Liquidation procedure (finally) updated

The Act of 19 March 2012, amending the Belgian Company Code with regard to the liquidation procedure, was published in the Belgian State Gazette on 7 May 2012 and entered into force on 17 May 2012. The new Act, which the legal profession had eagerly awaited for quite some time, clarifies and amends the liquidation procedure. The most important provision is the confirmation of the possibility to dissolve and liquidate a Belgian company in a single step ("en un seul acte"/"in één akte").

2006 amendments to the liquidation procedure

The liquidation procedure was last amended in 2006. Before that time, companies in financial difficulty often used the liquidation procedure abusively in order to avoid bankruptcy and, consequently, the need to repay their creditors in full. Unfortunately, however, the 2006 amendments rendered the liquidation procedure unnecessarily lengthy and formalistic for companies with no liabilities which should have been able to liquidate quite easily. The registries of the commercial courts took these changes to heart and started to impose waiting periods between confirmation of the appointment of a liquidator and approval by the liquidating company of the liquidator's distribution plan by the commercial court, without any legal grounds on the basis of which such waiting period is imposed.

Dissolution and liquidation in a single step

The most important change to the liquidation procedure introduced by the Act of 19 March 2012 is the insertion of §5 in Article 184 of the Company Code, which now provides for the possibility to dissolve and liquidate a Belgian company in a single step. Before the introduction of this provision, legal scholars were divided on this issue, since the law did not specifically provide for this possibility. A December 2006 ministerial circular did not fully clarify the situation. In view of this ambiguity, few notaries were willing to enact a decision of a general meeting of shareholders providing for the dissolution and liquidation of a company in a single step.

As mentioned, new Article 184 §5 of the Company Code now provides for the possibility to dissolve and liquidate a company in a single step if (i) no liquidator has been appointed by the general meeting of shareholders, (ii) the company has no outstanding liabilities (in other words, all liabilities have been settled by the board of directors prior to liquidation), and (iii) all shareholders of the company are present or represented at the general meeting which unanimously decides to dissolve and liquidate the company. The remaining assets must be distributed amongst the company's shareholders.

Henceforth, companies with no ongoing activities or outstanding liabilities can be dissolved and liquidated in a single step. This procedure should be carried out and overseen by the board of directors, taking into account the reporting obligations to liquidate a company , which remain unchanged.

Clarification of reporting obligations during liquidation

In order to set a company into liquidation, or to dissolve and liquidate it in a single step, the reporting obligations, inserted in the Company Code in 2006, remain unchanged. The board of directors must still draw up (i) a special report setting out the reasons for dissolving and liquidating the company and (ii) a statement of assets and liabilities dated no more than three months prior to the date of the general meeting's decision to dissolve and liquidate the company. In addition, the company's auditor (or an external auditor if no auditor has been appointed) must draw up a report on the aforementioned statement of assets and liabilities.

However, the Belgian legislator has now clarified the liquidator's reporting duties to the commercial court in the course of liquidation. The liquidator must draw up a detailed report at the end of the first six and twelve months of the liquidation process, and file the aforementioned reports with the registry of the commercial court within respectively seven and thirteen months following the company's entry into liquidation. If the liquidation process lasts for more than one year, this reporting obligation remains in effect, but only on an annual basis. Prior to this amendment, it was unclear when such reports had to be prepared. The reports must be kept in the company’s file, as the commercial courts have done in practice over the past few years; in other words, a new file need not be opened for the purposes of liquidation.

Other relevant amendments

Other relevant changes to the liquidation procedure include:

1. If the liquidator's appointment is not confirmed within five days from the filing of the request to do so, the appointment will be deemed confirmed. Before, there was no sanction, even though it sometimes took up to one month to receive confirmation from the commercial court, while the Company Code previously provided that confirmation should be decided within 24 hours;

2. The guarantees of honesty and trustworthiness that the liquidator must present in order to be confirmed by the president of the commercial court have been clarified;

3. The general meeting of the company to be dissolved may immediately propose two liquidators for confirmation;

4. Liquidators may now immediately start the liquidation process, without having to request confirmation of their acts, although the commercial court may declare such acts null and void if they are obviously contrary to the interests of third parties;

5. If confirmation of the liquidator's appointment is not requested, the public prosecutor's office or any interested party may petition the commercial court to remove the liquidator. The president of the commercial court may grant the petition, after hearing the liquidator.

The abovementioned amendments illustrate the most important changes with respect to the liquidation procedure set forth in the Company Code. Should you wish to receive further information, do not hesitate to contact us.