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Capitalisation of interest: a bridge too far?

Trust reigns supreme, but it is better to be safe than sorry …

The relationship between franchisor and franchisee is based on trust, but also on various obligations, some of which are financial. In this context, although undesirable, some payment delays can occur. In those circumstances, specific legal tools may come into play, and here we refer the reader to our article (available in FR and NL) on debt collection.

Franchise agreements, or the franchisor’s general terms and conditions, often contain specific clauses designed to encourage franchisees to meet their payment obligations, such as: automatic cancellation of the period allowed for payments without prior notice, additional fees and interest, fixed compensation in the event of delay, the loss of certain benefits otherwise granted, or even automatic termination of the franchise agreement in the event of non-regularisation after formal notice. Less common, but worthy of attention, is the clause providing for “capitalisation of interest”. This technique, which consists of the accrual of interest on unpaid amounts by adding the interest to the principal amount due, so that the interest compounds, can play not only a financial role but also encourage certain franchisees to be more rigorous.

What interest can a creditor claim?

Under Belgian law, there are several categories of interest that may be claimed.

• Default interest, payable as compensation for the loss resulting from the late performance of a monetary obligation the amount of which is determined or sufficiently determinable; this includes, for example, invoices relating to royalties or certain services provided by the franchisor.
• Remunerative interest is interest that serves as compensation for the provision of capital; for example, when a franchisor makes a loan to a franchisee to finance the launch of the latter’s activities.
• Compensatory interest is due as compensation for damage resulting from the non-performance of a monetary obligation the amount of which has not been fixed and which must therefore be determined by the parties or by a court. Here, we refer, for example, to compensation for the infringement of a trademark right or of a non-competition clause.

Concerning capitalisation of interest in the first two categories, Article 5.207 of the new Civil Code (Article 1154 of the former Civil Code) sets out the conditions of application. On the other hand, Compensatory interest, does not fall under these legal provisions and it may only be compounded to the extent that it can be shown that doing so is necessary in order to obtain full compensation.

Compounding of interest

Interest capitalisation – or ‘compounding of interest’ (also referred to as “anatocism”) – consists of incorporating the accrued interest into the principal so that interest is generated on the total amount. When a monetary obligation is not fulfilled, interest begins to accrue from the date of formal notice to the debtor, unless otherwise provided by law or agreement. Once the interest has accrued, and provided that the legal conditions are met – in particular a maturity of at least one year and a legal claim, formal summons or express agreement – this interest may be compounded. It is then added to the capital and, in turn, begins to generate interest.

Article 5.207 of the new Civil Code provides that ” Accrued interest on the principal amount may [only] bear interest [itself], whether by judicial order or by special agreement, provided that, either in the order or in the agreement, the interest in question is due for at least one full year.”

Article 1154 of the former Civil Code provides that “Interest due on capital may [itself] bear [compound] interest, either by judicial summons or by special agreement, provided that, in either the summons or the agreement, the interest is due for at least one full year.”

To illustrate the effect of compounding (capitalising) interest, we will take the example of a debt of EUR 1,000 over a period of eight years at an interest rate of 8% per annum: without capitalisation the amount due would be EUR 1,640, but if compound interest is applied that amount rises to EUR 1,851, which means an increase in the amount of interest due of almost one third.

Franchise agreements normally provide for default interest in the event of late payment of royalties and/or other remuneration, and more rarely for certain advances made to the franchisee. It then becomes possible to compound default interest that has been due for at least one year. Given that delays in the judicial system have an unfortunate tendency to grow daily, legal disputes tend to drag on. The capitalisation option makes it possible to increase the basis on which any interest due is calculated. That prospect may weigh on the franchisee’s mind and encourage them to settle their debt quickly rather than watch it grow exponentially.

What if the franchisor does not include any provisions regarding interest in their contract or terms and conditions?

