On 9 February 2009, the Act of 31 January 2009 on the continuity of companies (Loi relative à la continuité des entreprises/Wet betreffende de continuïteit van de ondernemingen, the "Act") was published in the Belgian State Gazette.
The Act – which actually consists of two separate acts for technical reasons - will replace the unsuccessful Act of 17 July 1997 on composition with creditors.
While the Act introduces numerous changes, its core achievement is undoubtedly the provision of flexible tools to facilitate business recovery. This flexibility is reflected, for example, in access to proceedings, the options made available to debtors and creditors, the possibility to switch from one solution to another (e.g. from reorganisation to sale) with relative ease and the timing. The legislature – backed by a committee of practitioners - seems to have understood that this type of legislation is closely tied to the economy and should be limited to creating a statutory framework and legal certainty rather than providing for strictly regulated proceedings and tight deadlines, an approach which has indeed proven to be ineffective in saving economic activity and jobs.
One option introduced by the Act is recognition for out-of-court workouts, i.e. a settlement negotiated by the debtor with a number of its creditors (at least two) with a view to reorganising its business. While such contractual solutions have always been possible, the Act now provides that payments resulting from such agreements cannot be undone, in the event of later bankruptcy, by claw-back provisions based on the debtor's poor financial situation and its creditors' knowledge thereof at the time of payment. An agreement reached without judicial involvement must simply be filed in a register with the competent court but will remain confidential (third parties cannot access it). Unlike under the old legislation, the debtor can also first seek protection (a stay of proceedings or enforcement measures) before negotiating a reorganization plan with some or all of its creditors. In that case, the court's role is to confirm the plan in its judgment and close the reorganisation proceedings.
The second option for a debtor filing for reorganisation is a traditional reorganisation plan formally drafted and approved under court supervision. Such a plan can provide for a wide variety of measures in order to redress the debtor's financial situation. The maximum period of validity is now five years (it was three years under the old act). Furthermore, the plan must be approved by a majority of creditors representing half the outstanding claims and can only detract in a limited way from the rights of secured and mortgage creditors.
The third option - to which the debtor, its creditors or even the public prosecutor can turn at any time during the course of proceedings - is the transfer of the debtor's activities to a third party. This means of reorganisation is likely to become more popular as a result of a new provision on the transfer of employees. While the new provision (Article 61) reflects the usual delicate and hard-fought balance between employees' and employers' rights, it clearly recognises the principle that the purchaser can choose the employees it wishes to have transferred along with the business. Such choice must be based on technical, economical and organisational criteria, without discrimination (e.g. against trade union representatives). Given that the social costs and budget for employment-related measures in Belgian companies often hinder restructuring, the ability to control the transfer of employees is crucial to ensuring a transfer of business as viable reorganisation tool. A court-supervised sale can be either a final remedy (failing a settlement or court-approved reorganisation plan) or the debtor's first resort.
Access to each of these options is granted in the same way: the debtor must file a petition to open reorganisation proceedings. As soon as the court opens the proceedings, the debtor is protected against petitions for bankruptcy or liquidation and enforcement measures against its assets. The new legislation abolishes the conditions pursuant to which the courts previously granted access to reorganisation proceedings. The debtor must now simply establish that the continuity of its business is threatened in the short or long term. This will be deemed to be the case if the company's net asset value has dropped below 50% of its share capital. In principle, all existing contracts will continue in force during the reorganisation proceedings. However, the debtor can suspend the performance of these agreements (with the exception of employment contracts) provided suspension is necessary to allow a reorganisation plan to be drawn up or to facilitate a transfer under judicial supervision.
The total period during which the debtor can in principle try to reach any of the abovementioned outcomes under the protection of reorganisation proceedings is 6 months, which can be extended to 12 months (and increased by an additional six-month period in the event of extraordinary circumstances).
The Act also introduces new positions on the court's side: company mediator, court representative and delegated judge.
The Act will enter into force on a date to be determined by royal decree but in any event no later than 6 months after its publication in the Belgian State Gazette, i.e. no later than 9 August 2009. However, the long-awaited Act is expected to enter into force somewhat earlier, on 1 April 2009.