The COVID-19 pandemic continues to have an important economic impact, which has resulted in companies facing financial difficulties and having to seek protection against creditors.
Temporary Protective Measures Resulting in Fewer Bankruptcies
These economic difficulties were anticipated by the Belgian governmental authorities, who have introduced several protective measures since March 2020, including the following:
Graydon numbers show that the number of bankruptcies of Belgian companies has decreased in 2020, with 30.3% in comparison to the same period in 2019 (source: https://graydon.be/pers/faillissementen-voor-achtste-maand-op-rij-gedaald), so the initiatives by the Belgian authorities seem to be working for the time being.
Nevertheless, an increase in judicial reorganisation and bankruptcy proceedings is expected in the coming months, as several protective measures have been phased out and new lockdown measures have been taken by the Belgian government as of 2 November 2020.
Anticipated Legal Reform Related to Restructuring
A draft law (dated 10 June 2020) amending judicial reorganisation proceedings is currently being discussed by Belgian law-makers. The aim of this draft law is to make the existing proceedings of judicial reorganisation more accessible, especially for small and medium-sized companies. This is also a response of the Belgian legislators to the COVID-19 crisis and its economic impact.
In Belgium, statutory restructuring and insolvency proceedings are governed by book XX of the Code of Economic Law.
Under Belgian law there are two types of statutory insolvency proceedings:
Judicial reorganisations by amicable agreement or by reorganisation plan are strictly voluntary proceedings. Judicial reorganisations by court-supervised transfer of business and bankruptcy proceedings can be either voluntary or involuntary (on summons from an interested party (eg, creditor) or the public prosecutor's office).
All so-called undertakings/companies may be the subject of the above statutory insolvency proceedings, except for regulated sectors (see 2.6 Specific Statutory Restructuring and Insolvency Regimes).
The management of a company is obliged to declare bankruptcy within one month of the bankruptcy conditions being met (Article XX.102 of the Code of Economic Law). Please see 2.5 Requirement for Insolvency for an explanation of the bankruptcy conditions. If the management fails to respect this deadline, it may be liable vis-à-vis third parties for any increase in liabilities as a result of the late declaration.
Alternatively, the management may also submit a petition for judicial reorganisation, the effect of which is to suspend the obligation to file a declaration of bankruptcy for as long as the judicial reorganisation proceedings last. Evidently, this requires that the conditions for the commencement of judicial reorganisation proceedings are met (see 2.5 Requirement for Insolvency).
Creditors and the public prosecutor's office may petition for judicial reorganisation proceedings by court-supervised transfer of business and for bankruptcy proceedings. This is done by means of a writ of summons. The petition shall be granted by the court insofar as the respective conditions for the application of the proceedings are met (see 2.5 Requirement for Insolvency).
Creditors and the public prosecutor's office may not petition for judicial reorganisation proceedings by amicable agreement or reorganisation plan, as these proceedings are strictly voluntary.
“Insolvency” is required for both voluntary and involuntary insolvency proceedings.
The opening of judicial reorganisation proceedings requires that the continuity of the company is threatened, either immediately or in the long term (Article XX.45 of the Code of Economic Law). This must be proven by the company by means of financial records. The continuity of the company is legally presumed to be threatened when the losses of the company have reduced the net assets to less than half of the share capital.
A company is deemed bankrupt as soon as (i) it can no longer pay its debts which are due in the short term and (ii) it can no longer obtain credit from its institutional financial partners or creditors.
Specific Statutory Insolvency Regimes Applicable to Banks and Stockbroking Firms
EU banks and qualifying EU investment firms (so-called stockbroking firms in Belgium) are subject to the Bank Recovery and Resolution Directive (BRRD) as implemented in the Belgium Banking Act. The BRRD was adopted in 2014 as a response to the 2008 financial crisis and the "too big to fail" problem. It aims to prevent future crises as much as possible and to enhance the resilience of the financial system through the following means:
Deposit and Securities Guarantee Schemes
Guarantee schemes ensuring compensation for depositors or investors in the insolvency of banks, investment firms, life insurance companies and management companies of AIFs and UCITS are available.
