Securitisation and other transfers of loan portfolios in Belgium
January 2015 | EXPERT BRIEFING | BANKING & FINANCE
Over the years, securitisations and other transfers of loan portfolios in Belgium have been faced with a number of legal issues creating a level of uncertainty, as well as long qualifications in legal opinions. In addition, the transfer of mortgage loans (portfolios) to purchasers other than securitisation vehicles was very cumbersome, involving registration in all local mortgage registrars, and costly, requiring registration tax equal to 0.5 percent of the secured amount.
On 3 August 2012, Belgium adopted a law on the mobilisation of claims in the financial sector (the ‘Mobilisation Act’) aimed at facilitating transfers of claims. Two years after it came into force, it is possible to make an initial assessment of the Mobilisation Act. While it indeed simplified securitisations and transfers of loan portfolios, by broadening existing rules and clarifying a number of legal issues, certain of its provisions remain unclear.
It is important to stress that these new rules not only need to be examined when structuring a securitisation or other transfer of loans, but must be taken into account when structuring the credit itself.
More clarity and transfers made easier
A number of issues have been solved by the Mobilisation Act, including those outlined below.
Mortgage loans – no registration and costs. The carve-out from: (i) the need to register each mortgage loan transfer in each relevant local mortgage registrar; and (ii) the payment of the 0.5 percent registration tax, already applicable to certain securitisation vehicles, has been extended to Belgian credit institutions and to financial institutions. The transfer is valid and enforceable by the mere execution of the transfer contract. Such transfer does not entail any further formality or cost.
Partial transfer – priorities. In case of credit facilities, unless agreed otherwise the transferred loans will be repaid pari passu with the non-transferred loans in existence at the time of the transfer, but by priority before loans granted by the transferor after the transfer.
Mortgage mandates – benefit to transferees. The use of mortgage mandates (unregistered) is a widespread method of avoiding or limiting the costs of mortgages in Belgium. Unless specified otherwise in the mandate, it is considered to be granted to the benefit of the transferee of the mortgaged loan as well. In case of partial transfer, a mortgage created on the basis of the mandate will secure both transferred and non-transferred loans. The same rule applies to business pledge mandates (i.e., a mandate to create the equivalent of a UK floating charge).
Loans to public entities – public procurement rules disapplied. Specific limitations to transfers of loans based on public procurement laws are disapplied to transfers to or from securitisation vehicles, credit institutions and financial institutions.
Set-off. When the transfer of a loan has been notified to the borrower, the latter may no longer invoke set-off with a claim it would have against the transferor bank (e.g., deposit), except if the conditions for set-off (including both claims having become payable) were met before the notification.
However, the Mobilisation Act remains unclear on certain issues, including the following examples:
Transfer of mortgage claims – transferors/transferees. The exception to the registration process and tax only applies if the transferor or the transferee is: (i) a securitisation vehicle; (ii) a financial institution; or (iii) a Belgian credit institution. No indication has been given as to the rationale for excluding foreign credit institutions, which seems to be in violation of applicable European law principles.
Borrower – right to limit assignment. For credit facilities, it is unclear if a provision prohibiting the transfer of claim without the borrower’s consent would be valid.
Mortgage mandate – instructions. It is unclear to what extent a transferee of a claim covered by a mortgage mandate may give instructions to the agent.
Set-off after bankruptcy. Even if the transfer of the loan has not been notified to the borrower, the latter may no longer invoke set-off if its conditions have been met “at the occasion of, or as a consequence of”, the transferor’s bankruptcy. The exact meaning of this expression is unclear. It seems that the better view is that the conditions of set-off must be fulfilled upon or after the bankruptcy, but the bankruptcy does not need to have caused an immediate set-off.
Set-off and enforcement of pledge. The Mobilisation Act includes a number of exceptions to the borrower’s right to invoke set-off. However, these exceptions do not prevent a set-off “which would be invoked or made in view of the enforcement of a pledge over the claim to be set-off”. This provision is particularly unclear: while a party may invoke a set-off in order not to pay a debt, it is unclear how a party may invoke a set-off “in view of” enforcing a pledge. In addition, it appears that such set-off could be invoked only by a person that has a pledge over “the claim to be set-off”. Is this the claim of the borrower against the bank or the claim of the transferee of the credit against the borrower?
Some practical tips
Subject to a case-by-case analysis of the specifics of each transaction, certain general tips may be highlighted, either for the structuring of the credit or the structuring of the securitisation or transfer.
Securitisations – set-off. The borrowers’ right to invoke set-off rules must be carefully analysed in each case in order to make a correct risk assessment.
Syndicated loans – alternative to parallel debt. The Mobilisation Act may offer an alternative to the classical parallel debt structure (whose main drawback is that all banks take a risk on the agent), by allowing the transfer of security without formality and costs. However, one must be aware that the Mobilisation Act may not apply to all transfer scenarios. The parallel debt structure may therefore remain a fallback alternative.
Successive transfers – caution. Banks and borrowers must be aware of the rights of future partial transferees, in particular in the case of successive transfers. Parties may want to limit such rights in order to keep a certain level of control over the future enforcement of rights by (partial) transferees.
Role of security agents – to be clarified. Given the additional rights granted to transferees, the role of the agent may need to be better defined, including with respect to the use of mandates, as well as the enforcement and release of security.
While the Mobilisation Act makes securitisations and loan portfolio transfers in Belgium safer in many respects, a number of uncertainties remain and the specifics of the transaction must always be carefully analysed in order to ensure that all issues are identified and either solved or clearly understood by the parties. Rules may differ depending on the type of credit and security being transferred, the identity of the transferor or transferee, the circumstances in which set-off may arise, etc. The new rules need to be taken into account not only when structuring the transfer, but also when setting-up the credit itself.
Jacques Richelle is a partner at Strelia. He can be contacted on +32 (0)2 627 10 09 or by email: firstname.lastname@example.org.
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