Right of pledge : the new situation

The purposes of pledges

Pledgesallow a business to fund itself by giving guarantees to the lender (often financial institutions). In order to secure their loans, thesecreditorsorganise 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, apledgeprovided for the dispossession of the object serving as the basis for the guarantee. This de facto dispossession disadvantaged thedebtorwho 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 ofpledgeenabled thedebtorto continue to use the pledged items and not to have to hand them over to thesecured creditor. However, this exception was only valid for financial institutions and was limited to 50% of thedebtor company’sstock.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 theright of pledge. It introduces apledge without dispossession, which means that thedebtorcan pledge a moveable asset without being dispossessed of it and can therefore continue to use it. Moreover, the new lawwidens 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 aright of pledgeguaranteeing a loan (here, we can find the same protective mechanism as withthe title retention clause). In order to avoid such situations, the legislator has made provision for a registration system of all assets subject to aright of pledge. This means that a third party who wants to purchase an asset can consult Belgium’snational 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 theirright of pledgeor theirtitle retention clause. However, this verification will be essential when, for example, a company is selling a previously used asset (machine, vehicle, etc.). Registering apledgeis subject to various conditions set out inthe 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 thedebtsconcerned against atransferred 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 thisnational pledge registerwill 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.

The purposes of pledges

Pledgesallow a business to fund itself by giving guarantees to the lender (often financial institutions). In order to secure their loans, thesecreditorsorganise 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, apledgeprovided for the dispossession of the object serving as the basis for the guarantee. This de facto dispossession disadvantaged thedebtorwho 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 ofpledgeenabled thedebtorto continue to use the pledged items and not to have to hand them over to thesecured creditor. However, this exception was only valid for financial institutions and was limited to 50% of thedebtor company’sstock.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 theright of pledge. It introduces apledge without dispossession, which means that thedebtorcan pledge a moveable asset without being dispossessed of it and can therefore continue to use it. Moreover, the new lawwidens 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 aright of pledgeguaranteeing a loan (here, we can find the same protective mechanism as withthe title retention clause). In order to avoid such situations, the legislator has made provision for a registration system of all assets subject to aright of pledge. This means that a third party who wants to purchase an asset can consult Belgium’snational 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 theirright of pledgeor theirtitle retention clause. However, this verification will be essential when, for example, a company is selling a previously used asset (machine, vehicle, etc.). Registering apledgeis subject to various conditions set out inthe 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 thedebtsconcerned against atransferred 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 thisnational pledge registerwill 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.