There is no real concern concerning default interest, as franchise agreements are subject to Article 5 of the Law of 2 August 2002 on combatting late payment in commercial transactions. Under this text, when payment has not been made by the agreed due date, default interest becomes automatically payable, without the need for prior formal notice. This interest therefore accrues automatically from the day following the due date of the debt — as a rule, one month after the obligation arose, unless another deadline is stipulated in the contract. After one full year has elapsed, the capitalisation of default interest may be requested by means of a formal notice. It should also be noted that remunerative interest on arrears falls indirectly under the application of the 2002 law, provided that it is unpaid or that allowing certain contractual exemptions would be manifestly unfair.

For information, the statutory interest rate applicable in the event of late payment in commercial transactions can be found on the website of the Federal Public Service Economy. It is set at 10.5% per annum for the first half of 2026, while the (ordinary) legal interest rate for 2026 is set at 4.5%. (These rates are the same as for the second semester of 2025 and for calendar 2025.)

(Article text finalised on 30 December 2025. Applicable interest rates verified on 30 March 2026.)

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Why choose franchising today?

“None of us is as good as all of us”*

* Ray Kroc – architect of the expansion of the McDonald’s franchise

Sooner or later, many entrepreneurs achieve the point where their organisation is rock solid: the concept works, the product or service package has proven successful, and the financial results are beyond satisfactory. At that point, the next natural step is clear: why not GROW the business!  Anyone considering growth is soon faced with some key strategic choices. As an entrepreneur, are you going to set up and finance every branch or new unit yourself? Is franchising the right formula for growth? Like Ray Kroc, are you going to opt for commercial cooperation with partners who believe in the commercial concept and are also willing to invest in their own business, while contributing to the overall growth of the business format?

Even start-ups and new entrepreneurs soon have to make important choices.  Do you opt for complete independence, with maximum scope for personal creativity, innovation and developing your own concept? Or could using a proven and successful business franchise format in which structure, support and brand awareness are central (but where not all aspects can be configured freely), be a better alternative? Those who opt for franchising are consciously choosing to be independent entrepreneurs but within a set of clearly defined rules. Franchise agreements are intended to protect and strengthen the brand, the network of franchisees and their joint success, even if this sometimes limits individual freedom and creative scope.

Before committing to a franchise formula, it is essential for a potential franchisor to first assess the ‘franchisability’ of his/her business format. Not every successful concept is automatically suitable for franchising. There are four key criteria that a franchise system must meet:

• Strongly distinctive concept: the concept must be unique and offer clear added value compared to competitors.
• Strongly positioned and recognisable brand: the brand must be recognisable and inspire confidence in customers and franchisees. The brand is one of the foundations of the franchise system.
• Proven financial success: the system must be demonstrably profitable and have a stable financial basis.
• Replicability and transferable know-how (‘savoir-faire’): the processes, knowledge and expertise must be easily transferable to franchisees so that the concept can be implemented consistently in multiple locations.

Having confirmed that this checklist of basic criteria is met, you can begin further development of the concept. This preparatory phase will include: – definition of standards, training, support services, including IT, and operational organisation.  You also need to work on a strong legal framework and a robust financial plan. Taken together, these aspects constitute the fundamental blueprint for the franchise system.

The Belgian legislator has ‘translated’ the building blocks mentioned above into a legal definition of ‘commercial cooperation agreements’[1].  Although that is, arguably, less important for the purposes of this article, nevertheless, being aware of the Belgian law requiring documentation of precontractual information (set forth in the 2024 “PID Act”), is essential. As implemented in the Belgian Code of Economic Law, the PID Act obliges franchisors to provide reliable pre-contractual information to prospective franchisees, thereby reducing the risk of misunderstandings.

For now, however, let us go back to the key question at the heart of this article. ‘Is franchising the right business format that will permit optimal growth of my business?’

