Insolvency 2024 Comparisons

In Belgium, the procedures on insolvency are compiled in the Belgian Code of Economic Law (Book XX).

In summary, these pertain to:

• preliminary measures and early warning signs detecting companies in financial difficulty;
• various types of reorganisation procedures; and
• liquidation through bankruptcy.

The rules for solvent liquidation of companies can be found in the Belgian Code of Companies and Associations.

The specific rules on insolvency of banks, stockbroking firms (and related), derived from the EU’s bank resolution framework, is incorporated in the Banking Act (restated in 2014), which will not be further discussed.

In Belgium, the following proceedings exist.

• Preliminary measures – various statutory tools and procedures are in place for detecting warning signs for businesses in difficulties:
1. specialised sections of the Business Court have access to information (eg, social security or tax debts), offering them the possibility to detect problems at an early stage and take measures to preserve continuity – eg, with the assistance of a court-appointed restructuring practitioner or through mediation measures, or alternatively trigger further insolvency proceedings or liquidation; these procedures are all, at the outset, confidential;
2. under certain circumstances, a court administrator can also be appointed at the request of a third party, in view of ensuring the continuity of the business or, when the business meets the conditions for a bankruptcy, limiting the powers of management and leading to the start of a bankruptcy; and
3. parties may further enter into an amicable settlement in view of reorganising all or part of the activities and have this agreement concluded with one or more specific creditors of the company given a court homologation, leading to (limited) bankruptcy protection.
• Reorganisation procedures – aimed at maintaining the continuity of all or part of the company’s assets and activities, often with temporary/partial protection from creditors.
1. Public judicial reorganisation – transparent procedure.
1. By amicable settlement – one or more agreements entered into in the framework of a reorganisation procedure (ie, with a threatened discontinuity for the business) in view of reorganising all or part of the activities, offering the counterparties (limited) bankruptcy protection.
2. By collective agreement (i) for SME’s or (ii) for large companies – the company prepares and submits a reorganisation plan to its creditors, typically (for SMEs) with a haircut for unsecured creditors, subject to voting. There is a more complex procedure for large companies, but the SME’s can opt-in on the regime for large companies.
2. Private judicial reorganisation – confidentiality is key – ie, there will be no publicity of any kind and consequently, there is no information made available to all creditors and there is no general suspension of enforcement rights; a restructuring practitioner will need to be appointed by the court to supervise the protection of creditor rights.
1. By amicable settlement – as above, an agreement concluded with one or more specific creditors of the company offering them (limited) bankruptcy protection.
2. By (partial) collective agreement – the company prepares and submits a reorganisation plan to (part of) its creditors, subject to voting.
• Liquidation proceedings – aimed at the liquidation of insolvent entities.
1. Transfer under judicial authority – liquidation procedure where the assets or activities of a company in financial difficulties are transferred as a going concern, aiming to save the viable economic activity by rescuing the core (solvent) business and to a maximal extent, employment.
2. Bankruptcy – a court-supervised liquidation procedure, leading to the dispossession of management, the sale of assets and division of the proceeds amongst creditors.
3. Silent bankruptcy (so called “pre-pack”) – prior to the declaration of bankruptcy, the company prepares the transfer of all or part of its assets and activities; at this preparatory stage, there is no publicity of imminent insolvency procedures.
• Winding-up and liquidation of (solvent) companies.
1. The voluntary dissolution leads to the liquidation of the company – the proceeds will be used, as a rule, to pay all outstanding debts in full.
2. Subject to strict conditions (notably court approval or agreement of all creditors), an insolvent liquidation outside the scope of bankruptcy proceedings is possible, by paying off only part of the existing debt.

There are several roles in each procedure.

