9.1.1 Would the airline be required to file for insolvency protection?
It depends on the insolvency proceedings. There are two different types of insolvency proceedings under Belgian law:
- The bankruptcy proceedings (faillite/faillissement) are governed by the Title VI of Book XX of the Belgian Code of Economic Law. If a company has ceased to make payments on a sustained basis and its creditworthiness is undermined, it will be deemed to be in a state of bankruptcy. Within one month after the cessation of payments (unless the company has filed for judicial reorganisation), the Airline must file for bankruptcy with the commercial court. Criminal sanctions are applicable for the directors if the company does not declare the bankruptcy within the prescribed timeframe.
- The judicial reorganisation process (réorganisation judiciaire/gerechtelijke reorganisatie) is governed by Title VI of Book XX of the Belgian Code of Economic Law. The judicial reorganisation intends to promote the recovery of a business by granting its owner in temporary financial difficulties protection against its creditors through three different routes (i.e. amicable agreement (accord amiable/minnelijk akkoord), collective agreement (accord collectif/collectieve akkoord) and transfer under judicial supervision (transfert sous autorité de justice/overdracht onder gerechtelik gezag)).
If the continuity of the Airline is threatened (which is assumed when its net assets are less than half of the share capital), the Airline may apply, through its directors, to the competent commercial court for a judicial reorganisation. A judicial reorganisation is an option that can be triggered, but the directors of the concerned company do not have any obligation to do so.
9.1.2 Do the available forms of insolvency protection in Belgium involve the appointment of either an officer of the court or a specifically court appointed official to take control of the Airline (an Insolvency Official) while in insolvency protection?
Concerning the judicial reorganisation process, the insolvent Airline’s management remains in control but the Airline is protected against the rights of its creditors. In principle, the court does not appoint any Insolvency Official in such a case, but only a deputy judge to supervise the judicial reorganisation and to regularly report to the court. Only under certain specific circumstances, a judicial administrator (and not an Insolvency Official) can be appointed in order to manage the difficulties faced by the company
Concerning the bankruptcy process, from the date of the bankruptcy court decision, the powers of the Airline’s management are suspended and transferred to an Insolvency Official. The Insolvency Official has wide discretionary administrative, managing and representation powers including a power to sell the assets of the Airline and to distribute the proceeds to creditors
9.1.3 Does the Insolvency Official have authority to negotiate and reach agreement with the Owner in relation to matters such as the payment of unpaid rent, continuation or termination of the Lease and repossession of the Aircraft without the need for court approval?
The Insolvency Official can negotiate and reach agreement. However, some decisions (such as settlements, pursuing of the Airline business, etc.) require prior court approval.
9.1.4 Does the commencement of insolvency protection involving the appointment of an Insolvency Official in Belgium have the effect of prohibiting the Owner from taking the following actions to enforce the lease after commencement of such protection:
(a) applying any security deposit held by the Owner against any unpaid amounts due under the Lease?
The Owner is entitled to apply any security deposit.
(b) accepting payment of rent or other lease payments from:
- the Airline? Yes.According to article XX. 110 of the Belgian Code of Economic Law, all payments, operations and transactions made by the bankrupt company, and all payments made to the bankrupt company as from the day of the bankruptcy order, shall be void and is not enforceable vis-à-vis the bankruptcy estate.
- a guarantor?No (assuming the shareholder is not engaged in insolvency proceedings). Payments from a guarantor can be accepted.
- a shareholder?No (assuming the shareholder is not engaged in insolvency proceedings). Payments from a guarantor can be accepted.
(c) giving notice of default under the lease?
Notice of default may be given both in judicial reorganisation and bankruptcy proceedings.
(d) obtaining a judgment or arbitral award for unpaid lease payments?
Proceedings against the bankrupt company are suspended as from the bankruptcy judgment. Pursuant to article XX. 155 of the Belgian Code of Economic Law, in order to take part in the allocation or to exercise any preferential right in a personal capacity, creditors are required to register their claims, together with their titles, thru the website www.regsol.be, at the latest on the date indicated in the bankruptcy order. All the claims are then verified by the Insolvency Official in the presence of the bankrupt company. If the Insolvency Official accepts the claim, the dispute is ended. However, if the Insolvency Official contests a claim, he shall inform the creditor accordingly, adding that the latter will be summoned subsequently, by registered letter, to appear before the court to hear the decision thereon.
(e) giving notice to terminate the leasing of the Aircraft?
No. Usually, leases provide for an ipso jure termination clause in case of bankruptcy of the company. Such a clause will however have no valid effects in case of judicial reorganisation (see our answer to question 9.1.6).
(f) exercising rights to repossess the Aircraft?
In case of bankruptcy, subject to the below conditions, the Owner may exercise its right to recovery pursuant to article XX. 194 of the Belgian Code of Economic Law.
The Owner’s right to recovery needs to be exercised with the Insolvency Official, shortly after the day of the bankruptcy order by the Commercial Court. More specifically, subject to forfeiture, the action to recover property must be exercised prior to (the filing of the first verification report on) the claims, which will generally take place within the month of the declaration of the bankruptcy.
If the custody or return of the claimed assets (such as an Aircraft) entailed costs at the expense of the bankruptcy estate, the Insolvency Official shall require that such costs be paid when these goods are delivered. If the Owner refuses to pay these costs, the Insolvency Official shall be entitled to exercise a right of retention on the assets of the Owner.
Such a right to recovery may not be exercised during the moratorium of the judicial reorganisation.
