Protection of creditor rights in the event of capital restructuring

The Belgian Companies Code was recently amended in order to improve the protection of creditors with a disputed claim in the event of certain restructuring processes. Creditors were found insufficiently protected under the existing rules.

Overview of the current protection mechanisms

In the event of a capital decrease, merger or de-merger, contribution or transfer of all or branches of activities, the creditor with a claim not payable has the right to request a security interest for his claim. The creditor can file this request during a period of two months from the capital restructuring’s publication in the Annexes to the Belgian Official Journal.

The company can avoid the obligation to grant a security by the early payment of the claim. If the parties fail to reach an agreement or if no payment has occurred, each party has the right to bring the dispute to the President of the Commercial Court.

In the event of a de-merger or a contribution or transfer of all or branches of activities, the involved companies remain jointly liable for due and payable claims (joint liability).

The table below gives an overview of the current protection mechanisms applicable during a company’s capital restructuring:

The current protection mechanisms offer no protection for disputed claims. Case law seems to ignore the demand for protection of creditors whose claims are contested. Such demands are usually rejected because of doubt regarding the due and payable quality of the claim, or because the claim cannot be quantified.

Extension of the current protection mechanisms

The legislator deemed necessary to protect the rights of creditors with a disputed claim. In fact, such creditors often come in the form of public authorities: tax administration, social security authorities etc. The protection regime’s amendment aims at avoiding structures being set up by the company during the dispute to hide the company’s assets, in case the debt is confirmed by the judge or arbitration board.

Creditors with a disputed claim will be able to use either one of the protection mechanisms, depending on the grounds of their claim. The dispute about the concerned claim must however be brought before the court prior to the planned capital restructuring in order for the protection mechanisms to be available.

In any case, the court will, at its sole discretion, assess the claim’s legitimacy and whether or not a security must be granted in the event of a dispute between the creditor and the company. In doubt, the court can always reject the creditor’s claim for security.