Article

08.05.2018

Company insolvency reconsidered and rectified

The new law on insolvency came into force on 1 May, introducing its share of changes on aspects including court-ordered reorganisation, bankruptcy and the responsibility of directors.

Published in the Belgian Official Gazette last September, the new law of 11 August 2017 applies to all insolvency proceedings begun on or after 1 May 2018. Are changes on the cards? Most certainly. The new insolvency law is more than a simple modification of the existing regulations arising from the law of 31 January 2009 on "company continuation" and that of 8 August 1997 on "bankruptcies": it introduces its own set of new rules. Its stated aim is to create a more consistent framework of laws on the subject and incorporate them into Book XX of the Code of Economic Law. A "big step towards the law of the future" is the description used by the Minister for Justice, and its impetus was derived, among other things, from EU regulations on insolvency and a certain number of Belgian Constitutional Court and Supreme Court rulings. This drive for consistency also aims to strengthen the distinction between "insolvency" and "bankruptcy" in a way that gives weight to the idea of a "second chance".

 Insolvency for (almost) everyone

Beyond the desired harmonisation and greater computerisation of processes, the objective was also to considerably enlarge the scope of application of insolvency proceedings. Whereas until now only "traders" could be declared bankrupt, from this point onwards practically all "companies", including liberal professions, will be able to follow procedures to reorganise their business or file for bankruptcy. And they are not the only ones, because agricultural entities (which could already have recourse to the Belgian business act), non-profit organisations, landlords' associations and any individual who is self-employed in their line of work (even company managers or managing directors) are also affected by a broader concept that establishes the idea of the "company" as the basic model.

Priority to the "second chance"

This is one of the most prominent aspects of this law: encouraging businesspeople to start again, either by restructuring their business or by being able to recover more quickly following bankruptcy. This intention can be seen in several new measures:

  • The modernisation of the amicable agreement excluding court-ordered reorganisation to make this more attractive and "secure" for the lender. We should also note the appearance of the "company mediator", whose role will be to support businesses in difficulty to prepare this agreement.
  • In relation to court-ordered reorganisation there is no real revolution: the three existing forms are retained, but certain rules have been clarified to bring them closer into line with practice.
  • Finally, the provisions covering bankruptcy share the same aim: to allow a bona fide victim of bankruptcy to make a fresh start, quickly.

Responsibility of directors

The consistency of rules governing the responsibility of directors of companies in difficulty (except private individuals) has also been reviewed, and the rules have been extended to all "companies" (with a small number of exceptions that include private individuals, SMEs and non-profit organisations). There are three specific cases: the accumulation of liabilities where there is clear and serious misconduct, non-payment of social security contributions, and the unreasonable pursuit of a loss-making business.

Article

23.05.2019

Coping as a business with geopolitical risk

William De Vijlder, Group Chief Economist, BNP Paribas zooms in on increasing geopolitical uncertainties.

The slowdown of the global economy which became increasingly visible in the second half of last year has many causes, but there is broad agreement that rising trade tensions, import tariff hikes and concern about the pace of US monetary tightening acted as clear headwinds. In Europe, Brexit-related uncertainty played a role, as well as sector-specific issues, like new emission standards for the automobile sector. Clearly, uncertainty, in various guises, was a big issue: uncertainty about the economy (the international consequences of China’s slowdown), about economic policy (the Federal Reserve’s monetary stance), about political decisions (soft or hard Brexit, Italy’s budget) and about geopolitics (considering that the build-up of commercial tensions between China and the US is about more than the bilateral trade deficit).

Geopolitical uncertainties on the rise

Whereas economic, economic policy and political uncertainty tend to come and go, depending where we are in the economic and political cycle, research based on media coverage of geopolitical tensions shows that geopolitical uncertainty has on average been higher since the turn of the century compared to the 1990s. This higher average is associated with an increased frequency of uncertainty  spikes, triggered by events like 9/11, the Iraq war, the Arab spring, the Crimea, Syria, terrorist attacks, etc. These events illustrate that geopolitics now covers a broad range of issues, well beyond the older concept of how nations project their power internationally and react to the behaviour in this respect from other nations.

Empirical research shows that an increase in geopolitical risk weighs on industrial production, employment, international trade, consumer confidence. Moreover, whereas certain events can have a short-lived economic impact, because after a spike, uncertainty drops quite quickly, geopolitical threats (without an event necessarily occurring) can cause a sustained increase in uncertainty and hence have a longer lasting impact. This issue of resolution of uncertainty (“how much longer do we need to wait until we know the outcome?”) has been clearly visible in the reaction to the postponements of Brexit day.

A top priority?

