COVID-19 drives changes to judicial reorganisation procedures
The COVID-19 crisis has emphasised the importance of having performant insolvency proceedings. As of now, new measures are in force which aim to optimise the judicial reorganisation procedure. We elaborate on the three most relevant changes.
Belgian insolvency law organises two main types of insolvency proceedings: bankruptcy (faillissement/faillite) which is a winding-up proceeding and judicial reorganisation (gerechtelijke reorganisatie/réorganisation judiciaire) which is a safeguard proceeding.
After two consecutive moratoria on bankruptcy (read more here), the latest of which expired on 31 January 2021, the legislator decided to revisit certain of the existing provisions relating to judicial reorganisation: enterprises facing financial hurdles are now offered a new instrument to facilitate their restructuring, the documentation requirements for applying for judicial reorganisation are relaxed and the beneficial tax regime applying to debt reductions is extended to debt reductions agreed as part of out-of-court amicable settlements.
These measures apply as of 26 March 2021. The first two measures are temporarily only and shall cease to apply after 30 June 2021 unless extended by Royal Decree.
The preliminary agreement
With the new preliminary agreement procedure, the legislator has, next to the already existing out-of-court amicable agreement, introduced an additional instrument, to protect the debtor during early negotiations of a restructuring with creditors. Unlike the already existing out-of-court amicable agreement, the preliminary agreement procedure is not an independent restructuring instrument. Its objective is solely to facilitate negotiations with certain creditors with the view of the opening of a judicial reorganisation procedure by way of a judicial amicable or collective agreement. The preliminary agreement is not a pre-pack agreement to transfer all or part of the activities of the debtor.
The debtor remains in possession during the “preliminary agreement” but the court appoints a judicial officer to supervise and manage the negotiation process. The judicial officer decides a.o. which creditors to include in the negotiations.
As the “preliminary agreement” is an out-of-court procedure, the rights of creditors are in principle not affected during the negotiations. However, to prevent that enforcement actions could endanger the continuity of the business, the judicial officer can request, by means of an inter partes petition, the court to impose payment terms or a suspension of enforcement on creditors, each for a maximum period of four months. Any such measures can apply to all types of creditors, including creditors who are not participating in the negotiations and those not subject to the moratorium in a subsequent judicial reorganisation procedure. When assessing the request, the court considers the debtor's situation and the potential impact for the affected creditors.
If negotiations are successful, a judicial reorganisation by amicable settlement or by collective agreement is opened. Since the consent to the agreement has already been prepared, the law provides for a shorter timeframe for the ensuing procedure. Once the file is submitted, the court must open the judicial reorganisation procedure within 5 working days. Subsequently, for an amicable settlement the date of the homologation hearing must be scheduled within one month from the opening. For collective agreements, the homologation hearing must be scheduled within no more than three months.
Upon the file being submitted to the court the general protective measures of a judicial reorganisation will apply, including the suspension of the obligation for the company’s directors to file for bankruptcy.
Making judicial reorganisation more accessible
Currently, an application for a judicial reorganisation is only valid if the company submits a series of documents, some of which may not be readily available, and are onerous and time-consuming to prepare or collect, as they require the assistance of auditors.
To deal with this concern, the sanction of invalidity of the request to open a judicial reorganisation for reason of missing documents has been lifted. Instead certain documents may be delivered at a later stage, or, subject to motivation, certain documents can be omitted.
Alignment of tax regime
Belgian insolvency law used to provide for a beneficial tax regime for debt reductions agreed as part of a judicial amicable or collective agreement. From now on, the beneficial regime also applies to debt reductions agreed as part of out-of-court amicable agreements, provided these are homologated by the court. Consequently, deprecations and provisions on receivables from co-contractors resulting from an out-of-court amicable agreement shall benefit from a tax exemption during the taxable period until the plan or the settlement has been fully implemented, or until the closure of the procedure.
Marc VermylenManaging Partner Belgium Attorney at Law
Marc Vermylen is Managing Partner of Loyens & Loeff Brussels. He is a member of Loyens & Loeff’s Banking & Finance Practice Group and heads the global Projects Team at Loyens & Loeff. He is recognised worldwide as an expert and influential lawyer in banking law and finance law.T: +32 2 743 43 15 M: +32 475 52 31 66 E: firstname.lastname@example.org
Vanessa MarquettePartner Attorney at Law
Vanessa Marquette, attorney at law, is a partner in the Banking and Finance Practice Group of our Brussels office and a member of the firmwide Restructuring & Insolvency team. She is recognized for her expertise in Banking and Finance with a focus on international finance law, regulated financial services, sustainable finance and banking litigation.T: +32 2 773 23 25 E: email@example.com
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