 

What are the reasons why entrepreneurs may consider creating or joining a franchise? A non-exhaustive overview of the main advantages and disadvantages for both franchisors and franchisees is set forth below:

The advantages

For the franchisor:

• Franchisors can set up a growth process with limited capital and build a network with limited risk.
• Collaboration with local partners through franchising makes it possible to enter new markets more quickly and at the same time and ensures strong local anchoring. Franchisees contribute local market knowledge, which makes the growth of the concept and the network more efficient and robust.
• Franchising creates economies of scale: a larger network leads to joint purchasing, marketing and knowledge sharing, ensuring more efficient processes within the network.
• Through long-term collaborations, the franchise system generates recurring income for the franchisor through royalties and cost contributions, making cash flow more stable.
• The structure of the model allows the franchisor to focus more on core activities such as strategic vision, system development, innovation and brand management rather than on day-to-day operational tasks.

For the franchisee

• Franchisees invest in their own outlet and actively contribute to the growth of the entire network.
• Choosing to become a franchisee combines the advantages of independent entrepreneurship with the strength of an existing and successful concept. Franchising can be considered a ‘ready-to-use’ business system: a developed and tested concept that allows for a faster start-up than with a completely autonomous initiative.
• As a franchisee, you are not alone. You become part of a network of like-minded entrepreneurs within the same system: a club of colleagues with a shared passion, in which experience, insights and best practices are all exchanged.
• Within the franchise network – long term collaborations not only strengthen entrepreneurship, but also the joint success of the system.
• The franchisor shares its knowledge and experience (know-how) and offers targeted support to the franchisee, both during the start-up and during the further expansion of the business. This allows the franchisee to reach ‘cruising speed’ more quickly and focus on the day-to-day operations and commercial growth of their franchise unit(s).

In addition to the undeniable advantages, there are disadvantages and significant challenges, or let’s call them rather ‘points for consideration’, for both the franchisor and franchisee:

Points for consideration

For the franchisor

• The transition from a traditional operating model to a franchise system implies a significant shift in management and governance. Operational management makes way for strategic leadership, with the focus shifting to managing, supporting and monitoring franchisees within the framework of a standardised system.
• The franchise model implies a different financial revenue model, whereby the franchisor generates income through franchise fees and royalties, which entails a fundamentally different income and cost dynamic. An appropriate P&L approach and careful financial planning in advance are required to correctly assess profitability and cash flow at the level of the franchise network.
• The success of the network depends heavily on the performance of the franchisees, which poses a systemic risk, requires additional coordination and may be challenging to manage.
• There is also a significant risk to brand reputation, as one underperforming branch can affect the brand perception of the entire network, especially in the start-up phase.

For the franchisee

• Success does not come automatically, even within a franchise system. The result is largely determined by the franchisee’s commitment, discipline and entrepreneurial mindset. The system provides a framework and support, but day-to-day implementation and local anchoring remain crucial.
• It is also important to keep expectations realistic. Franchising is not a guarantee of success. Dreams of quick profits or effortless growth without intensive involvement are often illusory. A clear understanding of investments, workload, profitability and growth potential will help prevent disappointment in the longer term.
• Choosing the right type of franchise concept is essential: do you opt for ‘hard franchising’, where processes and decisions are strongly controlled, or ‘soft franchising’, which leaves more room for autonomy and your own entrepreneurship? The degree of control must match the personality, competencies and expectations of the franchisee.
• Check the history of the brand and concept, how many points of sale are there? Visit existing franchise branches and talk to the franchisees. Ask questions, share your concerns and listen to their feedback. Check how many franchises have closed in recent years? How many are yet to be opened?

Making the right choice requires careful and thorough preparation by both parties:

For the franchisor, as mentioned above, there is the implementation of the franchise system which requires the careful creation of a number of essential tools, including a carefully elaborated know-how (or ‘brand’) book, setting out in detail the vision, values and standards of the network.  A tailor-made business plan with sufficient attention to regular cash planning for both franchisor and franchisee.  A strong, but balanced, franchise agreement that not only provides safeguards regarding the ‘third-party’ franchise network but also emphasizes the spirit of sharing a ‘win-win’ between franchisor and franchisees and which pays attention to regular communication and appropriate dispute resolution mechanisms (including mediation).

As mentioned above, franchisors are obliged to provide reliable pre-contractual information to prospective franchisees. The Pre-Contractual Information Document (“PID”) is the absolute cornerstone of a transparent and sustainable franchise relationship. The more honest, complete, accurate and detailed this document is, the better prospective franchisees will be able to form a correct and realistic picture of the concept, the system, the support offered and the associated costs and benefits.

