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Doing business in Belgium: New legal regime regarding insolvencies

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30/04/2018

On 1 May 2018, the new Book XX of the Code of Economic Law will enter into force. This Book replaces the existing Bankruptcy Law of 8 August 1997 (liquidation) and the Law on the Continuity of Enterprises of 31 January 2009 (restructuring).

Although Book XX largely incorporates the existing insolvency legislation in the Code of Economic Law, some important modifications have been made in the process. Some of these modifications are highlighted below.

Broadening of the scope of application

Under the existing rules, only “traders” (i.e. commercial entities or professionals involved in commercial activities) can be declared bankrupt or apply for a judicial reorganisation. The notion of trader, which was considered as arbitrary and outdated, will be replaced by the term “enterprise”.

As a result, self-employed professionals who are not engaged in commercial activities such as auditors, physicians, lawyers, architects, etc. and all legal entities, including non-profit organisations, fall within the scope of the insolvency law. Moreover, even organisations without legal personality can be declared bankrupt if they make any distributions to their members or managers.

Out of court restructuring

Under the new regime, out of court restructurings will become a more interesting alternative for distressed debtors and their creditors.

Under the existing rules, a confidential out of court agreement can be entered into between the debtor and two or more creditors to restructure the debt with a view to preserving the business of the debtor. If the legal formalities are complied with, the agreement and the payments made under such an agreement cannot be challenged in a subsequent bankruptcy proceeding, unless in case of fraud.

The new legislation adds three important elements to this:

  • new security interests granted to creditors in order to secure existing debts will be bankruptcy proof;
  • the parties can request the court to ratify the agreement, confirming its formal validity and declaring it enforceable, resulting in a faster enforceability (as the creditor will not need to initiate further proceedings before any enforcement action can be undertaken); and
  • the creditors cannot be held liable if the agreement fails to preserve the debtor’s business.


As a result of these elements, we expect that the out of court arrangements will become more prominent in the future.

Directors’ liability

A number of provisions relating to directors’ liability have been transferred from the Companies Code to Book XX and the directors’ liability for wrongful trading has now been expressly included in the insolvency law. Any director, former director, manager or shadow director, can be held liable for all or part of the deficit if he/she knew or ought to have known that the bankruptcy of the business was inevitable, but nevertheless did not take the reasonably required actions.

The directors of a legal entity facing financial difficulties should therefore make sure (i) to document all steps they have taken to improve the financial condition of the company and (ii) to not unduly delay the filing for bankruptcy if these actions did not have a sufficient effect.

Cross-border insolvencies

Book XX  provides some executory measures with respect to Insolvency Regulation (EU) 2015/848 regarding intra-European cross-border insolvencies e.g. measures pertaining to the cooperation between courts and insolvency practitioners in different jurisdictions.

The rules regarding non EU cross-border insolvency proceedings are similar to those applicable for EU insolvencies to the extent possible.

It is also provided that any intervention in Belgium by a foreign insolvency practitioner has to be done through a lawyer.

 


This is not legal advice. Individual legal advice should be sought on each individual matter.