• Preliminary measures – in a court-organised follow up of early warning signs, (i) the “Chambers of Enterprises in Difficulties”, as well as (ii) various types of (confidential) mediators through court-appointed restructuring practitioners can be involved in order to take measures at an early stage to assist the business on a threatened insolvency or to protect the rights of creditors. At this stage, the management retains all its powers and as a rule the initiative to make use of these mechanisms, save where in specific circumstances, the court can limit management powers at the request of creditors (eg, in case of clear indications that the conditions for a bankruptcy are fulfilled).
• Reorganisation procedures – the key concept is that the debtor remains “in possession”– ie, in charge to manage the business and to organise the restructuring, albeit that an restructuring practitioner can be appointed by the Business Court.
1. Public judicial reorganisation – the principle is to keep the debtor in possession.
1. Any interested party can request the appointment of a restructuring practitioner, who would have the specific task of assisting both the company and the creditors in negotiating the reorganisation plan. They can still be appointed ad hoc thereafter.
2. In case of significant errors by the (organs of) the company, the court can appoint a provisional administrator who will take the place of the debtor to lead the process.
2. Private judicial reorganisation – the principle is to keep the debtor in possession of day-to-day management. However, a restructuring practitioner will mandatorily be appointed by the Business Court, in order to take the reins of the procedure, keeping the interests of both the company and the creditors in mind.
3. In a reorganisation, the court will appoint a delegated judge to assist and supervise the proceedings, under a legally defined framework.
• Liquidation.
1. Transfer under judicial authority – a liquidation expert will be assigned by the court and entrusted with the task of organising and realising the transfer of key – going concern – assets on behalf of the company.
2. Bankruptcy – in the bankruptcy procedure, upon declaration of insolvency, the (directors of the) company immediately lose authority and control over the business. The governance is taken over completely by the bankruptcy trustee appointed by the court.
3. Under the pre-pack procedure of a silent bankruptcy, mandatorily a “potential bankruptcy trustee” is appointed to lead the search for a potential buyer of the business and to supervise the preparation of the actual bankruptcy, but management’s functions remain largely in place unaffected.
4. In insolvency matters, the court will appoint a delegated judge to supervise and assist the bankruptcy trustee; their role is legally defined, and they act on behalf of the court.
• Winding-up and liquidation of solvent companies – the debtor retains the initiative, except where a third party triggers the liquidation.
1. The liquidator can be appointed by the shareholders, but this is subject to approval of the Business Court when it is apparent not all debts will be settled.
2. Where a third party initiates the liquidation, the court will appoint a liquidator.

In the various procedures, different types of creditors exist, whose claims have different priorities.

• Outside of a conflict between creditors – (ie, prior to a reorganisation or liquidation), unsecured creditors are in a weaker position than creditors holding a contractual security right, who can still be trumped by priority rights created by law.
• Specific for reorganisation procedures, in as far as the procedure applies for SMEs:
1. “ordinary” claims in suspension are unsecured claims at the time of the opening of the proceedings. These creditors usually have to agree with some type of “haircut” on their claims which can be, as a rule and except in exceptional circumstances, up to a maximum of 80%;
2. specifically protected creditors will be protected by law from taking a haircut (eg, salaries);
3. “extraordinary” claims in suspension – all claims secured by collateral at the time of the opening of the proceedings – these creditors have the assurance that their claim, including interests, will be paid in full, except when they agree otherwise; the right to take enforcement measures can be suspended;
4. it is possible to list a category of small debts in the reorganisation, excluding them from further impact of the reorganisation, as this would be administratively too burdensome;
5. equity holders and related holders of an ownership interest can be, but importantly, do not have to be involved in the reorganisation proceedings; and
6. claims outside suspension – all claims arising after the opening of the proceedings remain fully due and do not fall under the suspension.
• The regime for reorganisation procedures of large enterprises diverges substantially from the regime for SMEs, as the voting per category entails a different logic, with related protections.
• In bankruptcy matters, typically the distinction is made as to whether the claims are caught in the liquidation or not.
1. Debts in the estate – creditors holding pre-bankruptcy debts generally fall into this category – they hold claims in existence prior to the opening of the procedure.
1. Ordinary (non-secured) creditors:
• are last in line to receive any payments on their claim; and
• between themselves, they are paid pro rata the available funds.
2. Privileged creditors:
• creditors with a “general privilege” hold a debt preferred by a general priority right applying to all (im)movable property of the debtor (often the tax authorities’ claims) – they receive payment after the specifically privileged creditors; and
• specifically privileged creditors hold claims covered by a priory right or security right pertaining to specific (im)movable assets of the debtor – they will receive payment out of the proceeds of that specific (im)movable asset.
2. Debts of the estate – debts arise from the expenses incurred by the liquidation – they have an absolute priority to receive payment prior to all privileged and ordinary creditors.
• These categories do not apply to the creditors in the liquidation of a solvent company as a liquidation can only take place if each creditor is paid. In cases where the liquidation is in deficit, explicit consent must be given by the creditors to cancel part of their debt and court review will be required.

The rights of subordinated creditors can vary, their subordination being defined by their terms – eg, to certain claims only or to all debts.

There are certain priority claims in Belgian restructuring and insolvency proceedings. The authors briefly explain some of the priority claims here.

Debts of the Estate

• Reorganisation – creditors who continue to execute contractual obligations during the reorganisation are deemed to assist in providing continuity, and therefore their claim will be treated as a debt of the estate and will be paid on a priority basis.
• Bankruptcy – if the trustee incurs costs to manage the bankruptcy estate, these will be debts of the estate and will be paid on a priority basis.

New-Money Claims

New-money claims have generally no priority. However, the claims of new money injected throughout different reorganisation procedures are considered debts of the estate in the subsequent bankruptcy and, to some extent, lenders of new money are protected from liability claims connected to the bankruptcy.