Franchise: Negotiation and PID Obligations

The existing PID obligations were expanded by an Act of February, and Royal Decree of August, 2024. They now include, among other things, the franchisor’s obligation to share an estimated operating account for a period of at least three years with the prospective franchisee.[2]

However, the prospective franchisee also has a responsibility to study the PID carefully and critically, and to be completely transparent with the franchisor about their own experience and financial situation. The PID largely determines the chances of success of a long-term, balanced and successful partnership without the unpleasant surprises that are not in the interests of either party. We recommend organising a thorough question and answer session before signing the franchise agreement to allow any ambiguities to be clarified and further refine expectations. Franchisees are also highly recommended to seek appropriate expert assistance, from accountants, franchise experts and/or lawyers during the cooling-off period if they have not already done so beforehand.

Final Thoughts: Franchising is not a guarantee of success, but it is a scalable and capital-efficient growth model that enables companies to accelerate the expansion of their market position. The strength of franchising lies in the systematic organisation of a network of independent entrepreneurs within a centrally managed strategic operational framework. By combining local entrepreneurial spirit with central brand management, processes and expertise, a whole that performs structurally better than individual companies can be created.

In this context, Ray Kroc’s famous quote – “None of us is as good as all of us” – succinctly summarises what franchising makes possible economically and strategically. This same idea also forms the core philosophy of the Belgian Franchise Federation (BFF). Ray Kroc’s quote emphasizes that cooperation is central: franchisors and franchisees each contribute to a stronger whole, based on their respective roles and expertise. Only by sharing knowledge, aligning interests and jointly building professional and sustainable systems can the franchise model realise its full potential.

Alexander DUPONT	&	Benoit SIMPELAERE
alexander.dupont.be@gmail.com		benoit.simpelaere@flinn.law

*** *** ***

[1] Art. I.11. Belgian Code of Economic Law.

[…]  2° “commercial cooperation agreement”: agreement concluded between two or more persons, whereby one person grants to the other the right to use a commercial formula in the sale of products or the provision of services in one or more of the following forms:

– a common brand;
– a common trade name;
– a transfer of know-how;
– commercial or technical assistance.

[2] Laruelle 2.0 Act – “Much ado about nothing”? Presentation by Alexander Dupont and Benoit Simpelaere at the Belgian Franchise Federations Experts’ Day on 14 November 2024.

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The 2025 International Lawyers M&A Conference in Brussels

17 & 18 October 2025

The International Lawyers M&A conference , co-hosted by FLINN.law and UEPA advokáti, took place in Brussels on October 17–18 and was a great success. Over two days, lawyers, economists, and corporate experts from 22 jurisdictions, gathered to explore the latest developments and challenges shaping mergers and acquisitions around the world.

From the very first session, the event’s energy and international spirit were unmistakable. Benoit Simpelaere of FLINN.law and Lars Klett of UEPA advokáti opened the conference, setting the tone for a rich and collaborative exchange of ideas.

Inspiring Sessions and Expert Insights

The program was packed with thought-provoking presentations and lively panel discussions.

• Peter Vanden Houte, Chief Economist at ING Belgium, offered a powerful opening keynote on the global economic and financial outlook driving today’s M&A markets.
• The first theme, “Difficult Times and M&A,” brought together Søren Hornbæk Svendsen (Horten, Copenhagen), Nicolas Maubert and Matthieu Bringer (Rive Droit, Paris), and Ralph Imoberdorf (Altenburger, Zurich) to explore the interface between M&A and insolvency.
• In later discussions Dr. Bart Devos, of Boels and Partners, explored the strength of attitude that a Family Office can bring to M&A transactions whilst, Len Hawkes (FLINN.law) and Kai Schadbach (Schadbach Rechtsanwälte, Frankfurt), discussed the growing need to document compliance with ESG (Environment, Sustainability and Governance) criteria many acquisitions.