Settlement Finality in Payment and Securities Settlement Systems
Settlement finality aims to protect transactions in payment and securities settlement systems against certain consequences of insolvency, by providing for the irrevocability of transfer orders and netting if these orders are entered into a payment or securities settlement system before the opening of an insolvency procedure against a participant to that system (eg, a bank, central counterparty, clearing house).
Specific Insolvency Rules Applicable to Insurance and Reinsurance Companies
Pursuant to Belgian insurance legislation implementing the Solvency II Regulation, insurance companies must at all times hold assets that are free of all charges for an amount covering the liabilities to insurance creditors. The latter have an absolute priority to other creditors in the case of insolvency.
The opening of an insolvency procedure is preceded by an advice of the National Bank of Belgium (NBB). A dissolution and subsequent liquidation also require a prior advice from the NBB.
With the exception of individual agreements between a company and its creditor(s) outside of any legal proceedings, Belgian restructuring processes are limited to the statutory insolvency proceedings listed under 2.2 Types of Voluntary and Involuntary Restructurings, Reorganisations, Insolvencies and Receivership. There is no legal obligation to participate in consensual negotiations with creditor(s) before statutory insolvency proceedings are initiated.
Nevertheless, informal, consensual negotiations with creditors on payment terms are common but require the consent of each individual creditor concerned. In individual cases, the court may also allow payment terms, without the consent of the creditor(s) concerned.
Consensual restructuring with at least two creditors may also take the form of judicial reorganisation proceedings by amicable agreement. This option is often more attractive than fully out-of-court negotiations, as it allows the company to benefit from a statutory period of payment suspension during the negotiations. This way, the company is protected against enforcement measures by (other) creditors and the negotiations are more likely to succeed.
As Belgian restructuring processes are limited to the statutory insolvency proceedings, there are no specific or typical consensual restructuring and workout processes.
Generally speaking, banks are reluctant to inject new money on an unsecured basis. In practice, new money often comes from shareholders, large suppliers or venture capital.
New money injected outside of statutory restructuring proceedings does not benefit from any super-priority. Contrarily, new money injected during statutory reorganisation proceedings does benefit from a super-priority in the event of subsequent bankruptcy (see 5.5 Priority Claims in Restructuring and Insolvency Proceedings and 6.10 Priority New Money).
As there are no out-of-court regulated restructuring processes, there are no specific duties that creditors must abide by other than the general duty to act in good faith.
However, creditors must take into consideration that certain out-of-court agreements may be called into question if the company is later declared bankrupt (see 11.1 Historical Transactions).
Cram-down mechanisms are principally subject to the consent of the creditors, except in the case of statutory reorganisation proceedings.
Nevertheless, Belgian law-governed multi-lender credit agreements are mostly drafted based on the LMA standard models, which provide for a mechanism pursuant to which a (super-)majority of lenders (acting together with the agent of the obligors/borrowing group) is able to amend or waive, as the case may be, certain terms of such credit agreements. Such amendments or waivers are binding on all the parties to the relevant credit agreement, including any dissenting lender.
The securities or liens available under Belgian law for creditors are as follows:
Secured creditors can exercise their securities (eg, mortgage, pledge, retention of title, lien) outside a statutory restructuring or insolvency process. They may also continue to exercise their security in the context of bankruptcy proceedings. On the contrary, during judicial reorganisation proceedings securities may not be exercised by secured creditors for debts incurred prior to the commencement of the reorganisation proceedings (Article XX.50 Code of Economic Law).
Secured creditors have no special rights to suspend or block judicial reorganisation or bankruptcy proceedings, except on the basis of the general principle of good faith. They may also request the appointment of an interim administrator, director or mandatary to supervise the management of the company. Secured claims are particularly protected (see 4.3 Special Procedural Protections and Rights).
Secured creditors are entitled to special procedural protections in most statutory insolvency and restructuring proceedings.
Judicial Reorganisation Proceedings
Unlike secured creditors, unsecured creditors do not benefit from special protections or priorities in statutory insolvency or restructuring proceedings.