Rent

• Reorganisation – rent is not automatically terminated. An unpaid landlord’s claim is protected as an extraordinary claim in suspension.
• Bankruptcy – rent is not automatically terminated, as it is up to the bankruptcy trustee to decide which contractual obligations are to be continued. An unpaid landlord is entitled to a statutory priority right to be paid from the sale of the goods in the rental property.

Employee Claims

Employment contracts can be terminated or it can be decided that they will be continued.

• Reorganisation – employee rights remain, as a rule, unaffected as the enterprise remains a going concern and the cost of unpaid wages will have the added protection that they cannot be deducted or waived in a reorganisation plan.
• Bankruptcy – if the employment contract continues, the cost of wages will be seen as a debt of the estate and thus have priority. The claims the employees may already have upon termination of their contracts, will be debts in the estate, where employees are generally privileged creditors. A special Enterprise Closure Fund can pay a closure fee to all employees if the company cannot meet its contractual obligations under indemnity payments upon termination of the employment contract.

Tax

The principal amount of the tax debts is often considered as a debt with a general priority right (however, the accessory debts do not enjoy this privilege) and is protected as such. Taxes falling due during the course of the reorganisation will qualify as debts of the estate and benefit from the protection as new money.

The following different types of securities and liens can be granted to creditors under Belgian law.

• Over immovable assets, generally real estate rights, a secured position can be taken through a mortgage right over real property, enjoying priority protection in and outside insolvency. This can be obtained only by notarial deed. The grant of a mortgage gives rises to a substantial registration tax, and therefore often, a mortgage for a lower or nominal amount is combined with a proxy to mortgage or mortgage mandate (which does not in itself create a security right, but the right to take a mortgage at a later stage), avoiding or reducing the tax burden.
• Other (movable) property is typically secured by a pledge right: a pledge can be taken, each subject to different rules and perfection formalities, over movable assets such as stock or production assets, over the business as a going concern as a whole, over the shares of a company, over the bank accounts and receivables or over intellectual property rights.

These secured rights shall constitute an in rem security interest – ie, a priority right to be paid out of the assets that are purported to be mortgaged or pledged thereby, subject only to statutory prior ranking liens. Holders of such secured rights can generally, subject to strict formalities, take enforcement measures without prior court approval, such as attachments, triggering forced sales, etc, although at various stages or after the enforcement, court review can be sought.

The ordinary creditors can have recourse to certain mechanisms under Belgian law to secure the payment of their claim.

• Attachments:
1. conservatory, pre-judgement – these protective attachments bring no privilege or priority and can, as a rule, only be obtained with court approval. However, as a conservatory measure, they aim to ensure that the seized assets do not leave the debtors estate; and
2. executory attachments will lead to the forced sale, in general by a bailiff, of the assets of the debtor.
• Retention of title (legal ownership) as well as the right of retention (holding the actual asset) can offer a strong protection for an unsecured creditor, with effects that are by and large on equal footing to that of a pledgeholder.
• Set-off – as a rule, set-off occurs automatically (by operation of law) between holders of reciprocal debts that are due and payable; as a rule, there is no or limited set-off allowed for claims in reorganisation proceedings or bankruptcy, except for mutually connected claims.

The bilateral set-off rights can be modulated by contract, or extended into a multi-party netting arrangement; these agreements can be enforceable in bankruptcy if they were entered into before the concurrence and the claims already exist during this concurrence.

Amicable Out-of-Court Reorganisation Settlement

The company can draw up an amicable agreement with one or more of its creditors, with a view – in respect of such creditors – to coming to an arrangement that would aid its continuity, with, for example, key suppliers. This is not a mandatory procedure and there is no general suspension of enforcement measures.

The company can freely choose with whom it enters into negotiations and there is no obligation to resort to this measure prior to any legal proceedings. The agreement is not binding on third parties and can be held fully confidential.

Through a fairly light touch court homologation procedure, the parties can ask the Business Court to confirm the agreement, which will offer limited bankruptcy protection to the agreement and can give it an enforceable nature. The court will only test two elements:

• whether the company has an apparent chance of economic survival; and
• whether there are no manifest adverse effects on third parties’ rights over the company’s chance of assets.

Pre-pack Procedures

Pre-pack procedures exist in respect of reorganisation and in respect of bankruptcy proceedings: these allow for confidential negotiations in respect of the sale of the business under the supervision of a court administrator, leading to a restructuring or bankruptcy.

The amicable reorganisation settlement is binding only between the parties, not against third parties. After homologation, the agreement can be given an enforceable nature; ie it can form the basis of execution measures. In case of later insolvency, the amicable settlement is to some extent “bankruptcy proof” against claims in annulment from the bankruptcy trustee.

