A collective debt settlement procedure is a legal proceeding available to Belgian private individuals (not acting in a professional capacity) facing financial difficulties. Under the collective debt settlement procedure, a mediator is appointed to arrange a debt repayment plan. The commencement of a collective debt settlement procedure suspends any enforcement measures creditors may take.

Enforcement of financial collateral in Belgium

Security interests granted on financial collateral are governed by the Belgian Law of 15 December 2004 on financial collateral arrangements (the Financial Collateral Law). The Belgian Financial Collateral Law incorporates the Financial Collateral Directive (Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements) into Belgian law. However, its scope is broader since it does not exclude natural persons from its application and it also defines shares and securities which are not negotiable on the capital markets as financial collateral.

In accordance with the Financial Collateral Law, a pledgee is entitled to enforce the pledged financial collateral upon an event of default or enforcement event (as agreed between parties), without prior notification or court approval, notwithstanding insolvency or any other situation of concurrence of creditors (samenloop/concours). Therefore, pledgees of financial collateral are in a position to enforce their security, irrespective of the opening of, among others, collective debt settlement procedures in relation to private individuals whereas other secured creditors do not benefit from similar privileges.

Constitutional Court ruling

The Belgian Constitutional Court has now ruled that this different treatment of creditors cannot be objectively justified, and that such provision can undermine the objective of collective debt settlement procedures. The Court has therefore concluded that the relevant articles of the Financial Collateral Law, when applied in the context of a collective debt settlement procedure, violate the constitutional principles of equality and non-discrimination.

As a consequence, any natural person subject to a collective debt settlement procedure could invoke this judgment to prevent his creditors from enforcing during the collective debt settlement procedure their security interests over any financial collateral pledged by it. To avoid further legal uncertainty, the Belgian parliament should adopt a law to amend the Financial Collateral Law in this respect.

Since the judgment of the Belgian Constitutional Court discusses the specific purpose of the collective debt settlement procedure, the judgement should not be interpreted in our view as to also impact any other insolvency procedure or concurrence of creditors with respect to private individuals, let alone legal persons. Nevertheless, considering the increasing legal complexity relating to security interests granted by private individuals and the various separate legal initiatives taken in this respect, mostly in response of case law, it is advisable for the Belgian legislator to reflect generally whether private individuals as such should not be excluded in their entirety from the scope of the Financial Collateral Law, at least to the extent they are not acting in a professional capacity.