A bill containing an entirely new Insolvency Code was presented to the House of Representatives on 20 April 2017. The need for a robust insolvency framework has received substantial attention due to the ongoing economic and financial crisis. Many European countries have recently modernised their insolvency legislation or are in the process of doing so. The bill forms part of an ambitious plan by Justice Minister Koen Geens to completely reform basic legislation and is intended to modernize insolvency law and bring it into line with current European legislative developments.
Some of the bill's most important provisions are presented below.
Enterprise, not merchant
Traditionally, the personal scope of insolvency legislation has been limited to merchants. The bill, however, moves away from the concept of merchant towards the more general notion of enterprise. This term covers all types of independent economic activity, not just merchants. The result is that more economic players will be subject to and able to benefit from insolvency law. The liberal professions, for example, are no longer excluded from insolvency proceedings, even though the bill takes into account the particular nature of these professions. Another new feature concerns unincorporated organisations, such as the maatschap/société de droit commun, which will now also fall under the scope of the insolvency legislation
The bill 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 "forced haircut" in the context of a restructuring. The bill limits such claims to the (estimated) value of the underlying collateral, regardless of their nominal value. The bill further limits the possibility for distressed debtors to abuse reorganization proceedings to the detriment of their creditors.
Further to the ongoing digitization of the Belgian judiciary, the bill also brings insolvency proceedings into the 21st century from a practical point of view. All information related to insolvency proceedings will be centralized in an online Solvency Register which will be accessible to magistrates, including substitute judges, clerks of court and public prosecutors as well as bankrupt parties, their creditors and counsel. In this way, magistrates will have a convenient overview of pending bankruptcy proceedings, while insolvency practitioners will have substantially less paperwork.
Reinforced preventive measures
The bill amends and improves the existing rules on preventive measures. The powers of the chambers for enterprises in difficulties are reinforced, specifically vis-à-vis dormant companies. Further, the notion of the “silent trustee” is introduced in order to facilitate transfer of the debtor's business in the context of bankruptcy, while minimising the economic disruption.
Many insolvent companies form part of corporate groups. The bill formally allows the territorial centralization of insolvency proceedings and the appointment of the same trustee for all group companies. This will help to preserve the unity of the group, also in times of financial crisis.
Liability actions will henceforth be an integral part of insolvency law. The rules governing such actions have been reformed in order to create real incentives for individual creditors to file suit. In addition, a separate action has been introduced which can be brought against a person who knew or should have known that there was no reasonable chance of continuing the business or avoiding bankruptcy and yet failed to act as a reasonably prudent person would have when placed in the same circumstances. Directors must now tread even more cautiously when considering whether to continue loss-making activities.
Strengthening of the "second chance" rules
The bill reforms and strengthens the so-called "second chance" rules. The idea behind these rules is that insolvency should not be a stigma and that businesses acting in good faith should be given a genuine second chance to start over. This idea has received substantial attention from the European legislature. The bill replaces the complex rules on verschoonbaarheid/excusabilité with new rules on schuldkwijtschelding/effacement. For instance, the impact of discharge on parties related to the debtor (e.g. spouse or cohabitant) is clarified and appropriate limits are set in order to avoid undesirable consequences which could upset the delicate creditor-debtor balance.
Entry into force
The bill will now be discussed in Parliament. A plenary vote is expected to be held before the summer. Entry into force could occur as early as 1 September 2017, although this seems unlikely.