In general, reorganisation procedures are available for “enterprises”, a broad notion which covers, in most cases, all companies or persons running a business. An easy access to restructuring processes and tools is the goal, where quite some flexibility exists as to what supporting information is provided at what time (subject to some protections against procedural abuse).

The filing of the petition will grant a limited protection, expanded once the procedure is formally opened by the court.

Recent legislative changes expanded the “toolkit” of reorganisation measures, with across-the-board major distinctions between the public and private (confidential) routes.

• Public judicial reorganisation – this procedure can be initiated by a debtor if they can demonstrate that their continuity is immediately threatened, or will be at risk in the long term. This will require filing a petition with the Business Court, along with an extensive set of documentation, such as financial statements and a creditor list.
• Private judicial reorganisation – the cover of confidentiality should assist the debtor to prepare a reorganisation with the help and under the supervision of a restructuring practitioner, that can then be made official by the court.
1. Any company, in respect of which the threat of insolvency is shown, can request the president of the Business Court to start the procedure; the court will appoint a restructuring practitioner.
2. In addition, a creditor or equity holder can request the appointment of such a restructuring practitioner for any company in a state of imminent insolvency; the court will in any case assess whether this is in the collective interest of the creditors (including the employees).

Amicable Reorganisation Settlement

The company can, in a fairly light procedure, if the continuity of the business is threatened, enter into one or more agreements with one or more creditors in the framework of a public or private reorganisation procedure, offering the creditors limited bankruptcy protection. The court will ratify the agreement, (in theory) without further testing, which will be binding only on the parties thereto.

• When this measure is sought in a public reorganisation procedure, a general suspension of enforcement will be imposed and all creditors will be involved.
• In case of a private reorganisation procedure, due to the confidentiality of proceedings, there is no general suspension of enforcement measures, but protection can be obtained against certain creditors. Also then a restructuring practitioner is mandatorily appointed by the court to assist with the negotiations and to supervise the protection of third parties, while still a full confidentiality will be maintained. Lastly, the initiative, in case of a private reorganisation procedure, can also lie with a creditor or shareholder.

Reorganisation Through a Restructuring Plan

The goal is for a debtor to arrive a to a restructuring of the debts in order safeguard its economic survival.

A double distinction is to be made, being:

• between (i) a procedure for SMEs, which by and large has been in existence for some years in Belgian law and (ii) a new procedure for large companies, mimicking the EU insolvency regime; and
• a distinction between public and private procedures (see also 4.1 Opening of Statutory Restructuring, Rehabilitation and Reorganisation).

For public reorganisation procedures, the following applies.

• SMEs – the company lists all claims and the value of these claims and submits a proposal of a plan for restructuring these debts to a vote. All creditors of the company will be bound by the reorganisation plan if it has been approved by the majority of the creditors that represent the majority of the total indebtedness of the debtor. Creditors of ordinary claims in suspension can be forced to take a haircut of up to 80% of their claim (or even more in exceptional circumstances). The extraordinary claims in suspension must be paid in full unless they explicitly agree to a haircut. Certain specific creditors are protected from reductions (employee’s salaries) and nominally small claims can be excluded from the plan and settled immediately to avoid unjustified administration and financial burden.
• Large companies – the protections described above are not applicable to large companies (or SMEs which opt-in to this new regime), but all creditors (and importantly, equity holders) are divided into separate categories, voting per category. Because of the system of categories, there are fairly complex protection mechanisms; in summary, there is approval needed of the majority of every category and if there is no approval from all categories, the plan can still be approved and imposed (subject to certain conditions) on the non-approving creditors, through a so-called “cross-class cram-down”.

The absolute priority rule protects the non-consenting class(es) given that, under this rule, a plan may not deviate to their disadvantage from the legal or contractual ranking that exist in the context of bankruptcy or liquidation. Deviation from this is possible provided there is reasonable cause and the relevant categories are not manifestly disadvantaged as a result.

In a private reorganisation procedure, largely a similar process (for an SME or for a large company) can be followed. The organisational and voting procedures are similar, with major differences being the following:

• the procedure can be started, either at the request of the debtor or at the initiative of a creditor of a shareholder;
• confidentiality– there is, due to confidentiality, no general suspension of enforcement measures, but protection can be obtained against certain creditors; and
• the mandatory involvement of a restructuring practitioner.

In either regime, the court, assisted by a delegated judge, will supervise proceedings as well as the plan, its effects on creditors and the future viability of the debtor.

Key time limits regarding suspension and implementation are as follows.

• The suspension in the public judicial reorganisation procedure may last up to four months with a maximum extension of 12 months.
• Once the reorganisation plan is homologated, the implementation period may be up to five years.

The homologation of an amicable settlement or a restructuring plan by the court, when voting majorities have been approved, will terminate the reorganisation procedures. Such agreement or the restructuring plan (with for instance (partial) payments spread over time) will then need to be executed; the amicable reorganisation agreement can be subject to normal contractual remedies, whereas the non-respect of a restructuring plan can, upon the request of a creditor or the public prosecutor, give rise to the revocation by the court thereof.