Nevertheless, in judicial reorganisation by reorganisation plan proceedings, a distinction can be made between different categories of ordinary creditors insofar as this distinction can be objectively justified (eg, on the basis of the size of the debt – Article XX.73 of the Code of Economic Law). Certain categories of unsecured creditors may thus face greater debt reduction than other categories of unsecured creditors.
In addition, unsecured creditors will benefit from a super-priority for so-called “new debts” – ie, debts related to services rendered during the judicial reorganisation proceedings (see 5.5 Priority Claims in Restructuring and Insolvency Proceedings).
Unsecured creditors have no special rights during bankruptcy proceedings except for the aforementioned "new debts".
Pre-existing unsecured trade debts are generally reduced in the context of judicial reorganisation by reorganisation plan proceedings.
Trade debts that have become due and payable during statutory reorganisation procedures benefit from a super-priority (see 5.5 Priority Claims in Restructuring and Insolvency Proceedings).
Unsecured creditors cannot take enforcement measures during judicial reorganisation and bankruptcy proceedings.
Unsecured creditors have no special rights to suspend or block judicial reorganisation or bankruptcy proceedings, except on the basis of the general principle of good faith. They may also request the appointment of an interim administrator, director or mandatary to supervise the management of the company.
Pre-judgment attachments are not available under Belgian law.
Any pre-existing attachments are suspended from the moment statutory judicial reorganisation or bankruptcy proceedings are commenced. However, in some cases conservative attachments may retain their conservative character (Articles XX.50, XX.51 and XX.120 of the Code of Economic Law).
Certain claims benefit from special protection in statutory insolvency and restructuring proceedings, as follows:
Three Types of Statutory Reorganisation Proceedings
Common Characteristics of All Types of Statutory Reorganisation Proceedings
The guiding principle of judicial reorganisation proceedings is "debtor in possession". The management of the company remains fully empowered to act, including maintaining the right to enter into new (credit) agreements, among others. However, under certain conditions (eg, if serious shortcomings can be attributed to the management of the company), a temporary mandatary may be appointed to supervise the management at the request of a creditor or the public prosecutor’s office. The scope of the mandate of the temporary mandatary is determined by the court.
In reorganisation by court-supervised transfer proceedings, an administrator is appointed by the court to effectuate the sale of the assets. The management of the company is thus not in charge of the sale.
Judicial reorganisation proceedings automatically result in a period of suspension of payment, which in practice is usually three to six months. This period may be extended. During this period, the company is protected against enforcement measures by creditors as well as forced liquidation and bankruptcy.
Transactions at shareholders’ level remain unaffected by judicial reorganisation proceedings.
Reorganisation by Amicable Agreement
Only the creditors involved in this agreement are affected by it. The final agreement depends on their consent.
Reorganisation by Reorganisation Plan
Creditors are not involved in drafting the reorganisation plan; this task is entirely up to the company. The role of the creditors is mainly limited to, on the one hand, verifying and declaring their claims and, on the other hand, voting on the reorganisation plan. A double majority is required before the reorganisation plan is considered to be approved and binding on all creditors. The majority of the creditors present at the voting must agree to the plan, and these creditors must also represent the majority of the total indebtedness of the company (see 6.1 Statutory Process for a Financial Restructuring/Reorganisation).
Reorganisation by Court-Supervised Transfer
The role of the creditors is limited to verifying and declaring their claims. They are not involved in the transfer of assets.
Information to Creditors
Judicial reorganisation by amicable agreement requires the consent of each creditor affected by the agreement.
In judicial reorganisation by reorganisation plan proceedings, a distinction in cram-down can be made between different categories of unsecured creditors insofar as this distinction can be objectively justified (eg, on the basis of the size of the debt – Article XX.73 of the Code of Economic Law).
Creditors can be affected by a reduction of claim without having agreed to it individually, if the reorganisation plan has been approved by a double majority of creditors (see 6.3 Roles of Creditors).
Creditors may assign their claims against a company undergoing statutory reorganisation in accordance with the general rules applicable to a transfer of claims. Types of a transfer and its effects remain the same as if there was no restructuring. This implies that the transfer will be opposable to the company-debtor only once the debtor has been notified of the transfer of the claim.
