As a general principle under Belgian law, receivables can be assigned or pledged without the consent of the relevant debtor, unless the receivables:
- are not tradable;
- originate from agreements with an intuitu personae character (which means that a party has only agreed to enter into an agreement due to the personal character of the other party); or
- are not assignable due to a statutory prohibition.
With the amendment, the Belgian legislator has reintroduced a statutory prohibition on the assignability of receivables arising under public contracts before provisional acceptance. The purpose of this change in law was to prevent the untimely interruption of public contracts by any other creditors of the contractor and to ensure the continuity of payments to the contractor, its workers, subcontractors and lenders.
Certain exceptions however apply.
Among others, the contractor’s receivables may be assigned or pledged to lenders, even prior to acceptance, if these receivables are used to guarantee loans or sums advanced for the financing of the performance of the public contract. The assignment or pledge of receivables will nevertheless only take effect after the workers, employees, subcontractors and suppliers who have made a garnishment or an opposition have been fully paid.
In addition, before or during the period of contract performance, lenders may only allocate the sums concerned to cover other receivables that they have against the contractor once the financed works, supplies or services have been accepted.
Another specific exception applies if public procurement receivables arising from credit arrangements are assigned or pledged to a financial institution (incl. credit institution) or a securitisation vehicle. In such cases the reinstated prohibition does not apply.
The new article foresees certain formalities to guarantee that the relevant parties are aware of and can claim the benefit of any third-party claims.
The consequences of this new restriction are therefore limited for financing arrangements whereby public procurement receivables were assigned or pledged as part of the financing of the performance of the public contract (for instance in project financing arrangements). It will however have consequences for creditors and their clients who assign these receivables for general corporate financing purposes, for instance as part of a factoring arrangement.
Prior to the reform of the public procurement law in 2016, creditors under factoring or receivables financing arrangements typically excluded receivables arising from Belgian public contracts from the scope of the transferred or pledged receivables. Since 2016, we have seen more cases where receivables under public contracts were generally assigned or pledged. With the reintroduction of the old statutory prohibition, it is now expected for the general exclusion of public procurement receivables to once again be included in receivables transfer arrangements.
The new prohibition will raise concerns in ongoing factoring or receivables financing arrangements where no specific exclusion for public procurement receivables was made. Where they have intended to assign or pledge such public procurement receivables, creditors and their clients should carefully assess the consequences of this change in law for their ongoing arrangements.
Please do not hesitate to contact us if you need any assistance on the matter.
For more information on receivables financing and factoring in Belgium, we refer to our Q&A on the topic: Factoring and receivables financing in Belgium: frequently asked questions