Between the various types of procedures, a creditor can, during the course of a reorganisation, opt to switch to another type of reorganisation, such as to a transfer under judicial authority, or opt to file for bankruptcy. The court can also, under certain circumstances, impose an early termination of the reorganisation, or even the bankruptcy or liquidation of the debtor.

Amicable Reorganisation Settlement

During the negotiations with one or more creditors, the debtor continues to run its operation; a restructuring practitioner will, at times, have a role in assisting with, or supervising the negotiations.

Judicial Reorganisation

The purpose of this procedure is to ensure business continuity. The debtor stays in possession and can operate its business and activities in a way that ensures this continuity.

• Public judicial reorganisation – management can continue the day-to-day running of the company (remaining empowered over the company’s assets) and make decisions that support the company’s viability. However, the debtor, as well as the creditors, can request the court to appoint a restructuring practitioner.
• Private judicial reorganisation – the court will always appoint a restructuring practitioner to assist the company in drafting a reorganisation plan. The (directors of) the company still stay in position and manage the day-to-day activities and have control over the assets.

When gross negligence or errors are seen in the director’s management, and their decisions are perceived as a threat to continuity, any stakeholder can ask the court to have an independent temporary manager to be appointed. They will then take over the responsibility to manage the assets, in accordance with the court’s instructions.

The roles of the directors remain unchanged; they must continue to fulfil their role. Specific function holders may (or have to) be appointed in the course of the various reorganisation procedures to assist management, or in case of perceived errors, to take over their functions.

The restructuring practitioner, chosen by the court as an independent, specialised expert in the field of restructuring, can assist the debtor in the early stage negotiations, or, in short in supporting the debtor with its negotiations with the potential buyers and the continuity of the business as going concern, or looking after the interests of the creditors – eg, by making sure the relevant parties are duly kept informed.

The enforcement of claims remains unaffected for private reorganisation procedures, in essence, as creditors will not be aware such a procedure has started. The restructuring practitioner can seek a stay against specific creditors, subject to court approval.

In public reorganisation procedures, an automatic suspension of claims is in force as from date of the opening of the proceedings. Then, the start or continuation of enforcement measures in respect of claims predating the opening of the procedure (such as by way of attachment) is not possible whilst in suspension. However, in certain exceptional cases, the suspension can be waived at the request of a creditor.

The debtor will list all its creditors and the respective debts owed; the creditors can request the court to amend their claim or its ranking.

All claims can be traded in accordance with the general rules applicable to a transfer of claims regardless of whether this company is in a reorganisation procedure. Such a transfer will be opposable to the company itself once it has been notified thereof.

An equity holder will, as a rule, be unaffected by the reorganisation procedures. They can still retain all of their rights, during and after the reorganisation procedure. Moreover, as a rule, they play no particular role in the reorganisation procedures, with the exception of some protections against self-dealing upon the sale of the assets and in respect of the debt restructuring procedures for large companies.

For insolvent liquidations, the key statutory procedure is bankruptcy, being a collective dispossession of the assets of the debtor in the hands in the bankruptcy trustee, with a view to liquate these assets to the benefit of the creditors. These proceedings are in general only open for businesses (whether run by a company or by an individual) and can be initiated by the debtor itself or by a third-party claimant. Other parties that can initiate an insolvency procedure are the public prosecutor, a preliminary administrator appointed by the court and a foreign insolvency practitioner in case of a secondary procedure. 

For certain companies with unlimited liability, the shareholders are to be brought into the proceedings as well.

The trigger for a bankruptcy is the so-called “cessation of payments”, a situation conditional on (i) the permanent cessation of a business to meet its payment obligations and (ii) the absence of further credit being granted to the business. Although these notions appear vague at first, there is a myriad of established case law on when these dual conditions are met.

A debtor is by law required to file for bankruptcy, within a period of one month after its cessation of payment (and a late filing can give rise to director liability).

As a rule, the entire procedure (filing and further notices) is done via the online application of the insolvency courts (regsol); the list of (financial) information to be added to the file is set by law. Creditors will be informed.

Recent insolvency laws introduced a “pre-pack” confidential procedure, or so-called “silent bankruptcy”, in essence, aimed at allowing the debtor to prepare the actual bankruptcy and sale of assets, but in a confidential manner in order to preserve value in the assets. The procedure of the bankruptcy will follow once these proceedings have been formally opened.

As a last liquidation procedure, the debtor can opt for a transfer under judicial authority, aimed at transferring all or part of the activities of a business, in order to facilitate the liquidation of the insolvent company.

