The main features of the new law on securities over movable goods

Analyse On a date still to be determined by Royal Decree, but not later than on 1 December 2014, the system of real securities over movable goods will be fundamentally reformed by the entry into force of the (procedural) law of 24 June 2013 and the law of 11 July 2013.

The latter law introduces a new title XVII into the Belgian Civil Code (hereinafter referred to as "C.C.") "Real securities over movable goods" (hereinafter referred to as the "Law on Securities over Movable Goods” or the "Law"). Through this Law the legislator implements a uniform pledge: as a result, for instance, the pledge on business enterprises and the agricultural privilege are abolished. Instead, a non-possessory pledge on movable goods will be possible. As a result of these reforms the pledge will be better in line with the practical economic needs and be more attractive, and the current rather complex system of securities over movable goods will be simplified.

Below you will find a concise and practical synthesis of the main elements of the new regulation for real securities over movable goods.

1. Up to a non-possessory pledge on movable goods

The most important innovation that is in the air is undoubtedly the abolition of the requirement of the dispossession of the pledged asset as a constitutive element of a pledge.

The abolition of the requirement of the dispossession of the pledged asset as a constitutive element of a pledge

The Law on Securities over Movable Goods currently confirms that a pledge is established by an agreement between the pledgor and the pledgee, unless the pledgor is a consumer. In such case, a document remains required to create a valid pledge. The ownership of the assets remains with the pledgor-debtor and he can (continue to) use them to acquire income from them. For the sake of completeness, it should be noted that in addition to the non-possessory pledge the possibility of a "classic" possessory pledge without dispossession continues to exist.

With the generalisation of the non-possessory pledge, the need for specific regulations in connection with the pledge of business enterprises and the agricultural pledge also disappears. The law of 25 October 1919 governing the pledging of business enterprises, discount rates and the pledging of invoices, as well as the acceptance and inspection of deliveries made directly for consumption (hereinafter referred to as the "Law Governing the Pledging of Business Enterprises) offers the possibility of a universal and non-possessory pledging of business enterprises to date. This law will be replaced by the new “Law”. The existing restriction whereby a business enterprise can be pledged only in favour of an EU credit institution will disappear under the new Law on Securities over Movable Goods. The specific regulations governing the agricultural privilege are abrogated as well.

An important additional development concerns the abolition of the traditional (and largely obsolete) distinction between a civil pledge and a commercial pledge. From now on, the Belgian legislator opts for a number of additional exception rules within which the pledgor-consumer enjoys additional protection. The Law on Securities over Movable Goods refers in this connection to the concept of "consumer" within the meaning of the law of on market practices and consumer protection. Consumer is defined as follows: "any natural person who, exclusively for non-professional purposes, acquires or uses products put on the market". So, if a pledgor is a natural person pledging an item for non-professional purposes (in other words, what determines is the answer to the question whether or not the pledge fits in with the pledgor’s professional activity), the pledge agreement without dispossession can be concluded in writing only.  In addition, the value of the pledged assets should not be higher than twice the amount of the pledge. The pledge extends to the principal of the guaranteed claim and to the accessories concerned, such as interest, damages and eviction costs. Such accessories should not exceed 50% of the principal, otherwise they are not guaranteed by the pledge. Finally, the pledgee may have the goods of the pledgor-consumer sold subject to a prior judicial intervention only.

All movable goods, both tangible and intangible, as well as an entirety of such goods (for instance a business enterprise) may be pledged. Future goods may also be the object of a pledge. In addition, a pledge may serve as security of current and future claims if the latter are determined or determinable.

2. Creation of a national pledge register

Since a pledge no longer necessarily requires a dispossession, the (non-possessory) pledge must henceforth to be entered in a national pledge register, which will be administered by the Mortgage Office of the General Administration of Property Documentation of the Federal Public Service of Finance. The new pledge can be enforced against third parties and ranks from the moment of its registration in the pledge register. The pledge register will take the form of a computerized database, which will be available and can be consulted online. The registration of the pledge, which will be valid for a 10-year renewable period, requires the statement of a series of statutory data.

As has been indicated above, the possibility of a “classic” possessory pledge with dispossession continues to exist; in such a case, dispossession remains a possible method to achieve enforceability against third parties. So, in the future one can opt for a possessory or a non-possessory pledge. A possessory pledge can be also registered.

3. Recognition of the concept of security trust

From the banking financing practice the need has grown to be able to hold a security on behalf of someone else (usually a group of credit providers), whereby the beneficiaries are validly represented towards the pledgor by one party, the so-called “security agent”. 

The concept of security agent was already introduced into Belgian law through the law governing financial securities (hereinafter referred to as the "Law on Financial Securities”), but only for real security agreements within the scope of the Law on Financial Securities.

The Law on Securities over Movable Goods now confirms in a general way that pledge agreements relating to movable goods and concluded by a representative on behalf of one or more beneficiaries are valid and can be invoked against third parties if the identity of the beneficiaries can be established on the basis of the pledge agreement. Such representative may exercise all rights normally accruing to the pledgee and will, unless agreed otherwise, be jointly and severally liable with the beneficiaries. The parallel with section 5 of the Law on Financial Securities is clear.

4. New rules regarding eviction

The exercise of pledges is greatly simplified for pledgors who are no consumers. In the event of non-payment by the debtor it will be possible for the pledgee-creditor to make use of the encumbered property subject to prior notification of its intention of eviction. This notification starts a waiting period of in principle ten days. Eviction should always take place in good faith and in an economically responsible way. A prior judicial intervention by the competent judge is possible upon request of the pledgee, pledgor or any third party showing an interest. Furthermore, there is also the possibility of an a posteriori judicial check concerning the way of eviction and the use of the proceeds concerned. Finally, the Law on Securities over Movable Goods also provides for the possibility of appropriation of the goods by the pledgee, subject to the parties’ agreement.

If the Pledgor is a consumer, the rules are stricter. In case of non-payment by the pledgor-consumer the pledgee is not allowed to make use of the pledge just like that; if he wants to do so, a judicial intervention will be required. In addition, as far as consumers-pledgors are concerned, the value of the pledged asset should not be higher than twice the amount of the guaranteed claim.

5. Reservation of ownership and right of retention

New provisions regarding “reservation of ownership” and "right of retention" complete the securities reform. The reservation of ownership, to date provided for only by the bankruptcy law and therefore enforceable only in the event of bankruptcy, is transferred to the Civil Code. As a result, the reservation of ownership will be a full security, which can be invoked in all cases of concursus, and therefore not only in the event of bankruptcy. In addition, as far as the right of retention is concerned, currently general legal regulations are provided for, which was not the case before. The same consequences as those linked to the pledge will be linked to the right of retention.

6. Entry into force

As has already been stated above, the exact moment of the entry into force of the Law on Securities over Movable Goods is as yet uncertain. This Law will enter into force on a date to be determined by Royal Decree, but not later than on 1 December 2014.

As far as the entry into force and transitional provisions are concerned, reference is made to our previously published article, which can be consulted by clicking here.

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Leo Peeters

Leo Peeters