency for other currencies or the making of payments in your jurisdiction’s currency to persons outside the country?
9.5 Purchaser Liability. If the seller is required to pay value added tax, stamp duty or other taxes upon the sale of receivables (or on the sale of goods or services that give rise to the receivables) and the seller does not pay, then will the taxing authority be able to make claims for the unpaid tax against the purchaser or against the sold receivables or collections?
The Belgian VAT Code contains a number of provisions pursuant to which a purchaser could be held jointly and severally liable for any VAT that becomes due upon a supply of goods or services and that remains unpaid by the seller, in particular in cases where the seller does not duly comply with applicable invoicing requirements. Appropriate due diligence and eligibility criteria can avoid this issue.In cases where the transferred receivables qualify as a branch of business, the purchaser could also be jointly and severally liable for any outstanding income tax, VAT and social security arrears of the (Belgian) seller. But again, this joint and several liability mechanism can be avoided provided that a special tax certificates procedure is complied with.
9.6 Doing Business. Assuming that the purchaser conducts no other business in your jurisdiction, would the purchaser’s purchase of the receivables, its appointment of the seller as its servicer and collection agent, or its enforcement of the receivables against the obligors, make it liable to tax in your jurisdiction?
The purchaser would be liable to corporate tax in Belgium only if it would be (deemed to be) a resident of Belgium for income tax purposes, or if it were to have a permanent establishment in Belgium. In relation to a properly structured securitisation transaction, the fact that the Belgian seller performs collection services for the benefit of the foreign purchaser would typically not be seen as creating a permanent establishment of the foreign purchaser in Belgium.
If sold receivables are secured by mortgages over land, such transfer normally triggers a registration tax of 1%, to be calculated on the nominal amount of the mortgages as a result of the need to draw up and register a notarial transfer deed. The broad exceptions from this requirement under the Mobilisation Act avoid such registration duties from being triggered (see questions 5.5 and 7.1 above).
9.4 Value Added Taxes. Does your jurisdiction impose value added tax, sales tax or other similar taxes on sales of goods or services, on sales of receivables or on fees for collection agent services?
A transfer of receivables that is deemed to take place in Belgium, for the purposes of VAT, should be exempt from Belgian VAT. A specific point of attention in this respect is the VAT treatment of any discount that would be applied on an assignment of receivables. Indeed, if the purchaser would, as part of or following the purchase transaction, perform certain services and that any agreed discount intends to compensate for these services (e.g. assumption of credit risk, collection of receivables, funding and liquidity services), the discount may be (wholly or partially) subject to Belgian VAT. This would typically not be the case in most securitisation-type transactions as opposed to factoring type transactions.Debt collection services are generally subject to VAT in Belgium (as opposed to certain other types of financial services, for which a VAT exemption could be available). It should be noted, however, that the Belgian VAT Code provides for a specific exemption of VAT for certain types of services rendered to an SIC. According to circular letter n° 3/2007 (dated 15 February 2007) of the Belgian tax authorities, this exemption only covers management services that are specifically for collective investment institutions and that relate to the management of such institutions or of their assets (including the forced or unforced collection of their receivables), and not to services that are of a mere material or technical nature.
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Ivan Peeters’ expertise and experience focus on the complex areas in financial transactions (including structured finance and securitisations, banking, secured or asset-based lending, and debt capital markets) combined with the necessary expertise in the regulations applicable to financial institutions and credit institutions in particular. Ivan assists financial institutions, investment banks and corporates with a wide range of, often innovative, securitisations, other capital market-related financings, and complex financial restructurings. He also advises both Belgian and foreign financial institutions on financial regulations, securities laws, various types of financial master agreements, and securities clearing and settlement.
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Philip Van Steenwinkel focuses on banking and financial law, capital market transactions, structured finance transactions (securitisations, covered bonds, trade receivables financing and derivatives), secured lending, and real estate financing. He acts for a wide range of financial institutions and corporates. Philip has a unique track record for various types of structured finance transactions, including, securitisations relating to all major asset classes. Next to transactional aspects, Philip also deals with financial regulation issues.
Philip was also a member of the Stibbe team that participated in the preparations for the Belgian legal framework for covered bonds. Prior to joining Stibbe in 2007, Philip worked as an associate in the debt capital markets and structured finance practice of a magic circle law firm in Brussels and New York.
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