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Insolvency procedures

Procedures
What are the main insolvency procedures applicable to companies in your jurisdiction?
 

  • Bankruptcy
  • Judicial reorganisation
  • Voluntary liquidation

Bankruptcy – If a company ceases to pay its debts and can no longer obtain credit, its directors, a creditor, the public prosecutor, an administrator or other insolvency officer can apply to the court for its bankruptcy. If the court declares the company bankrupt, it appoints a receiver who realises the assets of the company (either as a going concern or piecemeal) and distributes the proceeds to its creditors.

Judicial reorganisation – A financially distressed company can apply for a judicial reorganisation with the object of rescuing the company. There are four types of judicial reorganisation, one being a flexible out of court agreement with creditors and the others with more specific purposes (consensual agreement, collective reorganisation plan, sale of all or part of enterprise) closely supervised by the court.

Voluntary liquidation – This is an alternative to a court-controlled bankruptcy proceeding. In an ordinary voluntary liquidation the shareholders control the liquidation.

Moratorium
Can a company obtain a moratorium whilst it prepares a restructuring plan?

Yes, in a judicial reorganisation, a moratorium of up to six months can be granted (starting on the date of the court’s order for a judicial reorganisation).

Directors
To what extent do the directors of the company remain in control of its affairs during any of the above procedures?

In a bankruptcy the court appoints a bankruptcy trustee (curator/curateur) to manage the company, subject to the supervision by a judge-delegate. In high value or complex cases a committee of trustees is appointed.

In a judicial reorganisation, the directors remain in control of the company, however, the court can appoint a ‘judicial agent’ (gerechsmandatari/mandataire de justice) to assist the company in its reorganisation if a creditor (or a third party) demands it and the court finds this useful. 

In a voluntary liquidation a liquidator appointed by the shareholders manages the company.

Timeline to commence liquidation
How quickly can a creditor generally commence the liquidation of an insolvent company, assuming an undisputed claim and no opposition from the company?

Three to four weeks.

Overseas proceedings
Do your courts recognise insolvency proceedings commenced in the courts of another jurisdiction?

Insolvency proceedings commenced in the courts of other EU members states will be automatically recognised under the EC insolvency regulation.

A foreign insolvency procedure commenced in a jurisdiction that is not an EU member state can be recognised and enforced by the Belgian courts if:

  • it is not contrary to public policy to do so
  • rights of any defendant are safeguarded
  • the foreign judgment is final
  • the assumption of jurisdiction by the foreign court is not contrary to principles of Belgian law

Position of creditors

Forms of security
What are the main forms of security over movable and immovable property?

Security over immovable property is taken by a mortgage.

Security over movable property is taken by:

  • a specific pledge over that property
  • a general pledge over a company’s business

Preferential status
Which classes of creditor are given preferential status? Are any classes subordinated?

The fees and expenses of the bankruptcy are super secured and rank ahead of all other creditors including secured creditors.

The costs of contracts entered into during judicial reorganisation rank ahead of other unsecured creditors.

Unpaid wages, employee compensation, social security contributions and taxes have general privilege and rank ahead of other unsecured creditors.

Treatment of foreign creditors
Are foreign creditors treated equally to domestic creditors?

Yes.

Termination of contract by reason of insolvency
Are contract terms permitting termination of the contract by reason of insolvency valid?

Yes.

Retention of title
Are retention of title clauses effective?

A retention of title clause is effective if it is agreed in writing prior to delivery and the goods:

  • are still in the physically possession of the company
  • are not fixed to land such that they have become immoveable property
  • are not mixed with other goods

Setting aside transactions

Transaction avoidance provisions
What are the main transaction avoidance provisions, and who can challenge transactions?

The bankruptcy trustee can challenge any fraudulent transactions that are prejudicial to the interests of the company’s creditors regardless of when they occurred.

The bankruptcy trustee can only challenge other transactions if they were entered into during the ‘suspect’ period. The suspect period is the period from when the company ceases to pay its debts until the time when the court declares the company bankrupt. There is a rebuttable presumption that these dates are the same, however, the court can decide that the company ceased to pay its debts on an earlier date. In which case the following types of transaction can be avoided on the application of the backruptcy trustee:

  • gift
  • transaction at an undervalue
  • grant of security in respect of pre-existing indebtedness
  • any transaction where the counterparty was aware that the company had ceased to pay its debts at the time of entering into the transaction
  • payment of a debt not yet due
  • any payment made by means other than cash or cash equivalent, eg payment in kind

Position of directors

Risks for directors
What are the risks facing the directors of an insolvent company?

Directors can be held civilly liable for the following actions:

  • breach of their mandate to manage the company
  • breach of fiduciary duties owed to the company
  • breach of the Belgian Company Code
    • failure to hold a shareholders meeting when the company’s net assets fall below 50% of share capital
    • failure to present annual accounts to a shareholders meeting
  • breach of the company’s articles of association
  • serious fault which contributes to the company’s insolvency
  • failure to pass on social security contributions deducted from employee wages to the state

Directors can be held criminally liable for:

  • concealment or destruction of the company’s assets
  • concealment or falsification of the company’s books and records
  • causing the company to make unauthorised gifts
  • reckless transactions to postpone insolvency
  • false accounting
  • abuse of the company’s assets

The court can disqualify a person from acting as a director if he is found liable for:

  • fraudulent bankruptcy
  • serious fault contributing to the company’s insolvency