Belgian statutory restructuring proceedings may not be used to reorganise a corporate group on a combined basis. Each company is treated separately.
Pursuant to the principle of "debtor in possession", the management of the company remains fully empowered to act during proceedings of reorganisation, unless a temporary mandatory has been appointed to supervise the management (see 6.2 Position of the Company). This includes any use of the company’s assets. Nevertheless, the company must ensure that it acts in good faith and does not commit any abuse of law.
An exception applies to judicial reorganisation by court-supervised transfer proceedings, in which an administrator is appointed to realise the sale of the company's assets.
In judicial reorganisation by court-supervised transfer proceedings, an administrator is appointed by the court to effectuate the sale of assets (Article XX.85 of the Code of Economic Law). The task of this administrator is to collect offers and assign the assets to the party with the best offer, whereby the continuity of all or part of the company’s activity is an important element of assessment (Article XX.87 of the Code of Economic Law). In theory, this could also be a creditor.
If informal negotiations between the company and a third party took place prior to the judicial reorganisation proceedings, this third party will also be able to submit an offer for the purchase of the assets. However, the administrator is not obliged to select this offer. The company's management must therefore be careful during the preliminary negotiations, and should not make any formal promises to the interested third party.
If the transfer includes real estate, a notary will be appointed to carry out the notarial sale.
The proceeds from the sale of the assets will be distributed by the administrator among the creditors, with due observance of the respective priority rights and securities.
The acquirer's obligations are, in principle, limited to what is provided for in the transfer agreement. He or she will therefore not be obliged to pay any other claims or outstanding amounts due from the company.
Judicial Reorganisation by Amicable Agreement or Reorganisation Plan
The enforcement rights of secured creditors are suspended during judicial reorganisation proceedings. After the court’s homologation of the amicable agreement or the reorganisation plan, the securities may only be exercised by the secured creditors with respect to said agreements (eg, after the expiry of the payment deferral period).
Judicial Reorganisation by Court-Supervised Transfer
Through a court-supervised sale of assets, creditors' rights are transferred to the price received (Article XX.92 of the Code of Economic Law). As a result, the assets are transferred freely, cleanly and unencumbered to the transferee, even without the individual consent of the secured creditors concerned.
New money may be made available to the company during judicial reorganisation proceedings. These new debts fall outside the scope of any amicable agreement, reorganisation plan or court-supervised transfer, which only apply to pre-existing debts. Nevertheless, new money will benefit from a super-priority right if judicial reorganisation proceedings are followed by bankruptcy proceedings (see 5.5 Priority Claims in Restructuring and Insolvency Proceedings).
There are no specific rules that oppose the establishment of new securities during judicial reorganisation proceedings, but the rules of good faith and abuse of rights must be taken into account. In any event, the establishment of new securities is limited to new money; new securities for pre-existing debts are excluded.
For the valuation of claims, no distinction is made between different categories of creditors.
In the event of a dispute between the company and a creditor related to the amount of a creditor’s claim (see 6.1 Statutory Process for a Financial Restructuring/Reorganisation), the insolvency court may, on a provisional basis, determine the amount in respect of which the creditor will be included in the list of debts (and to the extent of which he is allowed to vote on the reorganisation plan). However, the discussion on the merits will be decided by the competent court, which may result in an adjustment of the provisional amount.
The reorganisation plan is drafted by the management of the company. The court does not have the authority to subject the plan to a fairness test. Once the reorganisation plan has been approved by the (double) majority of creditors (see 6.1 Statutory Process for a Financial Restructuring/Reorganisation), the court's discretion is limited to checking whether the plan respects formal requirements and conforms with public order. The court can only refuse to approve the reorganisation plan if it breaches any formal requirements or public order.
The reorganisation plan may not impose any changes on existing contracts without the consent of all contracting parties.
A natural person who has guaranteed any debts of the company free of charge may benefit from the terms of the amicable agreement or reorganisation plan (Articles XX.66 and XX.82 Code of Economic Law).