The transfer can be initiated voluntarily at the request of the company itself. However, this procedure can also be mandatorily imposed by the court, or be started upon the initiative of the public prosecutor or of a creditor and even, under certain circumstances, any third party evidencing an interest in acquiring (part of) the company.

The Business Court will appoint a liquidation expert who is going to organise and realise the transfer in the name and on behalf of the company and take receipt of the proceeds. The focus of the sale or transfer will be on preserving all or part of the business and the rights of creditors. A new buyer will be responsible for ensuring the continuity of the business.

The opening of the bankruptcy procedure has, as immediate effect, as from midnight of the date of the opening of the procedure (the “zero hour” rule), that a bankruptcy trustee is appointed by the court (from a pre-approved list of lawyers, who underwent specialised training) to take charge of and manage the business at the exclusion of the management/directors of the debtor who, in effect, loses all control over the assets (as well as over future assets, when they find their origin in the insolvent estate). The bankruptcy trustee has a dual duty of care, notable vis-à-vis the debtor as well as vis-à- the creditors.

The opening of the insolvency is made public in the Belgian Official Gazette (where it will be picked up by credit service providers such as Graydon) and will indicate administration order creditors can file their claim (and by what time).

Against the opening of the procedure of bankruptcy, under strict conditions and timelines, appeal is possible.

The loss of control over the assets leaves great management powers to the bankruptcy trustee, who can decide whether or not to keep contractual obligations in place, how to deal with personnel, pending court cases, etc, all with a view to maximising creditor recuperation. In this context also, certain transactions can be invalidated by the bankruptcy trustee, under circumstances described further below.

A further immediate effect of the opening of the bankruptcy proceedings is the suspension of all enforcement measures; certain preferred creditors (pledge and mortgage holders) remain largely unaffected (see further below) and certain late-stage procedures to enforce seizures can run their course.

The bankruptcy trustee will be in charge of the management of the business, the liquidation of the assets and (financial) reporting, where required (eg, in larger insolvencies) aided by specialists (eg, accountants) or court-appointed delegates.

For each insolvency matter, a court-appointed delegated judge is in charge of supervising the management and liquidation of the insolvent estate by the bankruptcy trustee, in particular the claims of employees; further tasks are the follow-up by way of reporting (reports form the bankruptcy trustee or reporting towards the court), and assisting with urgent measures or sales of certain assets.

The rules for the procedure of a transfer under judicial authority, which was previously a reorganisation tool rather than a liquidation procedure, still in essence follow the mechanisms of the judicial reorganisation (see 4. Statutory Restructuring, Rehabilitation and Reorganisation Proceedings).

Right after the opening of bankruptcy proceedings, in case of the absence of any substantial assets, the court can decide to immediately liquidate the insolvent company at the request of the bankruptcy trustee or at its own initiative.

However, in most, more complex procedures, at regular intervals the status of the claims of creditors is verified, disputed claims are brought before the court and, after liquidation of all the assets of the insolvent debtor, settled pro rata to the extent possible and subject to the relative priority rules. Under certain circumstances, in view of the “clean slate” or “fresh start” doctrine, the debtor (if it is an individual) can be “acquitted” for debts owing and the court will then close the insolvency proceedings.

The closure of the proceedings entails the liquidation of the bankrupt company.

At the end of the procedure of a transfer under judicial authority, after the sale of the business and the division of the proceeds, the proceedings will be closed by the court, in the form of either a liquidation or a bankruptcy procedure.

As from the opening of the insolvency procedure (“zero hour”), all creditor claims become immediately payable, but are by operation of law suspended: the further realisation of creditor claims is left to the bankruptcy trustee who is in charge of the collective enforcement over the assets to be realised. Prior seizures will therefore also become suspended, save for certain exceptions for very advanced enforcement procedures, and as a rule, no new seizures can be obtained.

The suspension of all creditor rights has a broad impact, aimed at maximising the rights for an orderly liquidation by the bankruptcy trustee and, only to a limited extent, prior rights are allowed to affect or intervene with proceedings; by way of an exception, rights of set-off might survive, for reciprocal claims with a close mutual connection or for multilateral netting rights over financial collateral.

Secured creditors, however, will in principle retain a separatist position (holders of a mortgage right over real estate or of a pledge right (or similar right such as retention of legal title right) over specific assets), in respect of the assets covered by their security interest: their secured position is taken into account up to the (net) proceeds of the collateral.

After the initial verification of the claims submitted to the insolvent estate by the bankruptcy trustee, the secured creditors regain their right to separate enforcement; the manner in which this enforcement can take place is dependent on the type of security. However, when it is deemed in the interest of the insolvent estate and when it can be considered not to affect the value of the expected proceeds, the court can extent the period during which enforcement is suspended by another year. Certain secured creditors may, under certain circumstances, be allowed to continue seizures.

