Types of liquidation and reorganisation processes

Voluntary liquidations

What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

A voluntary winding-up takes place when the general assembly of a company’s shareholders decides to dissolve the company in accordance with its articles of association. Generally, such a decision requires the same quorum and majority as is required for any change to the articles of association of the company. The only exception to this rule applies when the company has lost more than three-quarters of its share capital, in which case the decision to dissolve the company can be taken by one-quarter of the members present or represented at the shareholders’ meeting.

Following the decision to dissolve the company, one or more liquidators must be appointed to manage the liquidation of the company. Under the Belgian Code of Companies and Associations, the appointment of the liquidators must be confirmed by the court in the case of a deficit liquidation. As from the appointment of the liquidators, the company will be deemed to continue to exist for liquidation purposes only. As from the date of the decision to dissolve the company, all unsecured creditors are entitled to equal treatment, meaning that they will receive payment of their debts on a pro rata basis. A voluntary liquidation in accordance with the company’s articles of association presumes, however, that there are sufficient assets to cover all claims.

Voluntary reorganisations

What are the requirements for a debtor commencing a voluntary reorganisation and what are the effects?

The Belgian Code of Economic Law (the Insolvency Act) provides for two types of voluntary reorganisations: an amicable settlement without any court involvement (or just for the appointment of a mediator) and judicial reorganisation proceedings under the supervision of the courts.

 

Amicable settlement

Any debtor can enter into an amicable settlement with some or all of its creditors to address a difficult financial situation or to reorganise its business, and ask for the appointment of a mediator if necessary. 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 Insolvency Act, the debtor or another party 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’. In other words, the Insolvency Act provides a safe harbour against the risk of the amicable settlement and the related transactions being set aside in a subsequent bankruptcy proceeding.

 

Judicial reorganisation

The aim of a judicial reorganisation is to maintain, under the court’s supervision, the continuity of all or part of the debtor’s business or of its activities. Judicial reorganisation proceedings can only be started if the continuity of the debtor’s business is threatened in the short or long term. A company meeting the conditions for bankruptcy can also apply for a judicial reorganisation procedure. A request for judicial reorganisation is subject to substantial information and documentation requirements to limit abuse. The judicial reorganisation involves a moratorium granted in favour of the debtor for a period of up to six months. During this 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. The three new court-supervised reorganisation processes are as follows.

 

Judicial reorganisation by way of amicable settlement

The negotiations of this settlement take place under the court’s supervision (through a delegated judge). Once agreed, the amicable settlement will be presented to the court and the moratorium will end. Once sanctioned by the court, the amicable settlement is protected against certain effects of the suspect period in the same way as the out-of-court amicable settlement. The same principles with regard to out-of-court amicable settlements apply, except that an amicable settlement under court supervision is not confidential and will be published and that enforcement measures are suspended during the negotiations.

 

Judicial reorganisation by way of collective agreement

A judicial reorganisation by way of a collective agreement starts with a verification of all claims to be included in the reorganisation plan. As such, the debtor will prepare a reorganisation plan involving a description of the restructuring and a description of the creditors’ rights following the implementation of that restructuring. Also, secured creditors may see their payments deferred and enforcement rights suspended as a consequence of the reorganisation plan for a period of up to 24 months starting on the date of the filing of the plan on the condition that they continue to be paid their interest during this period. The reorganisation plan must provide for at least a partial repayment of the creditors, meaning that at least 20 per cent of each debt must be repaid to each creditor. The reorganisation plan is then submitted to a vote and must 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, the court will sanction the reorganisation plan and the moratorium will end. The debtor will then be required to implement and comply with the reorganisation plan and if he or she 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 business under court supervision

The court can order the transfer of all or part of the business of the debtor either with or without the debtor’s consent at the request of any interested party if the debtor is bankrupt or if an attempted reorganisation of the debtor has failed. A specific regime for the transfer of specific ongoing contracts is in place when the reorganisation takes the form of a transfer of business. Following the decision by the Court of Justice of the European Union of 16 May 2019, all employees should be transferred to the acquirer in the context of a judicial reorganisation procedure under judicial authority.

Successful reorganisations

How are creditors classified for purposes of a reorganisation plan and how is the plan approved? Can a reorganisation plan release non-debtor parties from liability and, if so, in what circumstances?

