The reformed Belgium Insolvency Law adopted in 2017 eventually came into force on 1 May 2018. The law entitled Book XX of the Economic Law Code includes most of the 1997 Bankruptcy Law; the 2009 Law on the Continuity of Enterprises, which deals with the reorganisation of financially troubled enterprises; and the EU Regulation 2015/848 on insolvency proceedings (EIR Recast).1
These changes keep Belgium in line with its neighbours and compliant with both the EIR Recast and the Proposed Directive on Preventive Restructuring, Second Chance, Insolvency and Discharge amending Directive 2012/30/EU2.
Seeking to comply with leading international standards such as the UNCITRAL model law on cross-border insolvencies, the Belgian legislator has introduced a transparent and effective system, which should increase predictability for all interested parties.
Application of the new law
The scope of application of Book XX of the Economic Law Code ratione personae has been extended to include all enterprises – the debtor being defined as (i) any individual who independently exercises a professional activity, (ii) any legal entity and (iii) any organisation without legal personality. This extends the application to include independent liberal professionals, farmers, not for profit organisations, foundations and trusts. Public law entities and consumers remain excluded. De facto organisations are only considered enterprises in so far as they distribute benefits to their members or to individuals who have control of the organisation.
A specialised insolvency section of the Commercial Court of the place where the company has its registered seat or COMI shall have jurisdiction. A Belgian court is able to open secondary procedures on the basis that a foreign debtor has assets such as a bank account in Belgium and an establishment is no longer required. This amendment should have a positive impact on international finance transactions where Belgian credit institutions are involved as often cash account agreements are opened in Belgium.
Measures to increase the efficiency of the law
The insolvency and the restructuring procedures are more streamlined and the grounds for appeal have been restricted to avoid delays for procedural reasons. Furthermore, judges have specific powers to order that relevant documents be added to the court file where this might increase the efficiency of the case.
On-line insolvency register
The eventual total digitalisation of the insolvency process to reduce costs will include an online central insolvency register to include all information regarding all amicable settlements, restructuring procedures and insolvencies. This will be directly accessible to all parties involved and include details of creditors' claims filed; the verification of claims; asset inventories etc. The filing of claims electronically is mandatory except for legal person creditors located outside Belgium and natural persons in Belgium who are not represented by a lawyer or trade union. All notifications to creditors will be done electronically.
The nominal filing fee will not apply where the trustee files a claim on behalf of a foreign legal entity or a natural person in Belgium without legal representation. The bankruptcy estate makes an annual payment for the service. Foreign creditors may file claims in the English language. In line with the requirements of the EIR Recast, the online register will be connected with registers in other EU Member States, except probably Denmark.
The EIR Recast is intended to make EU cross-border insolvency procedures and group insolvencies more efficient. With respect to third countries, the rules on cooperation and communication are not automatic. Civil law judges do not have a tradition of working together so the EIR Recast provides explicitly for cooperation and communication between EU courts.
Corporate Enterprise Groups
In the event of the insolvency of corporate enterprise groups, a formal centralised procedure and the appointment of one coordinating trustee for the whole group shall be allowed. Consolidated group procedures shall not be allowed but coordinating proceedings should reduce the costs and the possibility for conflicts of interests between different trustees to the benefit of all the stakeholders.
The new reforms do not include any form of pre-pack insolvency procedure. In the European Court of Justice Judgment of 22 June 20173 the court held that a pre-pack had to be considered a transfer of undertaking which included an obligation to safeguard the employees' existing rights. This means that in Belgium any transfer under judicial supervision involving an amicable arrangement between stakeholders shall be more difficult to reach.
Pre-restructuring and restructuring procedures
The submission of a petition to start a judicial reorganisation procedure for either (i) an amicable settlement between two or more parties; (ii) a collective agreement between the debtor and its creditors; or (iii) a transfer under judicial supervision, will no longer stop a scheduled public sale of movable and immovable goods seized under execution if the sale is scheduled to occur within two months of the filing of the petition unless the court decides otherwise on the application of the party initiating judicial reorganisation proceedings. This is to avoid wasted costs of a sale where the filing of a petition is merely a procedural tactic to delay the process.
