Belgium

Winding-up proceedings (as referred to in Annex B to the Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceeding (the “Regulation”)

1. Bankruptcy

Bankruptcy proceedings are primarily used to liquidate companies who suffer severe financial difficulties in order to fulfil the outstanding claims of its creditors.
Conditions for opening
Bankruptcy can be filed on a voluntary basis by the company or by forced request of its creditors, the public prosecutor, the interim-administrator of the company, or the liquidator of a territorial insolvency proceeding.

In order to open the bankruptcy proceedings, the court shall have to verify that the company is in a situation of a persistent cease of payments and that its creditworthiness is undermined.

Restructuring methods

The court appoints a bankruptcy trustee in order to liquidate the assets of the company and, if possible, to distribute the revenues to the creditors of the company. The liquidated assets will be divided between the creditors giving priority to creditors with privileged claims. If all creditors have been paid, any remaining assets will be divided between the shareholders of the company and the company will cease to exist.

Pros and cons

Pros: There are few costs involved with a bankruptcy proceedings and the simplicity of the procedure results in legal certainty for the creditors of the company.
Cons: Bankruptcy raises a bad image with the public, which can be problematic if the company is part of a group. In addition, there is a potential director’s liability for faults that have directly contributed to the bankruptcy.

2. Voluntary liquidation

The shareholders of a company can decide to liquidate the company and to divide the realized assets between the shareholders. Unlike a bankruptcy procedure, the company is not necessarily in financial difficulties.

Conditions for opening

The draft terms of dissolution must be prepared by the governing body of the company. A recent (i.e., not older than three months) statement of assets and liabilities must be annexed to this report.

By notary deed, the general assembly of shareholders can, with the backing of 75% of its shareholders, representing at least 50% of the share capital, dissolve the company. In principle, the general assembly of shareholders can appoint the liquidator. However, the liquidator will only enter into function after confirmation by the court that the liquidator meets the criteria of righteousness. After the company has been dissolved, the company will continue to exist for the purpose of its liquidation.

Restructuring methods

A voluntary liquidation allows the shareholders to liquidate the company in order to divide the remaining assets between the shareholders.

After the fulfilment of the liquidation duties and at least one month before the final general meeting of shareholders, the liquidator must issue and communicate a report on the accounts of the liquidation, the use of the funds and assets, and the results of the liquidation, with all justifying documents. In this report the liquidator will also propose the method for distribution of the liquidation bonus (if any) to the shareholders.

Finally, an extraordinary general meeting shall be organized in order to decide on the closing of the liquidation. The company will subsequently cease to exist.

Success rate

Given the fact that the procedure is initiated by the company itself, the procedure has a high success rate when there is a general consensus between the shareholders. However, if the assets are not sufficient to cover the claims and the procedure is initiated in order to avoid a bankruptcy, the success rate will be dependent on the cooperation of the creditors of the company.

Pros and cons

Pros: Closing a company by way of voluntary liquidation has a better image than a bankruptcy. The procedure allows certain freedoms, as it is the company itself who initiates the procedure and who can choose the liquidator. Dissolution and liquidation of the company is also possible in one deed if certain conditions are met (no debts present, no liquidator appointed, and unanimous approval by shareholders), thus simplifying and accelerating the procedure.

Cons: The obligation to appoint a liquidator and the requirement to hold the general assembly of shareholders to decide on the dissolution of the company in the presence of a notary, results in extra costs. The procedure is also difficult to organize if the company’s assets are not sufficient to cover its claims, as at least a majority of creditors will have to agree with the voluntary dissolution. Therefore, the opening of a bankruptcy proceeding is still possible if the conditions for this proceeding are met.

3. Judicial liquidation

Contrary to the voluntary liquidation, the initiative to proceed with a judicial liquidation of the company comes from a third party, not the company itself.

Conditions for opening

Any third party can ask the court to pronounce the liquidation of the company when the net assets of a company have fallen below a certain amount (61.500 EUR in a NV, 6.200 EUR in a BBO) or when the company has not made a deposit in its annual accounts for the previous three consecutive years.

Restructuring methods

The primary aim of a judicial liquidation is a forced liquidation in order to realize assets for its creditors or to dissolve inactive companies. Contrary to a voluntary liquidation, the liquidation will be realized by court judgment after which the company will cease to exist.

Success rate

In principle, the court must pronounce the liquidation of the company when the legal conditions are met. However, if the company manages to raise its net assets above the legal threshold before the court pronounces the liquidation or if the annual accounts are deposited during the procedure, the judicial procedure is without subject. Therefore, the judicial liquidation is not often pronounced.

Pros and cons

Pros: The risk of a forced judicial liquidation gives a legal incentive to companies to ensure that their annual accounts are timely deposited and that their net assets do not fall below the legal threshold. It also grants an effective measure by which creditors can intervene when its debtors are rapidly accumulating debts.