To be effective, the plan in the framework of a judicial reorganisation by way of collective agreement must contain two key sections:

  • a section describing the status of the company (such as the financial structure of the company, its different areas of business and their profitability, the quality and motivation of management), the difficulties it faces and how the debtor intends to resolve them; and
  • a section containing the necessary measures to pay off its debts. Such measures may include deferral or reduction of principal or interest, conversion of debt to equity, the rescheduling of payments or a restricted right to set off claims. Secured creditors may see their payments deferred and enforcement rights suspended for up to 24 months, on the condition that they continue to be paid their interest.

 

The reorganisation plan is then submitted to a vote and must 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, the court will sanction the reorganisation plan and the moratorium will end. The debtor will then be required to implement and comply with the reorganisation plan and if it fails to do so, the creditors may require the court to revoke its approval of the reorganisation plan.

A reorganisation plan may also release non-debtor parties, such as sureties and guarantors from their obligations or liabilities to the company’s creditors.

Involuntary liquidations

What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

Creditors can request the court to terminate any ongoing judicial reorganisation proceedings when it is manifest that the debtor can no longer preserve the continuity of its business. In that case, the court may decide to declare the debtor bankrupt or to force the debtor into judicial liquidation proceedings. If the debtor is not in a judicial reorganisation procedure, creditors can place a debtor in bankruptcy by serving a writ of summons before the enterprise court. Petitioners are required to demonstrate that the conditions for bankruptcy are met, that is, that the debtor has ceased in a persistent manner to pay its debts, and is no longer able to obtain credit.

When serious, precise and congruent evidence shows that conditions for bankruptcy are met, a creditor may also make an ex parte application for an order that the debtor is no longer entitled to manage its assets (temporary divestiture) for a period of 21 days, after which a formal request for bankruptcy, judicial dissolution or judicial reorganisation must be submitted to the court.

Belgian corporate law also provides the possibility for third parties to request the dissolution, and hence the liquidation, of a company in certain cases:

  • if the net assets are lower than the minimum share capital (only for companies that have a minimum share capital requirement);
  • if the company has not filed its annual accounts in accordance with the Belgian Code of Companies and Associations;
  • if the company is removed from the Crossroads Bank for Enterprises;
  • if, despite two convocations 30 days apart, the company has not appeared before the Chamber of Distressed Companies (which is a special chamber within the enterprise court, specifically dedicated to supervising distressed companies); and
  • if there is a lack of fundamental managing qualifications or professional certification required by law.

 

In the case of bankruptcy, the estate of the company or the individual will be liquidated. However, the Belgian Judicial Code enumerates a certain number of assets that are excluded from insolvency proceedings involving an individual. Once the available assets of the company have been fully realised (whether or not they are sufficient to meet its outstanding debts), it will cease to exist by operation of law. If the debtor is a natural person, he or she may be discharged by the court for the unpaid debts remaining after the bankruptcy and the Insolvency Act explicitly provides for an exclusion of any assets or income acquired by the debtor after the bankruptcy decision to encourage a second chance for the debtor.

Involuntary reorganisations

What are the requirements for creditors commencing an involuntary reorganisation and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

A request for a judicial reorganisation procedure can, in principle, only be filed by the debtor. Third parties may not launch the request on behalf of the debtor. In an exceptional case, an interested third party may, on its own initiative, initiate the judicial reorganisation, namely, through a writ of summons for the transfer under judicial authority.

There are, however, important exceptions to this principle:

  • the public prosecutor, a creditor or any interested buyer can ask the court to transfer all or part of the debtor’s business, if:
    • the debtor is bankrupt and has failed to file a request for a judicial reorganisation;
    • the court refuses to grant a judicial reorganisation procedure, decides to close it before it is completed or revokes the reorganisation plan;
    • its creditors do not approve the reorganisation plan; or
    • the court refuses to ratify such a reorganisation plan; and
  • if there are events giving rise to an ability to manage the business or if there are manifest shortcomings on the part of the debtor (or its management bodies) that are threatening the continuity of its business or its economic activities, the public prosecutor, the debtor or any interested party may request the court to appoint an administrator. The court will determine the content and the mandate of the administrator and it is possible that in the framework of such mandate, the administrator could prepare the initiation of a judicial reorganisation procedure.

 

If the debtor (or its management bodies) have made a manifest grave error during the reorganisation proceedings, the judge may appoint a temporary administrator during the moratorium period.

