Change of control

What Is a Change of Control Clause?

A change of control clause is a provision in your loan agreement that gives your bank the right to demand early repayment, trigger a formal default, or require its consent if ownership or control of your business changes hands beyond a certain threshold. The bank lent money to a specific borrower, assessed on your credit history, your track record, your personal guarantees, and it wants a say if that picture changes fundamentally. In practical terms, it means your business is not entirely yours to hand over without first speaking to the bank.

Why Your Bank Requires It

When BNP Paribas Fortis, ING Belgium, Belfius, or KBC approved your loan, they ran a credit assessment based on who you are and how you run the business. That assessment is baked into the pricing, the covenants, and every condition of the facility. If your business changes hands, the bank has effectively underwritten a loan to a borrower that no longer exists. This is not a clause designed to cause problems: it protects the bank from financing a business under new owners it has never assessed, at terms calibrated for someone else's risk profile. It becomes your problem when a succession plan collides with a facility you have never opened. Banks protecting against a change of control routinely pair this clause with a MAC clause, which provides cover against qualitative deterioration in the business that cannot be captured by a simple ownership threshold.

What It Means in Practice

In the most common structure in a Belgian SME term loan, the clause requires you to notify your bank before completing any transaction that crosses the defined threshold, and often to obtain written consent before the transfer closes. If you proceed without doing so, you are technically in breach, and the bank holds a contractual right to accelerate the loan — meaning it can call the debt due — or to declare a default. That right is typically an option the bank must exercise, not a mechanism that triggers automatically. A softer version gives the bank thirty to sixty days after notification to consent, request prepayment, or open negotiations. The version you have depends entirely on what your specific agreement says.

What Counts as a Change of Control in Belgium

Under the Belgian Companies and Associations Code (WVV/CSA), control means holding the majority of voting rights, or the power to appoint or dismiss the majority of a company's directors. The 2019 reform abolished the one-share-one-vote rule for private limited companies and certain unlisted NVs, meaning a shareholder can hold fewer than half the shares but still control more than half the votes through multiple-voting or loyalty shares. Belgian banks have adapted: they now reference voting rights in the clause definition, not raw share counts. Knowing you are transferring forty-nine percent of shares is not enough — you need to know what percentage of voting control is moving.

For most standard SME facilities, the trigger sits above fifty percent of voting rights. In more bespoke arrangements, or where your structure is complex, you may find a lower threshold at thirty-three or thirty percent: at thirty-three percent, your bank has an effective veto over any transaction giving a new party a blocking minority. The most common triggers in Belgian SME practice are family succession, management buyouts, private equity entry, and partial share sales. Around ninety percent of Belgian M&A transactions are structured as share deals rather than asset deals, which means this clause is relevant to nearly every ownership transition a Belgian SME will face. In such share deals, any acquirer seeking to pledge the target's assets to fund the acquisition immediately encounters the existing negative pledge — typically the first restriction a Belgian buyer confronts during due diligence.

What to Watch

Pay close attention to whether your agreement also contains a key person clause. In a family succession where you are both the majority shareholder and the named key person, transferring your shares may trigger the change of control clause while stepping back from management triggers the key person clause simultaneously. A double trigger gives your bank two separate grounds to act, not one. Also look at whether the consequence is framed as mandatory prepayment or as a lender put. Mandatory prepayment runs automatically once the threshold is crossed; a lender put is a right the bank may or may not exercise. Belgian banks in established relationships frequently prefer to renegotiate rather than accelerate, but only if the clause gives them that discretion. If a prepayment indemnity applies, the Belgian SME Financing Act caps it at six months of interest for facilities up to two million euros — on a €500,000 outstanding balance at 4%, that is roughly €10,000 — worth quantifying before you sit down. Note also that a change of control triggering a formal event of default here may simultaneously activate cross-default clauses across every other facility in your debt stack.

Also consider what happens to your personal guarantee once the shares transfer. In Belgian SME lending, the outgoing owner's personal guarantee frequently remains in force after the transaction unless the bank explicitly releases it in writing. A retiring founder who assumes that handing over the business ends their personal exposure is taking a significant risk. Confirm the status of any guarantee release before the notarial deed is signed.

Where You Have Room to Negotiate

The most valuable thing you can push for, at signing or when a succession event is approaching, is a family transfer carve-out: an explicit provision that transfers to family members within the first or second degree do not count as a change of control. This is directly relevant to Belgian family business succession, and most Belgian banks will consider it when the context is explained. The carve-out can be written narrowly, requiring the family member to actively manage the business or the handover to happen progressively over a defined period. Even a narrow carve-out is better than none. Pair it with a "consent not to be unreasonably withheld" standard if formal approval is required — this shifts the burden so that a refusal must be justified, not simply issued.

What is a Change of control covenant?

A change of control clause triggers loan acceleration or mandatory repayment if ownership or management control of the borrower changes beyond a specified threshold.

What does a Change of control covenant restrict?

Selling equity, bringing in new investors, or transferring management control can trigger immediate repayment obligations. This affects exit planning and fundraising.

Can you negotiate a Change of control covenant?

Most covenant terms are negotiable at the term sheet stage, before the legal documentation is drawn up. With the Change of control covenant, focus on the definition, the threshold, the testing frequency, and the cure period. Ask your relationship manager what flexibility exists, and have your accountant confirm the level is one your business can hold comfortably. Read every line.