Cons: The proceeding can also lead to abuses in cases where the proceeding is initiated for the sole purpose of dissolving a rival company.

4. Judicial reorganization by transfer under judicial supervision

Proceedings of judicial reorganization by transfer under judicial supervision allow an alternative to bankruptcy proceedings for companies in financial difficulties by organizing a partial or full transfer of its activities.

Conditions for opening

When initiated by the company itself, the company will not have to comply with specific conditions. The proceeding is often initiated as result of a failed procedure of judicial reorganization by collective agreement and in order to avoid the opening of a bankruptcy proceeding.

The procedure can also by initiated by forced request of a creditor, the public prosecutor, or any third party that can prove an interest as long as the conditions for the opening of a bankruptcy proceeding are met or in the event of a failed procedure of judicial reorganization by collective agreement. The creditor will have to demonstrate that they have a claim that cannot be seriously contested and a valid interest to request the opening of the procedure. A third party will have to demonstrate that it has an interest to acquire (a part of) the company.

Restructuring methods

The court grants a suspension period to the company for payment of its debts and appoints a judicial representative in order to organize the partial or full transfer of the activities of the company to a third company. When the judicial representative is of opinion that all transferable activities of the company have been transferred, they can request the court to close the procedure of judicial reorganization. The court can subsequently convene the general assembly of shareholders in order to vote on the dissolution of the company. However, the general assembly is not obliged to dissolve the company and can still decide to file for bankruptcy.

Success rate

Statistics show that nearly 50% of all proceedings of judicial reorganization by collective agreement are successfully resolved.

Pros and cons

Pros: In principle, a judicial reorganization has a better image than a bankruptcy procedure. It is also an efficient way to save part of a business or to acquire a business for a reasonable price.

Cons: As each third party with a valid interest can initiate the procedure, the risk exists that the business will be sold to a competitor or that the procedure can be initiated for the sole purpose of eliminating a rival company.

Insolvency proceedings (as referred to in Annex A to the Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceeding (the “Regulation”)

1. Bankruptcy

See above.

2. Judicial reorganization by collective agreement

The judicial reorganization by collective agreement is an efficient way for a company in financial difficulties to ask temporary suspension of payment and to propose a financial plan which prioritizes the payment of its most important creditors for the purpose of ensuring the continuity of its business activities, thus potentially avoiding a bankruptcy.

Conditions for opening

When the continuity of a company’s business activities is at risk, the company can request the court to open a procedure of judicial reorganization by collective agreement. In addition, the company will have to demonstrate the purpose of the reorganization procedure and the measures that it intends to take in order to restore the profitability and solvency of the company. The request must also contain additional information and documents, such as the two most recent annual accounts, a list of all creditors and their current claims, and an estimate of the expected income and expenses during the suspension period.

Restructuring methods

The court grants a period of suspension for the payment by the company of its debts to creditors in order to allow the company to draft a reorganization plan. In this plan, the company will divide the various creditors in different objective categories and the claims of each category will be reduced with a certain percentage (up to 85% of the principal amount). The plan will be submitted for approval to the creditors of the company and will be considered as approved in case of a favourable vote by the majority of creditors representing half of all sums due.

Success rate

Statistics show that nearly 50% of all proceedings of judicial reorganization by collective agreement are successfully resolved. However, 70% of these companies are nonetheless declared bankrupt within two years.

Pros and cons

Pros: The management remains in control of the company, thus allowing the company to continue in the usual course of business. The possibility to favour the most important creditors is a strong tool for the company to guarantee the continuity of its business activities.
Cons: During the proceeding, nearly all creditors’ rights are suspended and creditors’ claims can be reduced by up to 85%. This can lead to financial difficulties for many small creditors. The procedure can also lead to abuses where a company in financial difficulties tries to avoid an inevitable bankruptcy and continues to use certain business assets of its creditors without compensation.

3. Judicial reorganization by transfer under judicial supervision

See above.

4. Collective debt procedure

The collective debt procedure is a procedure available for natural persons, non-traders, who face excessive debts. Given that it is not available for companies, this procedure falls outside the scope it this brochure.

5. Voluntary liquidation

See above.

6. Judicial liquidation

See above.

7. The temporary deprivation of management

Conditions for opening

Upon the initiative of any third party having a valid interest or on its own initiative, the court can temporarily transfer the management of a company to an interim administrator when there are serious indications that the conditions for bankruptcy of the company have been met.

Restructuring methods

The temporary deprivation of the management of a company will only be applied in urgent cases where there is a serious risk that the management of the company would commit acts that are detrimental to the rights of the creditors of the company prior to filing for bankruptcy. The appointment of an interim administrator is therefore a conservative measure, allowing the third party (or the interim administrator if they have been appointed by initiative of the court) to request the opening of the bankruptcy proceeding of the company.

Pros and cons

Pros: The measure is an effective way for creditors’ to protect their rights in the case that malicious company management neglect to file for bankruptcy when appropriate.