Newspaper articles about geopolitical risks may be numerous but, judging from the mapping in the Global Risks Report 2019 of the World Economic Forum, companies are, in recent years, more concerned about climate change and cyberattacks. In the assessment of their likelihood and impact, they score above average, whereas issues related to geopolitics score around average. This is still sufficient for companies to pay particular attention to it, given the macroeconomic headwind coming from protracted uncertainty or the possible non-linear consequences of risk events. The list of questions to be tackled is long but, as usual when dealing with uncertainty, it is about how can uncertainty be monitored, what is my exposure and how can I manage it. The monitoring is the easier task of the three, considering that there is no lack of research on geopolitical topics. High quality, media-based uncertainty indicators are even available for free on the internet.

“The tensions between the US and Turkey in the summer last year turned out to be short-lived, but they remind us of the necessity to define in advance how to cope with short-lived versus sustained increases in geopolitical risk. “ William De Vijlder, Group Chief Economist, BNP Paribas

Direct and indirect exposure

Assessing the exposure is already more complex, in particular when dealing with indirect exposure. Moreover, one should not only assess where geopolitical threats or events can impact your business, but also, and this is the more difficult question, to which extent.

Direct exposure is about: does geopolitical uncertainty influence how and where I produce (which commodities, which intermediate inputs, how complex a global value chain); does it influence the markets into which I sell; does it influence my financing costs, my access to financing, the use of my cash-flow, the repatriation of foreign profits?

When analysing indirect exposure, the questions ultimately are the same, but the channels are different, more complex and hence challenging to assess. Globalisation has enabled companies to broaden their customer base and lower their cost base, but, with a slight exaggeration, it implies that anything can hit them anywhere. When the US and China are negotiating on trade, it can end up impacting third party countries when it leads to trade diversion (the innocent bystander syndrome). There can be political contagion with unrest in one country spreading to other countries which suffer from similar problems. Financial markets can act as an accelerator or a channel of transmission. The increasingly harsh tone between the US and Turkey in the summer of last year unnerved international investors and contributed to the significant weakening of the Turkish lira. It also raised concerns about financial contagion to other emerging market currencies. Eventually, the tensions turned out to be short-lived, but they remind us of the necessity to define in advance how to cope with short-lived versus sustained increases in geopolitical risk.

Accepting or avoiding the exposure

“Coping with” can mean to just accept it as a fact of life, to build a robust strategy which takes uncertainty explicitly into account or to simply avoid the exposure. Accepting the exposure could make sense if, all in all, the financial impact of risk events would be rather limited. The cost of protracted uncertainty can be taken into account by using a sufficiently high return on investment target before committing money.

Avoiding the exposure could be justified if the trade-off between return and (tail) risk is unattractive, if it would trigger a disproportionate attention by shareholders or creditors, if attractive alternatives to grow the business are available, etc. ‘Avoiding’ could also mean ‘waiting to decide on an investment’ but this raises the question of the opportunity cost of waiting. If a company was contemplating to build a factory in the UK before the Brexit referendum, is there an opportunity cost to waiting for the type of Brexit when alternative locations, outside the UK, are available? When time is money, waiting ends up being expensive.

The question of building a robust strategy is the more interesting and challenging one. It starts from the observation that we are (or need to become) active in a country (e.g. because it is a huge market or because it is key to remain competitive) but that this could increase the exposure to geopolitical risk. In designing a robust strategy, different scenarios are analysed and eventually, the chosen approach should do well under a multitude of environments, without being optimal in any specific one, simply because, in deciding under uncertainty, we are (by construction) not in a position to anticipate which one will materialise. Ongoing geopolitical risk monitoring will allow to plan for corrective action if need be as time goes by.

How does your company deal with geopolitical risks? Have you mapped them out sufficiently? Follow the blog of Wiliam De Vijlder, Group Chief Economist, BNP Paribas or subscribe to the newsletter of the Ecoblog of BNP Paribas.
Article

12.06.2018

Reforestation and biodiversity in practice

Some causes are more important than the pursuit of EBITDA. Without trees there can be no biodiversity, and flora, fauna, soil, water and air are all affected. That is why WeForest is mobilising companies to plant forests.

Reforestation is neither a luxury nor a question for hippies. It is indispensable for the climate and biodiversity, the quality of our soil and water, as well as for food; it is thus vital for the future of all species.

The solutions, which remain under-recognised, are simply waiting to emerge. They are not technical, do not adhere to the logic of extraction and do not call on limited natural resources. They are tremendously effective, draw their inspiration from natural ecosystems and entail integrating trees into fields. See also the article The full potential of reforestation.

We have pinpointed two relevant non-governmental initiatives: Ecosia, a search engine launched by a start-up in Berlin, has attracted 7 billion users and plants one tree for every 45 searches made – the equivalent of some 27 million trees planted to this day; secondly, the non-profit organisation WeForest is utilising its expertise in this area, its basis in science and its business network to engage in sustainable reforestation. We went to meet Marie-Noëlle Keijzer, the founder of WeForest, to hear her story.