9.1.5 Can the commencement of Insolvency Proceedings have retrospective effect in relation to any such actions taken before commencement? If so, for what period can there be a look back?
Payments or other transactions (such as granting new security) made by a company during a certain period of time prior to the bankruptcy declaration – the hardening/ “suspect” period (période suspecte/verdachte periode) – can (and in certain instances must) be voided for the benefit of the creditors. The court will determine the date of commencement of this period which can be up to 6 months before the bankruptcy declaration.
Whenever the bankrupt company enters into a transaction or makes a payment that proves fraudulent toward its creditors, such transaction or payment will be declared void for the bankrupt estate, even if the transaction or payment took place before the suspect period.
9.1.6 Is there, either under law or as a matter of practice in Belgium, a period of time within which the Insolvency Official will either “adopt” the lease and pay rent and other lease payments as an expense of the insolvency or “reject” the lease and permit the Owner to enforce such rights as it may have under the lease?
In the case of a judicial reorganisation, contracts (such as lease agreements) remain in force and an early termination clause due to judicial reorganisation has no effect. However, the Owner may terminate the lease if the rent arrears are not paid by the debtor within 14 days of formal notice given by registered letter. Except for employment contracts, the debtor can decide, within 14 days as from the judgment, not to perform under certain contracts during the suspension period (if this is necessary for the reorganisation plan or the judicial transfer).
Yes, a specific time limit is provided for in article XX. 139 of the Belgian Code of Economic Law. According to this article, the Insolvency Official shall decide without delay whether to continue with the performance of contracts concluded prior to the bankruptcy order. The Bankruptcy Act further provides that the party that has contracted with the bankrupt company may serve notice to the Insolvency Official to take the said decision within 15 days. If no extension of this period is agreed, or if the Insolvency Official does not take a decision, the contract shall be presumed to have been terminated by the Insolvency Official as of the expiry of said time limit. In conclusion, one of the first decisions the bankruptcy trustee needs to take, is to put an end to the lease and to return the property to the Owner.
9.1.7 If the lease is “adopted” will the Insolvency Official also pay any unpaid lease payments due as at commencement of the insolvency protection?
If the Insolvency Official decides to adopt the lease, all the unpaid lease payments due as at commencement of the insolvency protection are considered to be an expense of the administration and can be claimed as a debt incurred by the general body of creditors.
Pursuant article XX. 58 of the Belgian Code of Economic Law, when the claims are born during the judicial reorganisation process, they are considered as secured debts in a subsequent bankruptcy which occurred during the period of the judicial reorganisation..
9.1.8 If not or if the lease is “rejected”, would the Owner’s claim for any outstanding sums rank equally with other ordinary unsecured creditors of the Airline?
Yes, all claims born prior to the bankruptcy will rank equally with other ordinary unsecured creditors of the Airline.
9.1.9 Are there certain types of preferred creditors whose claims will rank above claims of the Owner?
Based on the documentation provided by the creditors and documentation held by the Airline, the bankruptcy trustee establishes a list of creditors/claims and classifies them according to the categories established in Belgian law:
- Creditors benefiting from special privileges, in particular, where claims are secured by a specific asset or right (essentially, in rem security). These creditors are entitled to execute their privilege, subject to certain restrictions including the admission of their debt by the Court and a waiting period. The proceeds of the disposal of assets covered by a specific security do not form part of the bankruptcy estate. These creditors are paid directly through the proceeds of the disposal of such assets. If the proceeds prove to be insufficient, these creditors are admitted as unsecured creditors for the remaining amount.
- Creditors benefiting from a general privilege, including, among others, specific labor claims up to a certain amount; claims relating to unpaid tax withholdings and social security contributions; claims for other amounts to be paid to the tax authorities and the social security authorities. During the liquidation process, claims benefiting from a general privilege are paid before ordinary claims, in accordance with the ranking established under the Belgian Mortgages Act. Assets subject to a special privilege may not be used to pay general privilege claims, unless there is an excess after the payment of the secured claim.
- Ordinary creditors (non-subordinated and non-privileged claims) rank pari passu and will be paid pro rata.
- Subordinated creditors to all ordinary creditors pursuant to an agreement or the law. Claims form creditors benefiting from a special or general privilege will rank above claims of the Owner.
9.1.10 If the Aircraft is in the possession of a person other than the Airline at the commencement of Insolvency Protection of the Airline, for example an independent maintenance facility, will such person be entitled, under Belgium laws, to assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline?
Yes, the right of retention may be exercised by a person other than the Owner to assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline. Nevertheless, the exercise of such a right can be considered, in certain circumstances, as an abuse of right.
If the Aircraft is in the possession of a person other than the Airline at the commencement of Insolvency Protection of the Airline, for example an independent maintenance facility, such person could be entitled to exercise a right of retention.
This right of retention is even enforceable against the Owner if the person in possession of the Aircraft could legitimately believe that he was dealing with the effective Owner or at least with someone it could legitimately assume as authorized to act on behalf of the Owner.
9.1.11 Is a person other than the Airline, for example an airport authority, entitled under Belgium laws to seize possession of the Aircraft after commencement of Insolvency Protection and assert a lien arising under law or contract over the Aircraft in respect of amounts then due and unpaid to such person by the Airline.
After the commencement of Insolvency Protection of the Airline, everyone is subject to the moratorium on enforcing rights once Insolvency has commenced. This is the case for both bankruptcy and judicial reorganisation.