The second day focused on Technology and M&A, featuring insights from Hugh Reeves (Walder Wyss, Lausanne) and Bruno Grangier (Leaf, Shanghai), who examined how cyber-sovereignty and digital innovation are transforming global deal-making. Other highlights included a presentation on the proposal for a European Start-Up and Scale-Up (ESSU) company and a dynamic panel on Crossborder M&A and cultural differences, with experts from Spain, Germany, Canada, the U.S., and the Czech Republic.

Networking and Brussels Charm

Beyond the conference sessions, participants enjoyed memorable networking opportunities, most notably the evening reception on Friday. The warm and collegial atmosphere reflected the spirit of the event: serious discussion paired with genuine connection.

Vibrant with its 2025 Art Deco tributes and exhibitions, Brussels provided the perfect business and cultural backdrop for the event.

Looking Ahead

The 2025 International M&A Conference program, revitalized and stronger than ever, confirmed the appetite of the participants to share high-level expertise, participate in open dialogue and create the international camaraderie to support successful co-operation on cross border mergers and acquisitions.

The organizers, FLINN.law and UEPA advokáti, extend heartfelt thanks to all speakers and participants for their invaluable contributions.

We’re already looking forward to the next edition, where we’re sure that the participants will continue exploring the evolving landscape of M&A with the same passion, insight, and spirit of collaboration.

See you next year !

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The ‘enterprise mediator’ previously referred to in the Code of Economic Law is now referred to as a ‘reorganization practitioner’: but the ‘reorganization practitioner’ may still play a role as a mediator.

In a contribution from early 2023, we explained the distinction between an “accredited mediator” (médiateur agréé) appointed jointly by parties to resolve a particular dispute and an “enterprise mediator” (médiateur d’entreprises), who (at that time) was designated by Article XX.36 of the Code of Economic Law and appointed at the unilateral request of a company in difficulty.

Article XX.36 of the Code of Economic Law was repealed by Article 44 of the Law of 7 June 2023 which came into force on 1 September 2023. As we shall see below, the role of the company mediator is now taken on by a ‘reorganization practitioner’.

Reorganization practitioners have specific experience in insolvency law which makes them particularly valuable in the process of restructuring companies in difficulty, as provided for by Book XX of the Code of Economic Law. Strictly speaking, they are judicial representatives who, while contributing (subject to a minimum of formal constraints) to the recovery of a company in difficulty can, at the same time, bring about a resolution of individual disputes.

For example, a reorganization practitioner could act at the request of a franchisee who has a dispute with his franchisor, and at the same time is confronted with a revocation of his bank loans due to disappointing turnover figures and liquidity shortages. In this case, once appointed and strengthened by an “official/judicial” mandate, the enterprise mediator (now reorganization practitioner) will strive, respecting all confidentiality, to get everyone on the same page in the short term and can, hopefully, save the company from collapse. In that context they may approach the bank and other stakeholders, possibly including the staff, as well as suppliers and also make contact with the franchisor and mediate “classically” (as an accredited mediator does).

Appointment of an enterprise mediator (now reorganization practitioner) at a very early stage, (i.e. before resorting to private or collective judicial reorganization procedures), can be a very efficient preventive tool. However, this tool remains relatively unknown and unloved, despite the regular and active information campaigns of the courts, via social media, seminars and also via their website. (For an application to appoint a reorganization practitioner see the forms available (in FR and NL) from the Brussels Enterprise Court). (In Dutch a brochure about the appointment of a reorganization practitioner is available here .)

By an Act of 7 June 2023 implementing the Restructuring Directive (1), which entered into force on 1 September 2023, the Belgian legislator considered that the role of a “reorganization practitioner” (“praticien de la réorganisation”) defined in the Restructuring Directive should be included in the Code of Economic Law (Book XX).

The definition of a ‘reorganization practitioner’ as a legal representative appointed by the insolvency court and set forth in Book I, Chapter 14, Article I.23 7°/01 of the Code of Economic Law is almost identical to that included in the Directive.  In particular, the reorganization practitioner is to:

• assist the debtor or creditors in the preparation or negotiation of a reorganization plan;
• supervise the debtor’s activities during the negotiation of a reorganization plan, and report to the court;
• exercise partial control of the debtor’s assets or assets without dispossession, before or during the negotiations for a judicial reorganization.