From carbon offsetting to corporate 'water footprints'

In the early days, WeForest was not convinced by carbon offsetting, which it regarded as too reductive. Yet it was a means to connect with its target audience: companies anxious to measure, reduce and then offset the carbon emissions that they are not able to avoid. Today, the objective of 'net positive emissions' has been set, which also aims to offset past emissions.

It is obvious that environmental concerns now extend beyond carbon alone. Many are beginning to examine their water footprint. A new vision is taking hold, which entails development aid via the promotion of reforestation. "Moving countries out of poverty and doing more than simply planting trees and leaving: this is how companies now wish to act in a socially responsible way", explains Marie-Noëlle Keijzer, CEO of WeForest.

Intervening on vegetation, carbon, water, air and employment

With the 270 corporate clients that have joined it since 2011, WeForest planted almost 17 million new trees and restored 13,000 hectares of land by the end of 2017, and aims to double these figures by 2020. It offers high-impact marketing materials to customer companies with messages such as 'one sale = one tree planted'. 

In 2014, Brabantia decided to 'do something different'. It wanted to sell products, of course, but also give thought to global issues. Working alongside WeForest, the company entered into a joint financing project supporting reforestation. "Since Brabantia began to state on its website, on YouTube and on its packaging that one tree would be planted for every rotary dryer sold, it has seen a 25% increase in sales every year", explains the head of WeForest, citing well-substantiated case studies with certified benchmarks: "We go beyond the theoretical", she continues. "There is total transparency, with every customer receiving a GPS map of the hectares they have funded. We then ensure the forest is protected, approve our customers' projects and help develop the socio-economic activity of the entire region by initiating alternative revenue sources which create employment."

A tree is more valuable in the ground than on it

WeForest is not engaged in helping Zambia in order to maintain its reliance on international aid, but to educate the hundreds of farmers who chopped down all of their trees in order to sell them for firewood. By bringing them together, the association demonstrates that they do not have to clear trees to sell forestry chips, and that by selectively collecting biomass, they can provide heat without cutting a tree down. WeForest trains women to work as nursery growers, giving them a job, an income and an identity. It also supplies beehives to farmers who have begun to produce honey as a new source of income. Bees have other positive effects too, since they pollinate flowers, plants and fruit crops, for example. "It's really simple", affirms Marie-Noëlle Keijzer. "If we kill bees and birds by using pesticides and insecticides, we are preventing nature from doing its work."

Trees provide a habitat for animals and natural fertiliser for plants

In regions of Brazil where tree coverage is 3%, leopards have completely died out. Agriculture has supplanted forests wherever the ground is level. WeForest cannot operate across the entirety of the country, which is much too large. But they have created green corridors, and life has begun again. Trees and plants have been restored, attracting birds and animals that use them to move around, eat and reproduce.

Trees are also a natural source of fertiliser: corn grows more quickly when it is close to trees. They provide shade and retain water in the soil.

There are trees and trees

Not all reforestation projects are equal. Some trees boost the food supply or increase soil nitrogen levels (such as the lucerne), whereas others are detrimental to diversity. For example, no animals will live in palm tree plantations where the soil is also full of chemicals. "We won't solve the problem if we do nothing to change the causes of deforestation: intensive agriculture for the purposes of producing meat, for example", says Marie-Noëlle Keijzer, firmly convinced. Solutions exist, but everyone needs to accept their share of responsibility.

Sources: BNP Paribas Fortis, WeForest
Article

01.06.2018

Cover yourself before embarking on a quest for global markets

Any company that begins to trade abroad is buying into the idea that it can conquer brand new markets, but also that new risks are an inevitability. And although the risks are often worth taking, informed directors will evaluate the danger in order to be better prepared.

In love, as in business, distance makes things more complicated. However, in an increasingly globalised world, expanding your business activity into other countries remains essential – especially in an export-oriented country like Belgium. This strategic challenge demands an appropriate approach that will allow the company to move into new territory successfully. Whether internationalisation takes a physical or virtual form, a number of risks of a new type will join those you are already managing at local level, including hazards associated with transportation, exchange rate risks, poor knowledge of regional regulations, cultural or ethical "gaps", and difficulties arising from unpaid sums and recovering these abroad, etc. To minimise the impact on your business, take precautions and correctly signpost the pathway separating you from your international customers.

Where should you venture to?

If you have identified a particular continent or country of interest, you have presumably spotted obvious commercial benefits. You know your business and are convinced that this move can work well. But before you take the plunge, a step back is necessary so that you can analyse the country-related risks: from the geopolitical context (an embargo would be disastrous for your plans) to the political and socio-economic situation on the ground. It is not uncommon, for example, for elections to have a destabilising effect on the climate of a nation.

