Benoît Feron: lawyer for BeeBonds, partner Deloitte Legal

Elisa Brevet

For this episode, we are delighted to welcome BeeBonds' lawyer, Benoît Ferron.

Hello Benoît.

Benoît Feron

Hello !

Elisa

Thank you for accepting our invitation. You are partner lawyers at Deloitte Legal and we've decided to do two episodes with you. Two episodes, because what's interesting about you, well, you could say that there are two sides to you, one side is the lawyer: a partner in a large firm, as we've just said, Deloitte Legal.

You have over 30 years' experience in stock market law, but you are also active in alternative finance. And then there's your side, the photographer. Your photographic work focuses mainly on the people whose faces you like to capture. You have travelled extensively, including to Africa, where you have been travelling intensively for the past fifteen years. But we'll look at that in a bit more detail in another episode.

In today's interview, the lawyer and I wanted to start by asking you what made you decide to go into law. Was it a vocation?

Benoît

So it was a quarter of a vocation, so to speak. I had a grandfather who was a lawyer, who had been President of the Bar. There was a photo of him in his living room, in his lawyer's robes, and it always made a huge impression on me. But I wanted to be an architect and when I was doing my A-levels, my parents got me to meet architects who told me that the profession was a dead-end, that I shouldn't do it. So I told my parents that there was no problem, that I'd do law and when I'd done law, I'd do architecture, so you'd be happy. And then I went to law school and never did architecture.

But having said that, I enjoyed my studies, so it was still something that came naturally to me.

Elisa

In a few words, how would you sum up your career?

Benoît

Wow! It's not a simple question, but let's just say that when I was a law student, I went to the courthouse a lot. I was fascinated by criminal trials. I dreamt of being a trial lawyer. Then I did a traineeship in the legal department of a big company, where a lawyer convinced me that I absolutely had to do corporate law rather than criminal law. So I listened to him.

I went to the United States, I worked, I quickly became interested in financial criminal law, insider trading and so on, and I came back to Belgium super interested in these subjects. I went to see Jean-Louis Du Plaa, who was Chairman of the Commission Bancaire, and it turned out to be far too preachy an idea, because in fact nobody was interested, there was no financial law in Belgium at the time. But it was a subject that interested me. So I've always been interested in that subject.

So with one foot in company law and one foot in financial law, in capital markets law, that was the beginning of the investment services directive too. So there you have it. As a student, I wrote an article in the newspaper Tribunaux on the brand new article 489 bis of the Criminal Code, which introduced insider dealing in Belgium. But that was back in 1989, if I remember correctly, so it wasn't just yesterday.

Elisa

If there were three memorable moments in your career, what would they be?

Benoît

There are a few, but there is one big one. In fact, I've been lucky enough to work on a number of takeover bids and there was one case that completely changed financial law. It was the Wagons-Lits case, which was something quite astonishing. It was a battle between the Accor group and the Sodexo group to take control of Wagons-Lits. And that was the beginning of the defence of minority shareholders. And Deminor had just been founded.

I remember I was working for a boss at the time who was advising Les Démineurs, and we forced the decision to make a takeover bid for the company, which was extraordinary because all the leading figures in Brussels company law were involved. We were in summary proceedings. The judge had decided to take the case to heart and we held hearings on Saturdays. We had to conclude, I remember, 160 pages in 24 hours. I was a young lawyer and we worked day and night. So this is a great moment. 

Then there are others. I was a bit crazy at the time and I remember negotiating the sale of a company. It was a Frenchman, like many French people living in Brussels, who was selling his company. I remember having a negotiation meeting in Paris that lasted 33 hours straight. We started at 9am on Wednesday morning and finished on Thursday afternoon. Those are memorable moments. But fortunately, I'm not ready to go through that again. It takes a long time to recover. Those are some pretty memorable moments.

Elisa

So, if we've come to this point with you, it's also to talk about BeeBonds, since you're BeeBonds' lawyer. Can you tell us why you're working with BeeBonds and explain what your vision of alternative finance is?

