International rolling stock financing in Belgium

Under Belgium law, security over rolling stock is taken by way of pledge.

The pledge is validly created by the entry into the pledge agreement between the pledgor and the pledgee (the pledge agreement must precisely designate the assets subject to the pledge, the secured claim and the maximum amount up to which the claims are secured), and is enforceable vis-à-vis third parties by registration in the Belgian national pledge register. The pledgee (or its agent) must register the pledge in the pledge register. The registration of the pledge in the pledge register is subject to the payment of a fee. The registration is valid for a period of 10 years, which can be renewed. 

Under Belgium law security over receivables is taken by way of pledge.

Under Belgian law (and when Belgian law is the applicable law pursuant to Article 14 of Rome I Regulation or pursuant to the Belgian Code of Private International Law), the following rules apply:

The pledge is validly created by the entering into of the receivables pledge agreement, assuming that the pledgee has the power to notify the debtor of the existence of the pledge. As regards the enforceability of the pledge agreement vis-à-vis the debtor, it is enforceable from the time it is notified to or acknowledged by the debtor. A debtor who has paid in good faith before being notified of or acknowledging the assignment validly discharges its debt. Regarding the enforceability of the pledge agreement against third parties (other than the debtor) (including the insolvency administrator of the pledgor), it is enforceable as from the date of the pledge agreement. The pledge agreement must be a written agreement specifying the claims subject to the pledge, the secured claims and the maximum amount up to which the claims are secured. Under Belgian law, the creation and the perfection of a pledge over receivables does not incur any costs nor is any notarisation required.

In principle, if the agreement between the pledgor and the debtor contains a non-assignment clause or a clause prohibiting the pledging of the receivables, such clauses are not generally enforceable against third parties (including the pledgee), except if such third party would be found in collusion (tierce complicité). If the pledgee carries out a due diligence, the pledgee will most likely be deemed to be aware of the existence of such clauses. Therefore, the clauses could be enforceable against the pledgee.

Yes, a pledge over all present and future (lease) receivables in relation to certain specified rolling stock can be taken.

Under Belgium law, a pledge would be taken over shares.

A pledge on financial instruments, such as shares, is created by a written agreement between the pledgor and the pledgee.

Pledging of financial instruments requires their dispossession. In the case of registered securities (i.e. physical share register), dispossession is effected by the recording of the pledge in the share register. For dematerialised shares, their dispossession may be established by crediting them to a special account opened with an account holder (typically a bank) in the name of the pledgor or the pledgee or an agreed third party. 

Unless otherwise agreed between the parties, upon occurrence of an event of default by the pledgor, the pledgee shall have the right, even in the absence of an executory title (titre exécutoire) and without formal notice (mise en demeure), to enforce the pledges. This right is not hindered by the opening of collective proceedings (bankruptcy, liquidation, collective debt settlement, judicial reorganisation) on the part of the pledgor, nor by a seizure.

Standard enforcement would take place as a (private or public) sale to a third party.

Alternatively, but provided that the pledge agreement specifies the share valuation method, the pledgee has the right to appropriate the financial instruments pledged.

In accordance with the Belgian Civil Code, the proceeds from the sale of the pledged shares are applied against the secured claim.

According to Article 89 of the Belgian Code of Private International Law, the applicable law for the transfer of ownership of rolling stock and for the creation of security interest over rolling stock is the lex registri.

Belgian law will only recognise a foreign law security interest over rolling stock if such registered security interest has been validly created under the lex registri.

As long as the security interest is valid under the lex registri, Belgian law will recognise it regardless of its possessory character.

Belgian law would follow Rome I Regulation:

• parties are free to determine the law applicable to the pledge agreement
• the law of the receivables will determine its pledgeability, the relationship between the pledgee and the debtor, the conditions under which the pledge can be invoked against the debtor, and whether the debtor’s obligations have been discharged
• Belgian Code of Private International Law provides that the applicable law to the enforceability against third parties (other than the debtor) (including the insolvency administrator of the pledgor) is the law of residence of the pledgor.

Foreign law security over receivables will be recognised under Belgian law. Whether such foreign law security over receivables will be enforceable against a Belgian debtor will be determined based on the governing law of such receivables (if Belgian law, then a notification to or acknowledgement from the debtor is required). Enforceability of foreign law security over receivables against other Belgian parties will be determined based on the laws of residence of the pledgor (if a Belgian pledgor, then enforceability takes effect by the mere conclusion of the pledge agreement). 

Under Belgian law, we would not have an outright assignment, but rather we would expect a security interest in the form of a pledge over the receivables related to the financed rolling stock. 

In any case, the enforceability vis-à-vis the debtors will require a notification to the debtors.

Yes. In the case of such a structure, the interaction between the two pledges and the direct access to the underlying receivables shall have to be duly considered. 

The fleet management agreement should be drafted in a way that the receivables against the debtors relate to the assets of the borrower, not of the manager. A double pledge structure should also bring sufficient protection in case of an insolvency of the manager. Also the bank accounts of the manager collecting the rental income and of the borrower should be duly pledged.