Further, the auditor of a company will be required to inform the board or management body of that company of any material circumstances that might jeopardise the company’s continuity. If the company does not take any measures to remedy the situation, the auditor may inform the court thereof.

Expedited reorganisations

Do procedures exist for expedited reorganisations (eg, ‘prepackaged’ reorganisations)?

Until recently such expedited (pre-packaged) reorganisations were not possible under Belgium law. However, the insolvency act was amended pursuant to the law of 21 March 2021 modifying the Belguim Insolvency Act ( the Pre-Pack Law) and pursuant to the Pre-Pack Law (among others) a pre-packaged reorganisation procedure (Pre-Pack), the so-called "preparatory agreement" (voorbereidend akkoord/accord preparatoire) was introduced in the Insolvency Act. The Pre-Pack is a court-authorised and court-supervised confidnetial negotiation phase (the Pre-Pack Phase). If the Pre-Pack Phase is sucessful, the process will be converted into regular but expedited public judicial reorganisation procedure.

The new Pre-Pack process conists of the following steps:

  • Initiation of the Pre-Pack:
    • A debtor-company may initiate the Pre-Pack procedure by filing a unilateral petition with the president of the competent enterprise court, if the debtor-company’s business continuity is threatened immediately or in time.
    • The petition will be decided upon by the president of the enterprise court in a confidential hearing. The decision is not published and cannot be opposed by third parties.
    • If the Pre-Pack petition is approved, the president will appoint a judicial administrator.

 

  • During the negotiation phase (Pre-Pack Phase):
    • The debtor remains in control of its business and its assets and may terminate the Prep-Pack procedure at any time. The debtor will however need to hand over certain powers in relation to the reorganisation process to the judicial administrator.
    • The negotiations are conducted by the judicial administrator. The judicial administrator will (among others) decide which creditors to include in the negotiations, will itself participate in the negotiations, will issue a report to the delegated judge appointed by the court to supervise the process and will, once an agreement is reached, request the court to initiate the judicial reorganisation phase.
    • The aim of the negotiations is to come to (i) an amicable settlement with two or more of the debtor’s creditors (and only binding on such creditors), or (ii) a collective restructuring plan which requires the approval of a (double) majority of the creditors (more than half of the creditors representing more than half of the principal amount of the claims involved) in order to become binding upon all creditors of the debtor.
    • During the Pre-Pack Phase, there is no automatic moratorium or stay on enforcement by creditors, but at the request of the judicial administrator, the president of the enterprise court may subject creditors to payment terms and/or conditions as well as stay enforcement measures for the duration of such payment terms or conditions (with a maximum of four months).

 

  • After the negotiation phase:
    • If a preparatory agreement is reached, the president of the enterprise court will refer the matter to the insolvency chamber for the formal opening of judicial reorganisation proceedings.
    • Subsequently, an amicable settlement may be sanctioned by the court, or the collective restructuring plan may be put to the creditors’ vote.
    • The judicial reorganisation proceedings are expedited and should last no longer than one month in case of an amicable settlement or three months in case of a collective restructuring plan.
    • As of the referral to the insolvency chamber, the debtor will enjoy the full moratorium offered by the formal judicial reorganisation proceedings whereby enforcement measures against the company’s assets will in principle be suspended.

At the moment, the Pre-Pack Law has only temporarily introduced the Pre-Pack under Belgian law. Initially the Pre-Pack Law would cease to apply on 30 June 2021, but this has already been extended by Royal Decree until 16 July 2022. It will have to be seen whether the expiry date will be further postponed and whether the Pre-Pack will permanently be introduced under Belgian law.

Unsuccessful reorganisations

How is a proposed reorganisation defeated and what is the effect of a reorganisation plan not being approved? What if the debtor fails to perform a plan?

A judicial reorganisation will fail if, during the moratorium, it becomes clear that the debtor can manifestly no longer preserve the continuity of its business. The court may then order the termination of the moratorium period at the request of the debtor, the public prosecutor, or any other interested party. The court will also be entitled to declare the company bankrupt or to put it into liquidation proceedings.

A reorganisation plan may be refused by creditors and if there are more than half of the creditors representing more than half of the principal amount of the claims involved, the plan cannot be pursued by the debtor. The judge may also refuse to file the plan if it does not respect the formalities provided for by the Insolvency Act or if it is against the public order. Once again, the plan cannot be pursued in this case, even if enough creditors voted in favour of it.