Benoît

So why am I working with BeeBonds? Firstly, because I have been working in the field of financial and market law for a very long time. I've worked on many, many cases for which the Commission Bancaire, now the Commission Bancaire et Financière, now the FSMA, has jurisdiction. So I have a lot of experience in this area.

I also knew the BeeBonds bosses. So it was when Joël launched this initiative that he consulted me about the approval file. And then, finally, to work on the various files and to come directly to your second sub-question.

For me, crowdfunding is fundamental, because we have a huge problem in general. But in Belgium even more so, because European banking and financial regulations have become a behemoth with terrible requirements.

All this after the scandals that shook the industry in the United States with securitisation, etc., where the rules became extremely demanding. As a result, banks no longer lend or only lend subject to conditions that are extremely complicated to meet. They can no longer lend against X, a need, a company. And this is even a general reflection. It's at the level of lending, credit, it's at the level of the corporate finance.

Today's banks have so many rules to comply with that they can't take any more risks and, in fact, the services they offer have shrunk like a stone. And so, for me, there was a real place for financing SMEs. And because it's, I repeat, it's a real disaster. So crowdfunding really fills a gap for this type of company. So for short- or medium-term credit, for relatively limited amounts, but to make up for the absence of the bank in this niche. And so the role of crowdfunding is fundamental in my opinion.

Let's be clear, crowdfunding is a generic term for the crowd. BeeBonds is more into crowdlending, but crowdlending, which is part of crowdfunding, in other words crowdfunding is fundraising in general through the crowd process with the public. And this involves both crowdlending, i.e. borrowing for bond issues, and equity issues. When we talk about crowdlending, we're talking about debt securities, in other words bonds, notes and loans.

Elisa

In practical terms, what do you do for BeeBonds?

Benoît

For BeeBonds, we look after the legal side of things. So, in fact, you need to know that when we carry out an operation, a public offer, we try to collect public savings from individual investors by offering them financial securities such as bonds.

But there are certain rules to be respected when you are involved in an extremely limited operation of less than €500,000, with certain precise rules, you can do it like that, with just about any document, as long as it is not misleading.

When you're on a scale of between 500,000 and 5 million, you have to draw up what we call an information memorandum, which is a regulatory document that must be no more than fifteen pages long with very specific headings and which can be verified a posteriori by the FSMA. We, as lawyers, draft this type of document for a company like BeeBonds, which has clients, issuers who want to find these savings on the market and so BeeBonds acts as an intermediary, as a facilitator and prepares this information memorandum with the issuer. This part of the work, which is purely legal, is written by us because we are used to it, because we know the rules.

Elisa

But what does it actually mean? How can it be used? What does it cover?

Benoît

Yes, and so in fact it's the official document that's supposed to inform the public about the type of operations a company wants to raise €750,000 or €1 million to finance the construction of a building complex, a hotel or things like that.

This document will say here we are raising €1 million with denominations, with bonds in denominations of €100, €200, €500. The operation will last from such and such a date to such and such a date. These are the company's accounts. Here's what it's going to do with the funds.

You have to explain that this million will be used to buy the land, to carry out all the feasibility studies, to build, etc. and you have to give a series of details about the issuer, i.e. the company borrowing the money, its board of directors, what its history is, etc.   

The document will also define all the terms and conditions of the bonds. So what is the interest rate? What is the due date for interest payments? Can the bond be redeemed early? So this really is the legal document. It's the contract that binds the investor and the company.

It's obviously a relatively technical document, but it's very important to read it. The document starts with what we call the risk factors, so we explain all the risk elements in the file. But it's a really fundamental document because it's supposed to really draw attention to the potential risks of the operation.

It is also a very important document because the company issuing the bonds must comply with very strict rules. And if this information memorandum is badly drafted, if it is misleading, if they don't have the information that is required by law, then the bond issue may be void and the investor may claim repayment of his bonds.

It really is a fundamental document. That's what we do, we study the feasibility of a whole series of projects. And then sometimes we work on the bond issue itself, because there are lots of conditions and procedures depending on the operation. So it's often quite creative and technical.

