New measures to encourage (silent) restructuring

The COVID-19 pandemic continues to have a significant impact on the global economy, as businesses worldwide face liquidity problems and related insolvency risks. Special Decree No 15 of 24 April 2020 provided temporary protection to Belgian companies against inter alia bankruptcy petitions and certain enforcement measures.  The first moratorium ran from 24 April 2020 until 17 May 2020, and the second from 24 December 2020 to 31 January 2021.

To further protect viable businesses, the Belgian government has adopted a first set of measures, with others still in the pipeline. The three most important new measures are summarised below.

Companies that wish to start judicial reorganisation proceedings must file certain documents along with their petition. Under the old rules, these documents had to be filed at the same time as the petition. In practice, however, this was not always possible, especially in times of crisis. Under the new rules, companies will be allowed to file additional documents up to two days before the hearing on the opening of judicial reorganisation proceedings. Companies will thus have more time to prepare their file. Furthermore, the court can decide to open proceedings even if the debtor is unable to produce all required documents.

A more fundamental novelty is the introduction of so-called "prepackaged" reorganisation proceedings. Normal reorganisation proceedings inevitably entail publicity, which may negatively affect the debtor's business. The idea underlying "prepackaged reorganisation proceedings is to allow the debtor to negotiate in confidence with certain creditors prior to the opening of formal reorganisation proceedings. To that end, the debtor can confidentially petition the court to appoint an officer (gerechtsmandataris/mandataire de justice) to assist in its negotiations with creditors. To prevent opportunistic behaviour by certain creditors, the court-appointed officer may ask the court to impose a standstill period on specific creditors, for up to four months. Importantly, this standstill can be stricter than the suspension resulting from the introduction of formal proceedings. The relevant creditors must be heard before their rights can be curbed. Once the general framework for an individual or collective agreement has been worked out, formal judicial reorganisation proceedings are opened and can be finalised more quickly due to preparation during the confidential stage.

The third measure is tax related. In order to encourage out-of-court agreements, debt reductions agreed out of court will qualify for the same beneficial tax treatment as those agreed or imposed in the context of formal judicial reorganisation proceedings.

These measures, together with other less important ones, are intended to help companies weather the storm. Although some of these measures initially apply only until 30 June 2021, it is generally expected that the government will extend their period of validity.

Finally, Belgium, like many other EU Member States, is in the process of transposing the Restructuring and Second Chance Directive (2019/1023), which will give a further impetus to Belgian insolvency law.