Restructuring and insolvency law in Belgium

Restructuring

Book XX of the Belgian Code of Economic Law is the primary piece of legislation governing insolvency and restructuring proceedings in Belgium. It is a consolidation of all the rules in respect of pre-insolvency, restructuring and bankruptcy proceedings.

An enterprise can request the opening of a judicial reorganisation if it can demonstrate that its continuity is at risk or will be at risk even if the conditions for bankruptcy are met at the time of filing the request.

If the debtor is a legal entity, the continuity of its business is deemed to be threatened in any event when the losses have reduced the net assets to less than half of the capital. There is no strict definition to assess if a company is at risk, allowing the judge to use their discretionary power to decide on a case-by-case basis whether or not to allow the opening of a judicial reorganisation.

The request to open a procedure for judicial reorganisation by transfer under judicial authority is also possible, under certain conditions, for the public prosecutor, a creditor of the debtor, or any third party with an interest in acquiring all or part of the business.

Together with the request for opening a judicial reorganisation, a number of documents will need to be presented to the Court such as a description of the proposed measures, an overview of all the debts, a business plan that demonstrates that the company will be able to pay its new debts during the suspension period, etc.

Restructuring proceedings are judicial reorganisation proceedings. As of 1 September 2023, the following types are available:

Private or public reorganisation by amicable settlement

This amicable settlement procedure aims to conclude an agreement between the debtor and one or more of its creditors with a view to restore its financial situation or to reorganise its business. Parties can freely decide the content of this agreement. They can also request the courts to homologate the agreement, in which case it can no longer be challenged in case of a future bankruptcy on the basis of the so-called “suspect period rules”.

The reorganisation can be either:

• private: no publicity is given to a private amicable settlement
• public: the opening of a public procedure is published in the Belgian State Gazette and everyone will know that the debtor is the subject of a judicial reorganisation. The advantage of this (as well as all other public reorganisation procedures mentioned further in this guide) is that the debtor can request a period of suspension of payment of debts. During this period the debtor is protected against forced bankruptcy claims, and also does not need to pay the debts that originated from before the opening of the procedure. Its directors cannot be held liable for late filing of bankruptcy either as long as the protection period is still ongoing. The management will remain in charge of managing the company and will continue to carry out its day-to-day activities.

Private or public reorganisation by collective agreement        

A collective agreement procedure aims to obtain a collective agreement from creditors and, where applicable, capital holders by presenting a reorganisation plan to all creditors which is adopted if the majority of the creditors vote in favour of the plan. The plan can foresee various measures to safeguard the continuity of the company such as a reduction of debts, a repayment plan, etc.

The rules differ depending on whether the debtor is a small/medium company or a large company. The rules for large companies are more formalistic and, for example, foresee an obligation to work with different categories of creditors and shareholders; they also foresee in specific priority order rules in respect of the valuation of assets, etc. Small/medium companies do not need to comply with these specific rules but can always decide to apply them voluntarily.

It is also possible to opt for a private procedure whereby no publicity is given to the reorganisation and only the parties involved in the private reorganisation are affected, meaning that the plan will not be binding to other third party creditors.

Public reorganisation by transfer under judicial authority 

The Court appoints a court representative for organising and realising the sale of the business. This is often used to sell the healthy parts of a business, leaving behind the unhealthy parts. The management of the company remains in charge of day-to-day business, but the court representative has exclusive power in respect of the sale process.

This reorganisation will always result in the bankruptcy or (forced) liquidation of the debtor once the transfer is approved.

Pre- and post-commencement of restructuring claims

All debts before reorganisation proceedings are subject to suspension. Debts that have arisen in the course of the reorganisation procedure must be paid when they become due, irrespective of whether they are secured or not.

Ordinary and extraordinary claims

A distinction should be made in reorganisation procedures between ordinary and extraordinary claims, with the latter covering all claims secured by a security in rem. Depending on the classification as an ordinary or extraordinary claim in the suspension, the debtor has more or less freedom to reduce a claim in a reorganisation plan. For example, extraordinary claims cannot be reduced within the framework of a reorganisation by collective agreement without the explicit consent of the extraordinary creditor.

Categories of creditors

In judicial reorganisations by collective agreement of large companies, creditors must be put into certain categories if the rights they would have in liquidation or on the basis of the plan are so different as to their nature, capacity or value that their position is not comparable. The plan must be approved by simple majority within each category.

There is no legal obligation, but often restructuring proceedings are the best solution to try to avoid bankruptcy.      

The board of directors is responsible for verifying whether the conditions for bankruptcy are fulfilled and for filing for bankruptcy. The directors are legally obliged to file for bankruptcy within 1 month after the above-mentioned conditions are fulfilled. However, a judicial reorganisation can still be filed even if the bankruptcy conditions are fulfilled. During a judicial reorganisation there is no obligation to file for bankruptcy.

Directors have a general duty of care towards the company, its shareholders and its creditors. They will need to be actively involved in any decision a normal and diligent director would take in the same circumstances.

The board of directors is responsible for verifying whether the conditions for bankruptcy are fulfilled, and if this is the case, for filing for bankruptcy. Even if bankruptcy conditions are not met, the board of directors needs to be careful with keeping a structural loss-making company active, as this could be qualified as wrongful trading. As from the opening of the bankruptcy, a trustee will take over control of the company and sell the assets and distribute the proceeds amongst the creditors.