As you may notice, this definition refers to tasks that were previously performed by ‘judicial representatives’ (“gerechtsmandatarissen” or “mandataires judiciaires” and before that by so called ‘commissioners for deferment [of debts]’ (“commissarissen inzake opschorting” or “commissaires au sursis”). They are all replaced by the reorganization practitioner.

Notably, however, the definition does not refer to another core task of the reorganization practitioner, namely his role as an enterprise mediator. Moreover, the definitions in the Code of Economic Law Book I, Chapter 14, might (wrongly) give the impression that enterprise mediation is no longer part of business reorganization … Until, that is, one comes across Section 3 of Book XX, Chapter 2 (Art. XX.29/2), which is entitled ‘Enterprise mediation’ (“Ondernemingsbemiddeling“ / “Médiation d’entreprise“ ).

Article XX.29/2 clarifies that at the request of the debtor, the Chamber for Enterprises in Difficulty can appoint a reorganization practitioner (read: enterprise mediator) to facilitate the recovery of the company. Furthermore, the article states that both the terms of the reorganization practitioner’s mediation tasks (… “sa mission de médiation” … “de opdracht van de bemiddeling”) and the reports of the reorganization practitioner (read: enterprise mediator) are confidential.

Finally, note that, apart from appointment on the basis of Article XX.29/2 of the Code of Economic Law, in certain urgent cases (where, for example, the Chamber for Enterprises in difficulty is unable to sit), the President of the Enterprise Court may make a provisional ruling on all applications falling within the competence of his/her Court, on the basis of Article 584 of the Judicial Code.

Conclusions: Due to the designation of ‘reorganization practitioners’ coupled with the deletion of the Article that explicitly referred to ‘enterprise mediators’ in the current Code of Economic Law: it will not be surprising if both companies and legal advisors have lost track of the continuing role for ‘enterprise mediation’ as it impacts companies in difficulty. Even if referred to by another name, the role of the enterprise mediator continues to exist, whether assisting as a restructuring expert in pre-insolvency tasks or, at a later stage, acting to assist the debtor with a reorganization plan, supervising business activities, including (on occasion) partial control of assets.

Accordingly, it would be preferable for the legislator, in recognition of the mediation tasks clearly assigned to the reorganization practitioner in Article XX.29/2 of the Code of Economic Law, to find room for a clearer reference to the qualities of an enterprise mediator that a reorganization practitioner needs to fulfil. One possibility might be to revise Art. XX.20/1. (Code of Economic Law, Book XX, Title I Chapter 14, Section 2) to recognize enterprise mediation as one of the capabilities that a reorganization practitioner needs to offer.

(1) Directive (EU) 2019/1023: Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency).

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New provisions for the transfer of undertakings under Collective Bargaining Agreement 32bis (“CBA 32bis”) as from 1 February 2025

On 17 December 2024, the representative organisations of the Belgian National Labour Council (“CNT-NAR”), adopted an amended text strengthening the obligations of employers transferring their undertakings under the terms of CBA 32bis. CBA 32bis is the transposition of the 2001 EU’s Transfer of Undertakings (Protection of Employment) Directive (the so-called TUPE Directive) into Belgian law. It aims to safeguard employees’ rights in the event of a change of the legal employer.

From 1 February 2025, as soon as the (representatives of the) employees affected by a business transfer agreement so request, the transferor (the former employer) shall communicate certain information to the transferee (the new employer) and will invite the transferee to come and meet the employees before the proposed transfer takes place. The invitation must be sent in good time, and in any event before the transfer.

The amendment implements CNT-NAR’s Opinion issued on 19 December 2023 (Opinion no. 2.395) concerning business reorganisations. It aims to improve the quality and effectiveness of the information and consultation phase prior to a business transfer,

An evaluation of the new system will be carried out within two years.

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