If a natural person is the subject of a reorganisation by court-supervised transfer, he or she can obtain remission of the debts remaining after the transfer (Article XX. 96 Code of Economic Law). In that case, the (ex-)spouse or (ex-)legal cohabitant may also be released, as well as the natural person-guarantor who did not receive any compensation for the guarantee.
Offsetting is only allowed between pre-existing debts and debts newly incurred during the reorganisation proceedings insofar as these debts are connected (Article XX.55 Code of Economic Law).
Offsetting between other debts (eg, between two debts arising before the proceedings or between two debts arising during the proceedings) is not subject to any special rules. Therefore, the general rules on offsetting, principally allowing offsetting, apply to these debts.
There are no special deadlines by which the creditor must claim the set-off, but it is recommended that this is done shortly after the creditor has been informed of the withheld amount of his claim so that the creditor does not run the risk of being deemed to have waived his right to set-off.
If the company does not comply with the terms of the reorganisation plan, the reorganisation plan may be withdrawn by the court (eg, at the request of a creditor – Article XX.83 Code of Economic Law). As a result, the debts become full and immediately due and payable again, without any haircut.
A creditor cannot claim more than what was agreed in the amicable agreement or reorganisation plan (provided that this is strictly adhered to by the company).
Equity owners (ie, shareholders) are unaffected by judicial reorganisation proceedings and may exercise all their rights. If equity owners have non-equity related claims on the company (eg, shareholder’s loan), they are treated in the same way as other creditors of the same category.
In the context of judicial reorganisation by reorganisation plan proceedings, debts may be converted into shares (Article XX.72 Code of Economic Law).
Under Belgian law, there are three types of statutory liquidation proceedings: voluntary liquidation, involuntary liquidation and bankruptcy.
Liquidation and bankruptcy proceedings vary in length, depending on the type of assets to be sold.
The liquidator and trustee are responsible for the sale of the company’s assets (see 7.1 Types of Voluntary/Involuntary Proceedings). Creditors are not involved in the sale process and creditors’ consent is not required in principle, except in the event of a sale of a secured good in liquidation proceedings. Contrarily, in bankruptcy proceedings the trustee may sell the goods unencumbered without the secured creditor’s consent.
In certain cases, court authorisation of a sale is required, such as in the event of a sale of business activity or real estate.
Pre-negotiated sales transactions are possible, but their impact is limited. Given that the liquidator or trustee takes over the management of the company, it will ultimately be the liquidator’s or trustee’s decision to formalise any pre-negotiated sales transactions or not. The liquidator or trustee will look at the market value of the asset, and will be liable if it sells the asset below said market value. The management of the company must therefore be cautious in negotiations prior to liquidation or bankruptcy proceedings, and should withhold from making any formal commitments.
Creditors are not organised in committees or in any other way.
EU Regulation 2015/848 of 20 May 2015 is applicable, which provides for the automatic recognition of insolvency proceedings initiated in another EU Member State.
The recognition of insolvency proceedings initiated in a non-EU country are governed by the Belgian Code of Private International Law, which also provides for the recognition of foreign insolvency proceedings insofar as the rules regarding competent jurisdiction have been respected.
In cross-border cases, a distinction is made between main proceedings and local proceedings. The trustee appointed in main foreign insolvency proceedings may request that certain measures be taken with regard to the company's assets located on Belgian territory. The reverse is equally possible. This applies to insolvency proceedings opened both inside and outside the EU (see 8.1 Recognition or Relief in Connection with Overseas Proceedings).
In addition, local insolvency proceedings may be initiated in Belgium even if there are already main insolvency proceedings pending abroad. However, the effects of the local proceedings will be strictly limited to those assets of the company that are located on Belgian territory.
EU Regulation 2015/848 of 20 May 2015 and Belgian Code of Private International Law determine which jurisdiction's decisions, rulings or laws govern insolvency proceedings.
Foreign creditors are not dealt with differently than Belgian creditors on a substantial level, but foreign creditors have the option of filing paper deeds at the court’s registry or with the trustee, where this has to be done electronically for Belgian creditor-companies (Article XX.8 Code of Economic Law).