Elisa

What is your vision for crowdlending in the years ahead?

Benoît

But it's a bit like the answer I gave earlier. For me, it's fundamental because the economy absolutely needs it. So the economy and the banks are no longer fulfilling their role completely. And I'm not condemning them because it's not necessarily their fault. It's the regulations that have become absolutely cumbersome. So there really is a hole to be filled.

What's very important is that we need serious players, because the problem today is that a company can do crowdlending without using a platform. It can do it on its own, but as a result, you find information notes that say anything and everything, and that's dangerous because you can't fool people. And if you don't, you could end up with a catastrophic economy. So it's really important that this continues to be regulated by precise rules and that it's done by professionals who know what they're doing.

Another development is that today we have national regulations. But there is a European regulation that has just come into force, which will lead to a new Belgian law. So the rules are going to be more or less standardised at European level. This means that crowdlending players will be able to cross borders with a European passport, which is interesting in itself.

But what this also means is that the rules are going to become much heavier, much more demanding. And so, once again, in much the same way as with banking regulations, there is a risk that only the big players will have room for manoeuvre, because the smaller players will not be able or financially sound enough to meet all these obligations.

So once again, be careful, because it's not just the big players like in banking, it's not just four banks that can provide credit or help a company raise funds. This is more or less the vision of European legislators and our authorities, the Banque Nationale, the FSMA, etc. today.

Elisa

So you said banks don't take risks? Do crowdlending investors take risks? What kind of risk? If we compare this to a stock market investment, can you explain the difference?

Benoît

It's not true that banks don't take risks, but what's happening is that banks are subject to extremely strict regulations with solvency ratios, ratios of all kinds, so it's becoming very, very mathematical, and on top of that they're not allowed, for example in a property project of this size, to lend more than 50, 60, 70 % of the amount needed, things like that. That's why crowdlending fills a gap.

So when it comes to risk, yes, of course, a crowdlending investor does take risks, but they are not at all the same risks. The risks are smaller than those of a stock market investment, for example. Basically, when you buy a share on the stock market, you are not a creditor in the same way as you are when you lend, i.e. the share will follow the company's share price. If the company makes a profit and grows, people will buy shares, the share price will rise and you will have a potential capital gain.

If the company is doing badly, or if it's doing well but nobody is interested in the share, people won't buy it and so the share price will fall. So you can buy a share at €10. And then maybe they'll want 25 three years later. And then, one day, you want to sell it? It's worth €2. So you're completely dependent on whether or not the company's development profits are healthy.

So it's really you're a shareholder when you're an investor in crowdlending, you're a lender, it's completely different. If the company in fact defines at the outset, you buy a bond, so you lend €1,000, €2,000 or more to the company. You are entitled to a return of 6 % per year. So every year, the company will pay you 6% and three years later or four years later. Depending on what is agreed, it will pay you back, so you will have received X% of your investment.

If the company does well in the meantime, if it makes times ten, you won't notice the difference because you'll receive 6%. On the other hand, if the company doesn't do well, doesn't make a good profit or hasn't developed as planned. But you will still receive your 6% because there is in fact a very precise contract that specifies exactly what you will receive as interest and the sum you will receive at the end. So it's not the same thing at all.

The only risk you really have is the risk of insolvency. If the company goes bust, that is, if it goes bankrupt because it has not been able to carry out its projects. So that's the risk for the crowdlending investor, but it's obviously much more limited than the risk for a stock market investor, who is completely subject to the ups and downs of the economy. After that, you have to choose your projects carefully, and that's why the platforms are so important.

They make a selection and try to take good files. After that, it depends a lot on the good faith of the issuer, obviously, who gives you the right information, who doesn't hide certain information from you. But there is always a risk involved. In the history of credit, there have always been cases that have gone wrong and most cases that have gone right. So, I don't know if I'm making myself clear, but that's the difference.

Elisa

All right, then. Well that's the end of this episode. Thank you Benoît. Thank you for taking the time to see us and for answering our questions.

Benoît

Thank you, though. In any case, it was very nice