On 6 November 2008, the Belgian House of Representatives adopted a bill on the continuity of companies. Although the Senate has exercised its right to examine the bill and may propose amendments until 26 January 2009, we thought it useful to go ahead and address this new bill, which will replace the Act of 17 July 1997 on composition with creditors (Wet op het gerechtelijk akkoord/Loi sur le concordat judiciaire).
The bill is intended to provide a more flexible legal framework for companies in financial difficulty in order to facilitate their restructuring, on the one hand, and more guarantees to creditors in order to prevent abuse, on the other hand.
The bill’s scope of application is broader than that of the Act of 17 July 1997: it applies not only to merchants (commercant/handelaar) (both natural and legal persons) but also to agricultural companies (landbouwvennootschappen/sociétés agricoles) and civil companies with a commercial form (burgerlijke vennootschappen met een handelsvorm/sociétés civiles à forme commerciale). It does not apply to associations or the liberal professions.
The preventive measures provided for by the Act of 17 July 1997, i.e. the collection of information with respect to debtors whose problems are liable to endanger the continuity of their business and commercial investigation (handelsonderzoek/enquête commerciale) will be maintained under the new legislation.
In addition, the bill provides for the possibility to appoint an ombudsman (ondernemingsbemiddelaar/médiateur d’entreprise) to facilitate the reorganisation of a company. This neutral and independent expert shall assist the company in analysing its problems and coming up with solutions but shall have no decision-making authority.
The bill further provides that the court can appoint an administrator (gerechtsmandataris/mandataire de justice) at the request of any interested party if obvious and serious shortcomings on the part of the debtor company or its bodies endanger the continuity of its business.
Voluntary settlement (minnelijk akkoord/accord amiable)
The old Composition Act does not provide for the possibility for a debtor to conclude freely negotiated agreements. As this aspect was heavily criticized, the new bill allows debtors to propose to two or more of their creditors a voluntary settlement with a view to restructuring its financial situation or reorganising its business. Such an arrangement is contractual in nature and the content thereof can be freely determined by the parties. It is not binding on third parties. Of course, creditors will only accept a voluntary settlement if the payments made thereunder are not capable of being questioned and undone in the event of bankruptcy. Therefore, the bill provides that any acts concluded further to a voluntary settlement during the so-called claw-back period (verdachte periode/période suspecte) prior to bankruptcy shall be enforceable against other creditors.
If preventive measures and informal reorganisation do not suffice to restructure the undertaking, the bill provides for a so-called judicial reorganisation procedure. This new procedure is intended to be less costly and more flexible.
In this framework, the debtor may obtain a six-month moratorium on payments, which may be extended to 12 months or, in certain circumstances, even 18 months in order to (i) conclude a voluntary settlement with two or more creditors, (ii) obtain the collective approval of the creditors’ meeting of a recovery plan, or (iii) transfer the undertaking or its activities, in whole or in part. These options may be combined and (within certain limits) amended.
A moratorium on payments may be granted if the continuity of the undertaking is in immediate jeopardy or if its long-term survival is threatened.
The bill does away with the position of temporary receiver (commissaris inzake opschorting/commissaire en sursis). Instead a deputy judge (gedelegeerd rechter/juge délégué) is appointed to supervise the undertaking during the proceedings and keep the commercial court informed. Moreover, the undertaking may be assisted by a court-appointed administrator (gerechtsmandataris/mandataire de justice).
Unlike under the Composition Act, the judge may not deprive the debtor of its managerial and decision-making authority at its own initiative. The judge may appoint an administrator (voorlopig bestuurder/administrateur provisoire) only in the event of obvious and serious shortcomings or obvious bad faith on the debtor’s part.
For the duration of the moratorium on payments, the undertaking may not be declared bankrupt and (if it is a legal person) cannot be dissolved. In addition, sequestration of or execution against the debtor’s movable and immovable property is not possible. Ongoing agreements are not automatically terminated, but the debtor may, under certain circumstances, decide no longer to perform them, with the exception of employment contracts. Penalty and interest clauses that provide for the payment of lump-sum damages for breach of contract shall be deemed without effect. However, creditors may always claim damages for any harm actually suffered. Set-off of claims is allowed provided the claims are related. This is without prejudice to the relevant provisions of the Collateral Act of 15 December 2004, which remains entirely in force. In addition, it should be noted that the tax authorities’ preferred lien (established by the old Composition Act) is abolished.
As regards the various options, it should be noted that the recovery plan with creditors may provide for a five-year execution period (rather than two years, extendable to three, under the old Composition Act). With respect to the transfer in whole or in part of the undertaking or its activities, a distinction is made between voluntary transfers with the debtor’s consent and involuntary transfers, which may be ordered by the court in certain circumstances.
Finally, the bill contains special provisions designed to protect employees. These will apply until a collective bargaining agreement is concluded within the National Labour Council. Under the current rules, employees who are transferred keep their rights and their employment contracts are transferred automatically to the buyer. However, the employees or their representatives may agree to other employment conditions with the administrator or the buyer. The seller or administrator must inform the buyer of all employment-related obligations. The buyer is only liable for obligations of which it was informed. If the information provided is incorrect, the employees may claim damages from the seller. In this way, the bill strives to protect the interests of both employees and employers (buyers).