Belgium recently approved and published the law transposing the European Restructuring Directive and containing various provisions on insolvency.
To cope with the economic and financial difficulties that companies may face, the new legislation provides additional tools and opportunities that companies can call upon. The main objectives are:
- Give companies in financial difficulties access to an effective preventive restructuring system to avoid bankruptcy
- Give entrepreneurs who are natural persons a second chance in case of bankruptcy
- Make procedures for restructuring, insolvency and debt forgiveness more efficient and shorter
- Achieve further harmonisation of insolvency procedures in the European Union.
Some new features and changes are highlighted:
1. Expanding the tasks of the Chamber of companies in difficulty:
The Chamber of companies in difficulty is a department within the Commercial Court that monitors the condition of companies in difficulty to safeguard the continuity of their activities and ensure the protection of creditors' rights.
Among other things, the new law seeks to ensure the early warning of entrepreneurs with financial difficulties and expands its instruments in this sense. It creates a preventive tool that allows the Chamber of companies in difficulty to carry out its duties, but also provides a tool to enable debtors to engage in self-assessment. This way, the law allows them to take appropriate measures in time to prevent insolvency. More specifically, business owners will have access to the data relating to them, and a right to rectify that data.
In addition, on the initiative of the business owner, the Chamber of companies in difficulty will be able to provide assistance in negotiations with creditors. The purpose of this tool is to obtain a settlement with a debtor's main creditors in a very informal way. It also offers the possibility of allowing the tax authorities or other government agencies to step in on settlements. The collection of tax debts or social security contributions may be suspended in whole or in part with the consent of the relevant public institution. However, it does not go so far as to waive taxes.
In addition, at the request of the business owner, the Chamber of companies in difficulty may appoint a restructuring expert to facilitate the company's recovery. This expert acts independently and will facilitate a settlement with creditors. The Chamber of companies in difficulty determines the content and duration of the restructuring expert's assignment.
2. Adaptation of existing preventive restructuring schemes
The European Directive requires Member States to provide for preventive restructuring schemes. Judicial reorganisations by amicable or collective agreement are such restructuring schemes under Belgian law, but existing procedures could not be preserved in their entirety.
The legislator has had to tinker with these procedures. For example, in the old judicial reorganisation by collective agreement, creditors all vote together on their debtor's proposed reorganisation plan. European legislation, however, requires that for large corporations, this voting must be done in any case 'in categories of creditors'. The Directive allows Member States to derogate from this for micro-, small- and medium-sized enterprises. For large corporations (non-SMEs), the law will thus provide for a vote in categories. For SMEs, creditors continue to vote in one and the same category. The legislator does not want to complicate smaller companies' access to the – already complex – procedure. However, SMEs themselves can opt to still be covered by the more complex system intended for large corporations.
A number of other changes have been introduced for judicial reorganisation by amicable or collective agreement that apply to both large companies and SMEs:
- For example, the duration of the suspension measure in case of judicial reorganisation proceedings is limited to a maximum of 4 months. The suspension measure protects the debtor during the negotiation of an amicable or collective agreement from enforcement actions by their creditors or the opening of bankruptcy proceedings. The duration of the protection is shortened to a maximum of 4 months. In the past, this period could be extended to 18 months even in extraordinary circumstances. This is no longer the case.
- From now on, a debtor can enter into an amicable agreement with only one creditor instead of at least two creditors, this in order to lower the threshold to the amicable agreement.
- The legislator has introduced stricter conditions for the suspensive effect of the petition for judicial reorganisation by amicable or collective agreement to avoid abuse.
- A provisional administrator may be appointed by the court at the request of any interested party or the public prosecutor for the duration of the suspension, if the debtor or one of its bodies has manifestly committed gross misconduct.
- A restructuring expert may also be appointed in these proceedings.
- To avoid a snowball effect, creditors can ask the court to lift the effects of the suspension with respect to them. In such case, the creditor will have to demonstrate that it is clearly disadvantaged by the suspension or that its continuity is threatened.
3. 'Silent bankruptcy' or private preparation for bankruptcy ('pre-pack' insolvency)
A company that claims to be in bankruptcy may file a petition asking to be declared bankrupt after it has had the opportunity to prepare, in private, the transfer of all or part of its assets and activities.
In its petition, the company must demonstrate that this manner of preparing for bankruptcy (i) facilitates the liquidation of the company while maximising proceeds for creditors, and (ii) in the process, preserves employment to the maximum extent possible.
There is no suspension as in a judicial reorganisation. Thus, creditors can still take enforcement action or file for bankruptcy. The company retains control of its assets but it is subject to the supervision of the intended receiver with whom it will have to actively cooperate in order to achieve the intended transfer within the deadline, which is short. Silent bankruptcy remains a preparation. The transfer of some or all of its assets and activities will only take place after the declaration of bankruptcy and will then be reviewed by the court.
The aforementioned amendments and novelties will enter into force on 1 September 2023 and, consequently, the provisions of this Act will apply to insolvency proceedings opened from that day.
As you can see, there are still options in case you are experiencing financial difficulties as a business owner. If you are a business owner wanting to know what your options are, do not hesitate to contact CROWE SPARK LEGAL. Its experts in insolvency will be happy to assist you.
Despite all care taken in the preparation of this text, imperfections remain possible and the information contained herein may be superseded by recent legislative changes. The content of this newsletter is for information purposes only and cannot be considered full legal advice. Accordingly, Crowe Spark Legal and the authors of this newsletter cannot be held liable for the legal completeness of our newsletters. For specific questions or information adapted to your personal situation, you can of course contact our office.
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