If a creditor or the public prosecutor can prove that the debtor is not carrying out the recovery plan, that the debtor will not pursue the execution of the plan and that damages will result from the non-execution or that a creditor or group of creditors are being unfairly prejudiced by the plan, the reorganisation may be ended by the judge.

Corporate procedures

Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

Belgian company law provides for voluntary dissolution and liquidation. Involuntary dissolution and liquidation may be ordered by the enterprise court in the following cases:

  • at the request of any interested party or the public prosecutor if the company has failed to file its annual accounts;
  • at the request of any interested party if the net assets of the company drop below the minimum share capital (only for companies that have a minimum share capital requirement);
  • at the request of any interested party if the company has been removed from the Crossroads Bank for Enterprises;
  • at the request of any interested party if, despite two convocations 30 days apart, the company has not appeared before the chamber of distressed companies; or
  • at the request of any interested party if there is a lack of fundamental managing qualifications or professional certification required by law.

 

In all these cases, liquidators are obliged to pay out to the creditors in accordance with the principle of equal treatment, subject, however, to the rights of secured creditors or creditors benefiting from a specific statutory lien. This process is similar to bankruptcy proceedings, with the exception that the court is not, in principle at least, involved in the liquidation proceedings, which are held on an informal basis.

Also, a corporation that has been dissolved and is in the process of being liquidated can still be declared bankrupt if the conditions for bankruptcy are met.

Conclusion of case

How are liquidation and reorganisation cases formally concluded?

Voluntary or involuntary liquidation other than bankruptcy

Where a company has been liquidated either voluntarily or involuntarily, the liquidation will end with a distribution to the shareholders of all the assets that remain (if any) after debts have been paid or provided for. The liquidators will call a general meeting of shareholders to which the liquidators submit the final accounts and at which the shareholders appoint commissioners to review the accounts. At a second general meeting, the shareholders review the way the liquidators have performed their duties based on a report presented by the commissioners. The formal termination of the liquidation will be published and filed in the company’s official record at the enterprise court. A simplified procedure exists in case the company has no debts outstanding.

 

Conclusion of bankruptcy liquidation

A bankruptcy may be terminated by the court (ex officio or at the initiative of the bankruptcy trustee) when the assets will not cover the expenses of handling the bankrupt estate. Extracts of the judgment ordering the termination will be published in the Belgian State Gazette. As a consequence of that decision, the bankrupt company will immediately be dissolved.

Termination of the bankruptcy after a full liquidation of the assets is only ordered by the court at the request of the bankruptcy trustee. The bankruptcy trustee will make the request following a final creditors’ meeting where the final accounts of the liquidation are presented and discussed, and after the final distribution of the liquidation proceeds. The debtor will be notified of the trustee’s application and will have the opportunity to oppose the closure. The termination order will only come into force one month after its publication, during which time the court may withdraw the order at the request of the creditors.

Some assets are excluded from the bankruptcy assets by the Insolvency Act. Such assets include the goods, amounts and payments that the debtor receives after the bankruptcy declaration and that are related to the debtor’s activities occurring after the bankruptcy. This is to promote a second chance for the debtor. Applying the same reasoning, a bankrupt individual (as opposed to a company) is discharged from any remaining debt if it asks for this discharge. The guarantors also benefit from this discharge.

The termination order relating to the bankruptcy of a company causes the immediate dissolution of the company. Extracts of the order will be published in the Belgian State Gazette.

 

Conclusion of a judicial reorganisation

A judicial reorganisation is concluded by:

  • the court concluding that the debtor can manifestly no longer assure the continuity of its business (ie, that the debtor is unable to enter into an amicable settlement or a collective agreement with its creditors);
  • an agreed amicable settlement presented to the court;
  • the full performance of the reorganisation plan;
  • the revocation of the reorganisation plan by the court;
  • the completion of the sale of the business; and
  • a declaration of bankruptcy or liquidation.

 

Conclusion of a Pre-Pack Phase

If the Pre-Pack Phase is successful and a preparatory agreement is reached, the president of the enterprise court will refer the matter to the insolvency chamber for the formal opening of expedited judicial reorganisation proceeding (as mentioned earlier).

An (unsuccessful) Pre-Pack Phase may be terminated at any time by the debtor company. It can also be terminated at the request of the judicial administrator or by the court (ex officio) after a hearing with the debtor-company and the delegated judge.