New Belgian Legislation - Continuity of Enterprises Act

The new Act aims to safeguard the continuity of enterprises by offering entrepreneurs several options if they run into (financial) difficulties, via a simpler and less expensive procedure.

The Act of 17 July 1997 has been repealed (except for pending cases).

Scope of Application

The Act applies to (i) merchants (both natural persons and legal entities), (ii) agricultural corporations and (iii) civil corporations with a commercial form. Liberal professions are excluded from its scope.

An important change is the relaxation of the conditions to apply for judicial restructuring procedures. As soon as an enterprise’s continuity is jeopardised, it may use the procedure.

Lines of force

The lines of force of the new procedure can be summarised as follows.

The new law gives a key role to the existing corporate bodies to manage the undertaking’s assets during its restructuring and abolishes the mandatory (and expensive) use of court-appointed administrators (as was the case under the old regime).

The range of measures offered to distressed companies has been enlarged, whereby we can identify two tracks.

The pre-procedural phase can be considered the first track.

The existing system of information collection by the court and the organisation of specific chambers for company investigations have been maintained.

A new preventive instrument is the appointment of a mediator by the Chairman of the Commercial Court, at the request of the debtor, in order to facilitate a reorganisation. Moreover, in the event that manifest and gross shortcomings of the debtor jeopardise the continuity of the undertaking, a court mandatee can be appointed at the request of any interested party.

Still in the pre-procedural phase, a major innovation is that a debtor is now offered the possibility to reach, without entering into a judicial reorganisation, an amicable settlement with all his creditors or with two or more of them. Should the undertaking ultimately fail, these settlement arrangements will be bankruptcy-proof, provided they have been filed with the court and provided the parties have expressly mentioned that they entered into a settlement with a view to redress the financial position of the debtor or to reorganise the latter’s undertaking.

The second track is judicial reorganisation.

Basically, the Act distinguishes between three types of judicial reorganisation which a debtor can apply for when his business is at risk: (i) judicial reorganisation through amicable settlement with two or more creditors, (ii) judicial reorganisation through a collective agreement with his creditors and (iii) judicial reorganisation through a transfer under judicial supervision.

The procedure has been made less expensive as it will be followed-up by a delegated judge.

As from the moment that a request for a judicial reorganisation is filed, the debtor cannot be declared bankrupt anymore and none of his assets can be sold, pending the decision of the court. If the court grants the judicial reorganisation, it imposes a suspension period of at least six months, during which none of the assets of the debtor may be seized and the debtor cannot be declared bankrupt. The suspension period may be extended, but the total duration of the suspension period may, as a rule, not exceed one year. However, in exceptional circumstances and if allowed in the interest of the creditors, the term can nevertheless be extended by another six months.

Conclusion and comments

As indicated by its title, the new Act focuses on the continuity of enterprises and wants to break the negative image of the previous system (‘gerechtelijk akkoord’ / ‘concordat judiciaire’), which all too often was perceived as the “waiting room for bankruptcy”.

The Act can be called innovative to the extent that several options to change course are now granted to enterprises in distress, as of the start of their difficulties. The enterprise is no longer faced with the choice between composition and bankruptcy, but has, on the contrary, a variety of options ranging from free measures (such as mediation) to more binding arrangements (e.g. transfer of business under judicial authority).

However, only practice will show whether the reorganisation measures reached by the new Act will be successful. It remains to be seen whether the psychological barrier has been sufficiently removed to incite entrepreneurs to apply for a judicial reorganisation in time, while there are still chances to redress the financial position and to turn the tide.