The procedures on insolvency are compiled in the Belgian Code of Economic Law (Book XX); a specific chapter handles cross-border insolvencies, in essence splitting matters out in two:

• matters which fall under the EU insolvency regulation – ie, the Regulation (EU) 2015/848 of 20 May 2015 on insolvency proceedings, which will be governed by such rules, with its key principles of the COMI (centre of main interest) and the split between principal and secondary proceedings; certain specific execution measures that are set in the Belgian Code of Economic Law to allow for the execution of the EU insolvency regulation – eg, on territorial proceedings; and
• matters that do not fall under the EU insolvency regulation, and on which the general rules on conflict of laws under Belgian law will apply, being the Code of Private International Law; note that, for insolvency law matters, these general rules in essence mimic the mechanisms of the EU insolvency regulation, with the notable exception though of certain beneficial rules based on mutual co-operation between member states of the EU, that cannot be applied with non-EU member states.

The status of certain private reorganisation procedures under Belgian conflict of law rules is unclear, given they have been recently implemented into Belgian law and may not be covered by the EU insolvency regulation; some could rather be seen as a contractual arrangement and would as such fall under the conflict of law rules for contracts, but some (non-public) procedures might also be excluded from that body of law.

For insolvency procedures, by reference to the EU insolvency regulation, the COMI concept (as the centre of the main interest of the debtor) is the guiding principle for the power of Belgian courts for the opening of the procedure (and all related matters). The COMI concept for companies in turn links to a registered office (whereas under Belgian corporate law, as a rule a link is made to the statutory seat as a criterion), and in case of an individual exercising an independent business or professional activity, the COMI shall be presumed to be that individual’s principal place of business. In practice, the Belgian courts do tend to favour a broad reading of their jurisdiction in the rare cases known to the authors.

Outside the scope of the EU insolvency regulation, Belgian courts will find they have jurisdiction to open an insolvency of a debtor (and all of its assets, regardless of where these are located), when either the main establishment or the statutory seat of a company is located in Belgium; a mere local (so-called “secondary”) procedure affecting only the assets located in Belgium, if the company has an establishment in Belgium; this, to some extent, in practice mirrors the principles of the EU insolvency regulation.

As solvent liquidation procedures are dealt with purely under the Belgian Code of Companies and Associations, the statutory seat of a company is the determining nexus.

Once Belgian courts have jurisdiction, Belgian law will be applied to the insolvency file.

Again, using the principles of the EU insolvency regulation, a number of exceptions apply; eg, for assets located abroad (linking back to the law of the location where such assets are held), and different types of security interests are governed by their own conflict of law rules.

For solvent liquidation procedures that are dealt with purely under the Belgian Code of Companies and Associations, the liquidation will be governed by the law of the statutory seat of a company.

For insolvency procedures, by reference to the EU insolvency regulation, Belgian courts will uphold the application of the COMI concept as guidance to recognise the jurisdiction of other EU courts to open insolvency proceedings, with the decision to open procedures producing the same effect under Belgian law as under the law of the state of the opening of proceedings, albeit that, again under the EU insolvency regulation, Belgian courts may open a local (“secondary”) procedure if the debtor has an establishment in Belgium.

For matters outside the scope of the EU insolvency regulation, the Belgian courts will recognise an insolvency procedure opened abroad if that is the place where the debtor has its main establishment; and a local (“secondary”) procedure opened abroad if the debtor has an establishment in that jurisdiction (and then only in respect of the assets in that jurisdiction).

The recognition will imply that an insolvency official or bankruptcy trustees’ functions will be recognised; eg, to open a local procedure or request protective measures such a seizures. The judgment opening the foreign procedure and which is enforceable in its state of origin will be recognised, without bringing separate proceedings in the courts of Belgium founded on the judgment of the courts of state of origin and declared enforceable in Belgium, subject to typical protections of lois de police and procedural safeguards.

Within the framework of the EU insolvency regulation, an extension set of rules governing international co-operation is in place.

Foreign creditors are not dealt with in a different way in proceedings.

In principle, in a going concern, directors’ liability is judged by the bar of the corporate interest of the company, defined by law (in a narrow manner) as the realisation of direct or indirect capital gains for the benefit of the company’s shareholders. Actions and transactions can also be judged in larger corporate interest criterion, taking into account group interest and/or stakeholder interests.

Under various corporate and accountancy laws, early warning signs would alert directors of the financial difficulties of the company and, under the Belgian Code of Companies and Associations, would require them to take action – eg, in case of continued financial years with losses or substantial losses affecting the equity value. Specific (remedial) requirements apply (such as seeking shareholder approval to continue to operate). The insolvency laws also put in place various early warning mechanisms, where companies can be called to a specialised remedial court section of the Business Court.

