BELGIUM Trends and Developments Contributed by: Wim Aerts, Dorothée Vermeiren and Stijn Van Walleghem, Clifford Chance
credit providers offer working capital financing for a longer tenor, rather than as a short-term bridge. Developments and Challenges The continued record capital raises by private credit providers result in increased competition for opportunities to deploy capital and in private credit providers looking at other opportunities to deploy their capital. Private credit providers have now also become active in providing fund financing to sponsors; private credit providers offer infrastructure financing and co-investment structures for limited partners. Although spon - sors and private credit providers may be more comfortable with increased leverage if inter - est rates are reduced and this may increase demand, it does seem generally expected that there will be consolidation in the private credit market. Reduced interest rates may also impact the yield expected by investors in private credit. Restructuring and Insolvency One concern raised by sponsors before private credit became a household financing solution was that sponsors did not have experience with how private credit providers would act in a financial restructuring or work-out scenarios. Even if private credit providers are quite selec - tive in deploying capital, their market share sug - gests that their involvement in such scenarios will increase. Insolvency laws and schemes are therefore likely to be top-of-mind for private credit providers. One relevant recent development in this respect is that the insolvency law in Belgium has been recently modernised significantly, allowing among others for a judicial reorganisation to be private (ie, without automatic moratorium and publication) as well as allowing for the private/ silent preparation of bankruptcy proceedings
involving the pre-packed transfer of the busi - ness. These and other procedural changes are contributing to a more common use of these proceedings, also in larger transactions, and the market generally becoming more comfortable with court-involved reorganisation proceedings. This in addition to the normal means of enforce - ment through the realisation of share pledges, that do not require upfront court involvement in Belgium. Tax Withholding tax is in principle due in respect of interest payments by Belgian borrowers, and private credit funds will need to look at exemp - tions that may be less straightforward than those available to bank lenders. The most relevant ones in this context are those available under double tax treaties, in particular if the lenders are resident in Luxembourg, the Netherlands, Germany, Switzerland, the UK and the US, or in case of interest paid to foreign investment com - panies qualifying as alternative investment funds that are established in an EEA member state and that do not issue shares in Belgium, in each case subject to conditions and formalities. In recent years, there have been an increasing number of challenges by the Belgian tax authori - ties of withholding tax exemptions on interest payments flowing through intermediary financ - ing companies based on a deemed absence of beneficial ownership or necessary substance, as well as in respect of the application of EU or national anti-abuse rules; in the absence of a clear definition of beneficial ownership under Belgian domestic law, the influence of the Dan - ish cases in which it was held that such benefi - cial ownership needs to be interpreted economi - cally and not legalistically as was traditionally the case in Belgium is expected to be considerable in Belgium.
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