In line with other European initiatives, the out of court procedures have been strengthened. Previously, confidential out of court amicable agreements that were subject to completion formalities but which were enforceable against third parties in a subsequent bankruptcy were unpopular because any new security granted by the debtor was not protected in a subsequent bankruptcy if the agreement failed.
Under the new law, this security will be enforceable even if concluded during the hardening period prior to a bankruptcy. The conditions for such a settlement have been tightened including the requirement for a confidentiality and indivisibility clause and an adequate justification explaining why the settlement is essential for restructuring the enterprise. The agreement must be registered in the central insolvency register.
Creditors participating in the out of court amicable settlement shall not incur liability on the sole basis that the settlement is ultimately not successful. Such an agreement can be rendered enforceable by an approval of the court and therefore used in cross-border proceedings.
In a transfer of the assets under court supervision, the purchaser may offer to include one or more existing agreements in which case the purchaser shall be automatically substituted in the rights of the transferor without the approval of the contracting partner. This does not apply for contracts intuitu persona.
The minimum percentage for which the reorganisation plan must propose payment to ordinary creditors is raised to 20%, calculated on the principal amounts of the claims.
Tax and social security debts incurred during the suspension period in the judicial reorganisation acquire the status of a debt of the bankrupt estate in a subsequent insolvency procedure.
Book XX of the Economic Law Code now establishes directors' liability for (i) manifestly gross error and serious negligence that contributed to the bankruptcy; and (ii) wrongful trading when the directors should have known that there was no prospect of an immediate recovery of the financial situation of the company. This rules does not apply to small non-profit organisations, international non-profit organisations and foundations.
If the bankruptcy receiver declines to bring proceedings against the directors, the creditors may bring an action for a manifestly gross error. If the action is successful, or if the bankruptcy receiver takes over the proceedings, the creditors' costs are reimbursed by the bankrupt estate. However, only the bankruptcy receiver is allowed to start an action for wrongful trading.
Limitations on rights of secured creditors
Previously, in a reorganisation through a collective agreement, extraordinary and secured creditors could not be obliged to write off any of their debts even if a double majority of creditors was obtained. Under the new law, secured creditors' claims shall only be protected for the lesser of (i) the amount of their registered security; (ii) the book value of a pledge on the receivables; or (iii) the going concern value of the secured assets if no registration has been effected. Where the value of the underlying collateral is less than the secured claim, the balance ranks as an ordinary claim.
Subject to the exceptions in the Collateral Law of 15 December 20044, under the old law the rights of secured creditors could be suspended without their consent for up to 24 months and in exceptional cases up to 36 months provided that the interest was paid as of the date of the filing to open judicial reorganisation procedures. Under the new law, this period is extended until the court ratification of the collective settlement agreement.
Remission of debt
A key objective of the European proposal (and in line with US procedure), the legislator wanted to remove the stigma of bankruptcy as a failure and to permit an honest businessman a second chance, which would involve a full waiver of debts by default.
To this end, discharge of debt for natural persons is now designated "remission of debt". A formal request for remission must be filed within three months of the insolvency judgment (rather than after the closure of the bankruptcy procedure). Interested parties, including the trustee and public prosecutor, may oppose the remission of debt in the event of serious misconduct contributing to the bankruptcy. In addition, the bankruptcy shall not have any claim to income from a new activity after the bankruptcy.
1 The author of this Article is an expert at the EC for the drafting of the EIR Recast, and the proposal for the Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures.
2 Directive 2012/30/EU of 25 October 2012 on coordination of safeguards which, for the protection of the interests of members and others, are required by Member States of companies within the meaning of the second paragraph of article 54 of the Treaty on the Functioning of the European Union, in respect of the formation of public limited liability companies and the maintenance and alteration of their capital, with a view to making such safeguards equivalent (Recast).
3 Smallsteps BV (ESTRO case) (C-126/16)
4 Law of 15 December 2004 on financial collateral arrangements and providing for tax measures in connection with agreements creating an in rem security interest and loans of financial instruments transposing the Directive 2002/47/EC of the European Parliament and the Council of 6 June 2002 on financial collateral arrangements.
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.