The Belgian Act on Continuity
A new restructuring Tool
SUMMARY
The Belgian Act on Continuity comes into force on 1 April 2009.
It contains new restructuring legislation to enable the reorganisation
of Belgian enterprises under the supervision of the court. This
briefing outlines the key features of the new legislation. The Act
of Continuity is a welcome legislative step considering the substantial
increase in restructurings and insolvencies in Belgium.
New restructuring legislation was recently adopted
in Belgium and comes into force on 1 April 2009. The Act of 31 January
2009 on the continuity of undertakings (the Act on Continuity) aims
to replace the existing judicial composition procedure (concordat
judiciaire/gerechtelijk akkoord) with a more effective and
flexible restructuring instrument.
The key features of the Act on Continuity are:
• the improvement of court-led monitoring
of stressed companies and the possibility to appoint company mediators,
principally for small and medium-size enterprises;
• a protection for amicable settlements concluded between
stressed companies and (some of) their creditors against certain
effects of the suspect period; and
• a court moratorium for stressed companies leading to three
types of judicial reorganisation:
• the reorganisation by way of an amicable settlement under
judicial supervision;
• the reorganisation by way of a collective settlement;
and
• the reorganisation by way of a transfer of the enterprise
under judicial authority.
Below is a summary overview of the rules on the
protection of amicable settlements and on the court moratorium and
judicial reorganisation.
Amicable settlement
Any company can enter into an amicable settlement with some or all
of its creditors to address its difficult financial situation or
to reorganise its enterprise. The parties to this amicable settlement
are free to determine its content but the amicable settlement does
not affect the rights of third parties. Under the Act on Continuity,
the company can file a copy of the amicable settlement with the
court registry. The purpose of such filing is to protect the terms
of the settlement and the transactions concluded under it against
certain effects of the suspect period. The suspect period is the
period of up to six months between the effective cessation of payments
of a company and its declaration of bankruptcy. During the suspect
period, payments made in respect of undue debts are deemed ineffective
(article 17, 2° Bankruptcy Act) and transactions entered into
with a counterparty being aware of the cessation of payments may
be set aside (article 18 Bankruptcy Act). The Act on Continuity
now provides a safe haven against the risk of the amicable settlement
and the related transactions being set aside. Once filed with the
court registry, the existence of an amicable settlement can only
be revealed to, and a copy obtained by, third parties with the consent
of the company.
Judicial reorganisation
The aim of a judicial reorganisation is to maintain, under the court’s
supervision, the continuity of all or part of a stressed enterprise
or of its activities. The judicial reorganisation involves a moratorium
granted to the debtor during a period of up to six months. During
this moratorium period, the debtor will have three options:
• entering into an amicable settlement
with some of the creditors;
• obtaining the approval of a reorganisation plan involving
all creditors; or
• transferring all or part of the activity under the court’s
supervision.
Moratorium
The court can grant a moratorium to any debtor requesting it if
the continuity of that debtor’s enterprise is threatened in
the short or long term. A company meeting the conditions for bankruptcy
can also be the subject of a moratorium.
During the moratorium period, no enforcement can take
place in principle against the debtor’s assets and no bankruptcy
proceedings can be opened in respect of the debtor. Creditors will
however be able to effect set-off, enforce security over financial
collateral and enforce receivables pledges. The moratorium does
not affect the ongoing contracts but the debtor can decide, even
if not allowed contractually, not to perform the obligations under
the relevant contract (other than employment contracts) during the
moratorium if it is necessary for the purposes of the reorganisation
plan or for the transfer of the enterprise.
Judicial reorganisation by way of amicable settlement
The debtor can negotiate an amicable settlement during the moratorium
period with two or more of its creditors. This negotiation takes
place under the court’s supervision. In line with the principles
of the Civil Code, the court can impose a payment deferral. Once
agreed, the amicable settlement will be presented to the court and
the moratorium will end. The amicable settlement as presented to
the court is protected against certain effects of the suspect period
in the same way as the ordinary amicable settlement.
Judicial reorganisation by way of a collective agreement
The judicial reorganisation by way of a collective agreement starts
with a verification of all claims to be included in the reorganisation
plan. On that basis, the debtor will prepare a reorganisation plan
involving a description of the restructuring and a description of
the creditors’ rights following that restructuring. Certain
secured creditors can see their payments deferred and enforcement
rights suspended in the reorganisation plan for a period of up to
24 months on the condition that they are being paid their interest.
The reorganisation plan is then submitted to a vote and needs to
be approved by more than half of the creditors representing more
than half of the principal amount of the claims involved. If the
plan is approved and is deemed in agreement with public order, the
court will sanction the reorganisation plan and the moratorium will
end. The debtor will be held to implement and comply with the reorganisation
plan and if he fails to do so, the creditors may require the court
to revoke its approval of the reorganisation plan.
Judicial reorganisation by way of a transfer of enterprise
under court supervision
The court can order the transfer of all or part of the activity
of the debtor either with the debtor’s consent or without
such consent at the request of any interested party in the event
the debtor is bankrupt or if an attempted reorganisation of the
debtor has failed. The court will appoint a representative who will
manage the sale and transfer. During the sale and transfer process,
the court’s representative must prioritise the maintenance
activity while considering the rights of the creditors. If comparable
offers are being made, priority must be given to the preservation
of employment. Once an offer has been selected, the court will hear
the various stakeholders, including the creditors, and will approve,
where appropriate subject to conditions, or reject the sale. The
employment contracts will transfer with the enterprise but the purchaser
can decide how many employees are transferred and can renegotiate
the terms of the employment contracts. Following the completion
of the sale of the enterprise, the creditors will be entitled to
exercise their rights on the sale proceeds and the judicial reorganisation
will be closed. The remaining part of the enterprise can then be
submitted to other insolvency, reorganisation or winding-up proceedings.
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