Do you have sufficient local knowledge?

This question may appear trivial at first, but culture and traditions have a major influence on the way trade is conducted – even in a globalised world. Beyond market expectations and the chances your product has of success, it is imperative to grasp the cultural differences that could have an impact on your business. A Japanese company does not take the same approach as its equivalent in Chile. Do not hesitate to recruit a trustworthy consultant who fully understands the region.

Have you planned for the worst?

This piece of advice is highly pertinent when the country in question uses a currency other than the euro because foreign exchange rates fluctuate continuously, with the result that you could be obliged to convert money according to less favourable terms than those initially expected. Adopt an effective foreign exchange policy (stabilise your profit margins, control your cash flow, mitigate potential adverse effects, etc.) and employ hedging techniques that best suit your situation.

How do you evaluate your international customers?

Once you have analysed the context, drop down a level to gauge the reliability of your customer in terms of their financial situation and history (e.g. of making payments), their degree of solvency, etc. While such research may not be simple, it is decisive in order to prevent payment defaults that can do enormous harm. If in doubt, take out an appropriate insurance policy to protect yourself. Paying for this could prevent you from becoming embroiled in perilous (not to mention costly) recovery action abroad. Should you end up in a crisis situation, you should ideally obtain local support in the country. Finally, be aware that in the EU, debt recovery is simplified by the European Payment Order procedure.

Have you adequately adapted the tools you use?

One of the greatest risks of international trade is transportation (loss, theft, accidents, seizures, contamination, etc.) in addition to customs formalities. Once dispatched, the goods are no longer within your control, and so you must ensure your carriers accept adequate liability. This means, for example, having suitable insurance cover, but also anticipating the multitude of procedures to be launched in any dispute. More generally, you will need to review and adapt the contracts you have with transport companies, as well as your international customers. Ensure you clearly set out the terms and conditions that apply (payment deadlines, exchange rates, compensation, etc.) and include realistic clauses that safeguard your own interests.

Article

28.05.2018

Simpler rules for VAT on e-commerce are one step closer

Europe is about to modernise the rules relating to VAT levied on goods and services sold online. The aim is to lighten the load on SMEs and turn the EU into a genuine "electronic single market". The first stage will begin on 1 January 2019.

Obligations associated with VAT applied inside the EU can sometimes be a real headache for companies trading within the Union's borders. While self-declaration payment rules for B2B trade are relatively simple to apply (providing the purchasing company has a valid VAT number), selling to individuals within the EU involves a more complex set of formalities. This is because companies that exceed the annual threshold of EUR 35,000 (in Belgium) must register for VAT in the country or countries of destination. According to European Commission estimates, this administrative obligation equates to an average annual cost of EUR 8,000 (per member state) for a company to ensure it complies with local VAT rules, making it costly for SMEs. This observation led the European Commission to put forward an action plan in April 2016, which was ratified by the European Council last December. What will the new rules change?

A new threshold for "digital services" from 1 January 2019

Brussels has a clear objective: it wants to simplify VAT collection from e-commerce companies in order to turn the European Economic Area into a genuine "digital single market". The primary beneficiaries will be companies that offer "digital services" to individual consumers anywhere in Europe (relating to video on demand, music or app downloading and the distribution of video games or e-books, etc.) Up to a new annual threshold of EUR 100,000, these companies can remain subject to VAT in Belgium, thereby avoiding all obligations in the other Member States.

The "one-stop shop" will gradually be extended

In addition, such digital services companies can already make use of the Mini One-Stop Shop (MOSS), a system which simplifies all cross-border VAT operations by allowing companies to make one single VAT declaration: this is submitted electronically in the company's country of origin, for all services in all other Member States. This portal therefore removes a large chunk of the administrative burden on firms. The good news is that this mini portal will be accessible to providers of all other types of services in Europe from 2019.

Distance selling of goods also to be covered from 2021

Companies whose business involves the distance selling of goods will need to wait until 1 January 2021 for the new EUR 100,000 threshold to come into force. But the other change is that the MOSS will also be opened up to these online retailers. There can be no doubt that access to this single portal is a real step forward that will, according to the European Commission, lead to savings of EUR 2.3 billion and increase Member States' VAT receipts by EUR 7 billion. It should also be emphasised that from 2019, micro-businesses with cross-border online sales of no more than EUR 10,000 can continue to apply the VAT rules of their home country.

The other priority: the fight against fraud

This package of new measures also aims to mount a more effective attack against a form of fraud that reportedly led to losses of more than EUR 152 billion across the EU in 2015. As a result, a new measure to take effect in 2021 will remove the VAT exemption on goods with a value of under EUR 22 imported from outside the European Union. This is because it was often abused by companies that exploited it to bring in goods of a higher value while evading payment of VAT in their country of arrival. 

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