In case the company is declared bankrupt, the directors can be held liable for: 

• a part or all of the debts if it can be demonstrated that they made a gross error that contributed to the bankruptcy
• a part or all of the debts if they did not file for bankruptcy although it was clear that there was no reasonable prospect of continuing the activities and avoiding a bankruptcy (wrongful trading)
• certain social and tax debts if the directors, during the last 5 years prior to bankruptcy, were involved in at least two other bankruptcies in which there were unpaid social and tax debts.

If shareholders have doubts about the competence of the board of directors, they may request the appointment of an administrator to assume the role of director. The general assembly of shareholders can also decide to liquidate the company. Otherwise, the shareholders take a more passive role in both reorganisation and bankruptcy procedures. 

Insolvency

Book XX of the Belgian Code of Economic Law is the primary piece of legislation governing insolvency and restructuring proceedings in Belgium.    

Bankruptcy may be filed by the debtor; and in exceptional cases, third parties can summon a company into bankruptcy. One or more creditors can file a petition for bankruptcy of the debtor in order to stop the accumulation of debts.

The public prosecutor’s office can also file a petition for bankruptcy.      

Together with the declaration of bankruptcy, a number of documents will need to be presented to the Court such as the balance sheet showing the due debts and the assets, the indication of whether any personnel is employed, a list of customers and suppliers, etc.

The two conditions for a declaration of bankruptcy are: 

• continuing failure to pay debts
• considerable deterioration in creditworthiness.

It is generally assumed that this is the case if it is certain that the company is no longer able to pay its debts that are due, certain and payable; and its creditors, suppliers or banks no longer have the confidence to grant credit. It is not required to be unable to pay all debts – a substantial part is sufficient. 

Bankruptcy proceedings are aimed at placing the debtor’s assets under the authority of a trustee who is charged with managing and liquidating the assets of the company and distributing the proceeds among the creditors. Once bankruptcy proceedings are initiated, the directors will no longer have any powers.

As from 1 September 2023 the so-called pre-pack or “Private preparation for bankruptcy” (Préparation privée d’une faillite/Besloten voorbereiding van het faillissement) is introduced in Belgian law which foresees the possibility of a debtor, for which the bankruptcy conditions are met, to request the Court to declare bankruptcy and to appoint a liquidation expert to prepare the transfer of (part of) its assets and activities prior to the opening of the bankruptcy. This procedure is private, and in principle the period of this private preparation for bankruptcy can take no longer than 30 days (although it can be extended with an additional 30 days).

5. Are there different types of creditors and what is the significance of the differences between them?

A distinction will be made between:

• debts in the estate, i.e. debts that arose before the opening of bankruptcy proceedings
• debts of the estate, e.g. debts related to costs made by the trustee for the management of the bankruptcy must be paid immediately, and these creditors take priority over all other creditors.     

The creditors in the estate are divided into two categories:        

• preferential creditors: with either a special privilege on certain goods (which take precedence) or a general privilege
• ordinary creditors: paid after preferential creditors.

There are two alternatives to liquidate a company:

Solvent liquidation

If the conditions for bankruptcy are not met, the company can still be liquidated voluntarily. This is an option to consider if the activities of the company are, for instance, manifestly loss-making and no solution can be found within a reasonable period of time. In accordance with Belgian law, there are two ways to liquidate a company:

Normal procedure 

The process is divided into three steps:    

• decision of the general shareholders to dissolve the company and appointment of a liquidator to be approved by the Enterprise Court
• liquidation period (liquidator takes over the management, ceases commercial activities, collects receivables and pays off the debts of the company)
• closing of the liquidation. 

Simplified procedure 

If, prior to the dissolution, all debts of the company are settled or consigned,  no liquidator will be appointed and the dissolution, liquidation and closing of the liquidation will all take place on the same day.

Deficitary liquidation

It is possible to opt for a normal dissolution even if the debts exceed the assets (although not without the agreement of all creditors in the case of a simplified procedure). However, in such a case, creditors have the option at any time during the dissolution to request the opening of a bankruptcy if they are of the opinion that the dissolution insufficiently safeguards their rights in comparison to a bankruptcy. 

Financial restructuring from the creditors’ perspective

A lender can request that either an observer or a director be appointed to the board of the company in case the contract foresees in such right, or on the basis of civil law, in case an urgent need to safeguard the rights of the company and/or its creditors can be demonstrated. However, a lender cannot unilaterally appoint an observer or a director because such an appointment requires a shareholders’ resolution. In case of lack of cooperation, the lender can request the Courts to force such appointment. 

Under Belgian law, any additional guarantee or security granted for securing existing debt could be challenged by a subsequently appointed bankruptcy trustee, if it has been granted within a 6-month period preceding the date when the company is declared bankrupt by the competent court of enterprises. 

Non Performing Loans

An NPL can be transferred by way of assignment. The borrower must be notified. The assignor remains liable for any remaining lender obligations under the loan unless released by the borrower.

Transfer by novation should be avoided under Belgian law because security interests will be automatically released in case of novation of the secured obligations. The parties may however contractually decide that certain security should survive, including a mortgage and a legal lien (privileges légaux/wettelijke voorrechten). There is a debate under Belgian law as to whether such a decision of the parties can also apply to other types of security, for example the pledge agreement.        

Sub-participation agreements are permitted under Belgian law. Unless there is a prohibition in the original loan agreement (which is unlikely), sub-participation can be effected without the consent of, or disclosure to, the debtor.        

Belgian regulatory law does not generally require a licence or prior authorisation for the purchase, sale and/or transfer of a non-performing loan. However, if the loan is secured by a pledge over the whole business and assets of the company by way of a floating charge, the security can only be transferred to a licensed credit institution or financial company. Purchase, sale and/or transfer of an NPL would not qualify as the provision of banking/financial services in Belgium.