Are you in dire straits and facing insolvency? New legislation expands the toolbox of insolvency law!

Belgium recently approved and published the law transposing the European Restructuring Directive and containing various provisions regarding insolvency. To address the economic and financial difficulties that companies may face, the new legislation provides additional tools and options that companies can utilize. The main objectives are: 1. To provide a company in financial difficulty with access to an effective preventive restructuring system to avoid bankruptcy 2. To give an entrepreneur who is a natural person a second chance in the event of bankruptcy 3. To make procedures related to restructuring, insolvency, and debt forgiveness more efficient and shorter 4. To achieve further harmonization of insolvency procedures within the European Union. A number of new features and changes are highlighted:

The Division for Companies in Financial Distress is a department within the Commercial Court that monitors the situation of companies in financial distress in order to safeguard the continuity of their operations and ensure the protection of creditors’ rights. Among other things, the new law aims to ensure early warning for business owners facing financial difficulties and expands its tools to that end. It creates a preventive tool that enables the Chamber for Companies in Difficulty to carry out its duties, while also providing the debtor with a tool to conduct a self-assessment. In this way, the law offers the debtor the opportunity to take appropriate measures in a timely manner to prevent insolvency. More specifically, the business owner gains access to data concerning him and is granted the right to correct that data. In addition, at the initiative of the business owner-debtor, the Chamber of Enterprises in Difficulty will be able to provide assistance in negotiations with his creditors. The purpose of this mechanism is to reach a settlement with the entrepreneur-debtor’s main creditors in a very informal manner. It also allows tax authorities or other government agencies to participate in such settlements. The collection of tax debts or social security contributions may be suspended in whole or in part with the consent of the relevant public agency. However, this does not go so far as to result in the forgiveness of these obligations. In addition, at the request of the entrepreneur-debtor, the Chamber of Companies in Difficulty may appoint a restructuring expert to facilitate the company’s recovery. This expert acts independently and will facilitate a settlement with the creditors. The Chamber for Companies in Difficulty determines the scope and duration of the restructuring expert’s mandate.

According to the European directive, Member States must establish preventive restructuring frameworks. Under Belgian law, judicial reorganizations through amicable or collective agreements constitute such restructuring frameworks; however, the existing procedures could not be retained in their entirety. The legislature had to make adjustments to these procedures. For example, in the old judicial reorganization by collective agreement, all creditors vote together on the reorganization plan proposed by their debtor. However, European legislation stipulates that, for large companies, this vote must in any case take place “by categories of creditors.” The Directive allows Member States to deviate from this requirement for micro, small, and medium-sized enterprises. For large enterprises (non-SMEs), the law will thus provide for voting by categories. For SMEs, creditors will continue to vote as a single category. The legislature does not wish to make it more difficult for smaller enterprises to access the—already complex—procedure. However, SMEs may choose to be subject to the more complex system intended for large enterprises. A number of other changes have been implemented regarding judicial reorganization through an amicable or collective agreement that apply to both large companies and SMEs:

• For example, the duration of the stay of enforcement in the event of judicial reorganization proceedings is limited to a maximum of 4 months. The suspension measure protects the debtor-entrepreneur from enforcement actions by creditors or the initiation of bankruptcy proceedings during negotiations for an out-of-court or collective agreement. The protection period is shortened to a maximum of 4 months. In the past, this period could even be extended to 18 months under extraordinary circumstances. This practice is now being eliminated.
• From now on, a debtor may enter into an out-of-court settlement with just one creditor instead of at least two, in order to lower the threshold for reaching such a settlement.
• The legislature is tightening the suspensive effect of a petition for judicial reorganization through an out-of-court or collective settlement to prevent abuse.

- A provisional administrator may be appointed by the court at the request of any interested party or the Public Prosecutor’s Office for the duration of the suspension if the debtor or one of its bodies has committed a manifestly gross error.

• A restructuring expert may also be appointed in these proceedings.
• To avoid a snowball effect, creditors may request the court to lift the effects of the suspension as they pertain to them. However, the creditor must demonstrate that it is clearly disadvantaged by the suspension or that its business continuity is at risk.

A company that claims to be in a state of bankruptcy may file a petition requesting that it be declared bankrupt after it has been given the opportunity to prepare, in private, for the transfer of all or part of its assets and operations. In its petition, the company must demonstrate that this method of preparing for bankruptcy (i) facilitates the liquidation of the company while maximizing the proceeds for creditors and (ii) thereby preserves as many jobs as possible. There is no stay of proceedings as in a judicial reorganization. Creditors may therefore still take enforcement measures or file for bankruptcy. The company retains control over its assets but is subject to the supervision of the proposed trustee, with whom it must actively cooperate to bring about the intended transfer within the set timeframe, which is short. Silent bankruptcy remains a preparatory step. The transfer of some or all of the company’s assets and operations will only take place after the declaration of bankruptcy and will then be reviewed by the court. The aforementioned changes and new provisions will take effect as of September 1, 2023, and the provisions of this law are therefore applicable to insolvency proceedings commenced on or after that date. As you can see, there are still options available if you, as a business owner, are experiencing financial difficulties. If you’d like to know what your options are, please don’t hesitate to contact Crauwels Advocaten. Their insolvency experts will be happy to assist you.