03/05/18

Entry into Force of the New Belgian Insolvency Code

Over the past few years, the Belgian legislature has consolidated various pieces of legislation regulating businesses into a single instrument: the Code of Economic Law (Wetboek van economisch recht/ Code de droit économique). Insolvency law has not escaped this trend. In the summer of 2017, the Belgian Parliament enacted Book XX of the Code of Economic Law, entitled "Insolvency of Undertakings" (hereinafter the "Insolvency Code").

The new rules entered into force on 1 May 2018 and are applicable to insolvency proceedings commenced as from this date. The primary purpose of the Insolvency Code is to consolidate the existing rules of Belgian insolvency law, previously found in the Bankruptcy Act of 8 August 1997 and the Business Continuity Act of 31 January 2009. Its secondary purpose is to modernise insolvency proceedings. Some new features of the Insolvency Code and its two implementing royal decrees are presented below.

Undertaking rather than merchant

The most important change introduced by the Insolvency Code is the extension of the scope of insolvency proceedings. The Insolvency Code replaces the concept of merchant with that of an "undertaking" (onderneming/entreprise). This concept encompasses most legal forms under which independent economic activity can be conducted. The result is that many more economic operators are now subject to insolvency law. Not only all types of legal entities but also the so-called liberal professions (e.g. lawyers, notaries and architects), farmers, non-profit associations (/V.Z.W./A.S.B.L.) and unincorporated organizations (such as the maatschap/société de droit commun) now fall under the scope of the new code. This means, on the one hand, that they can be declared bankrupt and, on the other hand, that they can benefit from the reorganization possibilities afforded by the code.

Digitization

In keeping with the ongoing digitization of the Belgian judiciary, the Insolvency Code strives to make insolvency proceedings fully digital.

Reinforced preventive measures but no prepack

The Insolvency Code amends and improves the existing rules on preventive measures. The powers of the offices for undertakings in difficulty (kamers voor ondernemingen in moeilijkheden/chambres des entreprises en difficulté) are reinforced, specifically vis-à-vis dormant companies. The Insolvency Code also strengthens the existing settlement possibilities. The parties to a confidential settlement are now able to petition the court to approve their agreement and/or to issue an enforceable order for the debts covered by the agreement. However, the rules on prepack were removed from the bill following Court of Justice's decision in Estro v Small Steps (Case C‑126/16 of 22 June 2017).

Creditors' rights

The Insolvency Code clarifies many aspects relating to the rights of creditors during insolvency proceedings. One important provision concerns the definition of extraordinary claims, i.e. claims that cannot be made subject to a haircut in the context of a restructuring. The Insolvency Code sets out new rules which clearly determine the more limited extent of such claims, depending on their collateral.

Provisions for debtors 

The bill limits the possibility for distressed debtors to abuse reorganization proceedings to the detriment of their creditors. With respect to liability actions against directors (or de facto directors), claims for gross negligence can now be introduced by an individual creditor acting on behalf of all creditors, in lieu of the trustee in bankruptcy. In addition, a separate liability claim for "wrongful trading" has been introduced. The Insolvency Code also reforms the so-called "fresh start" rules for natural person debtors, to give them a genuine second chance to start over.

Royal decree on the applicability of the Insolvency Code to the liberal professions 

The extension of the scope of application of the Insolvency Code to the liberal professions required an implementing royal decree, in order to safeguard the particularities of these professions. The decree was published on 27 April 2018 and entered into force on 1 May 2018. It determines amongst other things the procedure for the appointment of an insolvency co-practitioner by the governing body of the liberal profession to which the debtor belongs (e.g. Nationale Kamer van Gerechtsdeurwaarders/ Chambre nationale des huissiers de justice, Nationale Kamer van notarissen/Chambre nationale des notaires) and the role of such insolvency co-practitioner. It also imposes special notification requirements to the governing bodies of the liberal professions.

Royal decree on the compensation of insolvency practitioners 

A second implementing royal decree clarifies and simplifies the rules governing the fees and expenses of insolvency practitioners. A distinction is made between the trustee in bankruptcy and other insolvency practitioners. The trustee's fees are proportionate to the value of assets sold during the proceedings and cover administrative costs directly connected to liquidation of the bankruptcy estate. Other insolvency practitioners must file a fee estimate upon the commencement of insolvency proceedings. This estimate must factor in the number of hours needed to fulfil the insolvency practitioner's duties as well as an hourly rate in line with market practice in the insolvency practitioner's sector. At the end of the proceedings, the insolvency court will rule on the final determination of fees and expenses.

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