The statutory officers who may be appointed in proceedings are as follows:
The statutory roles, rights and responsibilities of each such officer are as follows:
The delegated judge, administrator, trustee and supervisory judge are appointed by the court. In voluntary liquidation proceedings, the liquidator may be appointed by the general assembly of the company. In involuntary liquidation proceedings, the liquidator is appointed by the court. These officers may be replaced by the court (eg, at the request of a creditor).
Co-operation is possible between the administrator, trustee and liquidator on the one hand and the management of the company on the other.
In principle, officers should be independent persons (ie, not creditors or directors of the company), except in the case of voluntary liquidation, in which case a director of the company may be appointed as liquidator. The administrator and trustee are often lawyers.
Generally speaking, the management of a company must ensure that it takes the necessary (recovery) measures in good time to protect the company's activities, such as applying for judicial reorganisation proceedings. If it does not do so, it runs the risk of being held liable on the basis of general management errors (Article 2:56 Code on Companies). In view of this, the management should ensure that it reports clearly on its discussions and decision-making (by detailed minutes of meetings).
In addition to the management’s general liability, specific insolvency liabilities include the following:
The liability of the management is limited by law in relation to the turnover of the company insofar as the fault committed by the management can be regarded as a minor, non-repeated fault (Article 2:57 Code on Companies). It is unlikely that liability incurred in an insolvency context would qualify as a “minor non-repeated fault”, so it is almost certain that the legal limitation of liability will not apply in an insolvency context.
In an insolvency context, the starting point is that the liquidator or trustee brings a liability claim against the management of the company, the proceeds of which then benefits the entire estate of all creditors. In the event of manifest gross negligence that contributed to the bankruptcy, individual creditors may bring a claim themselves for the benefit of the bankruptcy estate if the trustee fails to do so.
Principally, creditors can thus not bring a direct claim for their own personal benefit, unless they suffer a personal loss distinct from that of other creditors. An example of this is a claim which a creditor has against a director because he contracted with the company on the basis of incorrect financial information or because his claim arose after the company should already have been declared bankrupt.
Liability claims based on “wrongful trading” are exclusively reserved for the trustee.
Historical transactions that preceded insolvency proceedings (such as credit and security transactions and asset sales) can be set aside or cancelled irrespective of insolvency proceedings on general rules, such as fraud, error or coercion.
In addition, bankruptcy law expressly provides that an act or payment is not opposable to the bankruptcy estate if it was made with fraudulent prejudice to the rights of creditors, irrespective of the date on which it took place (Article XX.114 of the Code of Economic Law).
Certain transactions may also be set aside if they took place during the so-called “hardening period” (see 11.2 Look-Back Period).
As a starting point in bankruptcy proceedings, the date of cessation of payment is presumed to be the date of the judgment declaring the company bankrupt (Article XX.105 Code of Economic Law). The court may, however, set the date of cessation of payment at an earlier date than the date of the bankruptcy judgment, if serious and objective circumstances indicate unequivocally that payments have ceased before the bankruptcy judgment. This date of cessation of payment may not be earlier than six months prior to the bankruptcy judgment.
The so-called hardening period is the period between the date of cessation of payment as determined by the court and the date of the bankruptcy judgment (Article XX.111 of the Code of Economic law). Transactions that took place during the hardening period may be declared non-opposable to the bankruptcy estate at the request of the trustee, with the purpose of protecting the creditors of the bankrupt company against any actions taken shortly before the bankruptcy and aimed solely at withdrawing certain parts of the assets from the bankruptcy estate.
As a rule, the following actions are never opposable to the bankruptcy estate:
In addition, any payment or transfer of goods for consideration may be ruled unopposable if the receiving third party had knowledge of the cessation of payment (Article XX.112 of the Code of Economic Law).
However, the above rules do not apply to payments effectuated in the context of judicial reorganisation proceedings (Article XX.53 Code of Economic Law).
Claims to set aside or annul transactions may be brought in the context of bankruptcy proceedings, but not in restructuring proceedings.
The right of action belongs exclusively to the trustee.