In judicial reorganisation procedures, the directors have a large degree of liberty to opt and structure a suitable restructuring process, as they in principle, will remain “in possession” and able to manage the business, albeit under various circumstances subject to a certain degree of court supervision.

When the company becomes unable to pay its debts and no further credit is available, which are fairly vague notions, the directors have a legal obligation to file for bankruptcy. In general, when judging director liability, the main check that will be made in the first instance is whether the bankruptcy was not filed late. In other words, did the board of directors make a manifestly unreasonable decision to continue operations against their better judgement – ie, while the board of directors knew on the basis of financial figures, expectations, feedback from banks and shareholders that bankruptcy was no longer avoidable.

In general, a director can be held liable (jointly, when the board of directors is organised as a collegial body) for breach of its duties in the execution of the task as director and for breach of the company’s by-laws and breach of the Companies Code, towards the company (shareholders) and toward third parties.

The guiding principle for enforcing claims in respect of director liability after an insolvency is, however, that the initiative lies with the bankruptcy trustee, as the person that is best placed to exercise claims in damages to the benefit of the bankrupt estate (and subsequently, distribute the proceeds over all debtors – meaning that an individual debtor is not allowed to compete with the bankruptcy trustee for its “share” in these proceeds).

Certain courses of action may remain, by way of an exception, with an individual creditor; case law has described the threshold narrowly; ie, that the damages claimed by the individual debtor do not coincide with collective damages (for which only the bankruptcy trustee is able to claim), described as any matter having an effect of decreasing the assets or increasing the debts of the insolvency estate. Two notable exceptions are in case of specific acts contributing to the insolvency and for the benefit of the social security authorities.

Specific legal grounds will trigger director liability in bankruptcy matters, namely for specific acts contributing to the insolvency, for non-payment of social security contributions and in case of so-called “wrongful trading”.

• Where a specific gross error, such as tax fraud, caused the insolvency, the directors can be held liable by the bankruptcy trustee, and exceptionally, by an individual creditor.
• In case of unpaid social security contributions, directors have a specific ground for personal liability, in a case where, in the last five years, they were involved in two or more bankruptcies or liquidations with unpaid amounts owing to social security authorities.
• Wrongful trading – a company is legally obliged to file for bankruptcy as soon as (i) the company has ceased to pay in a sustainable manner and (ii) opportunities to take credit has stopped (see further below). If, in a bankruptcy, debts exceed income, current or former (day-to-day) directors may be held liable by the bankruptcy trustee if they:
1. knew or should have known at any time during their term of office and prior to the bankruptcy that there was manifestly no reasonable prospect of avoiding bankruptcy; and
2. have not acted from then on as a normally prudent and diligent director would have acted in the same circumstances.

Further, certain specific criminal liabilities are tied to acts relating to insolvencies.

Certain actions, immediately prior to a bankruptcy, can give rise to criminal sanctions, such as contracting large obligations or unduly benefiting certain creditors.

Recent legislation has also strengthened the powers of the court to prohibit a person to exercise the function of a director or similar role, for up to ten years, notably in case of a gross error that contributed to the insolvency.

In bankruptcy, the “zero-hour” rule sets the start of the freezing of claims at midnight of the day of the opening of the proceedings; the salient threshold for the insolvency is the “cessation of payment”, and as a rule, it is set at the date of the opening of the bankruptcy procedures. However, there is a look-back period where the court can, upon the request of the bankruptcy trustee, set the date of “cessation of payment” at an earlier point, notably in case of clear, substantive and objective circumstances indicating that in fact the company had stopped making payments and could not obtain further credit, at a time before the opening of the proceedings.

Strict procedural requirements apply and the maximum duration the court can look back is six months (the “hardening period”) (unless in case of an earlier, fraudulent liquidation).

This will make certain transactions, listed below, open to invalidation by the bankruptcy trustee. The grounds invoked are, summarised:

• transactions for no consideration or at an undervalue if done during the aforementioned hardening period;
• payments for debt which is not yet due and payments made by means other than in cash or by way of commercial paper (with certain safe harbours in case of court-approved arrangements with creditors);
• new security granted for a pre-existing debt if granted during a six-month hardening period; and
• other payments where the lender was aware of a bankruptcy;

Security over financial collateral (eg, bank accounts and shares) is generally exempt from these provisions (provided the beneficiary of the security interest was not aware of the insolvency).

In bankruptcy cases (not in reorganisation procedures), the request to the court to set back the date of cessation of payments in order to invalidate certain transactions can be made by the bankruptcy trustee or by a third party.

The goal of such an invalidation of the contestable transaction would be that certain assets return to the insolvency estate, and thus are to be subjected to the ranking and distribution regime set up thereby. Typically, the party involved in such transaction would be left with a claim against the bankrupt estate (after prior ranking creditors) and be left with (next to) no recuperation.