As discussed in our previous update, the Business Continuity Act of 31 January 2009 (the “Act”) provides for various options to facilitate business recovery. One such option is the court-supervised sale of (all or part of) the debtor’s business.
The introduction of the court-supervised sale is an important development. Such sales are likely to become a popular option under the Act for two reasons.
Firstly, the Act allows only certain activities of the debtor to be sold. In this way, economically viable activities can be separated from the distressed company and more easily continued.
Secondly, the Act contains a new provision regarding the transfer of employees. Whilst the new provision 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. Given that the salary costs and budget for employment-related measures in Belgian companies often hinder restructuring, the ability to control the transfer of employees is crucial to ensure a viable reorganisation. The provisions of the Act on the transfer of employees will be discussed in more detail in an upcoming update.
Consequently, this option may become a real alternative to bankruptcy.
The Act provides for both voluntary and mandatory court-supervised sales.
Voluntary sale of business
A voluntary sale is requested by the debtor itself in the context of a court-supervised reorganisation. It can be requested either at the start of the proceedings, in the initial petition, or at any time during the course of the proceedings if it appears that it will not be possible to conclude a mutual agreement with creditors or a court-approved reorganisation plan (see our previous updates of 15 April and 4 June 2009).
Mandatory sale of business
In the following cases, any creditor, the public prosecutor’s office or any party having a legitimate interest in acquiring the business, including competitors, may request the mandatory sale of (all or part of) the debtor's business:
- the debtor is in a state of bankruptcy but has not filed for a court-supervised reorganisation;
- the court rejects the opening of court-supervised reorganisation proceedings, orders the early termination thereof or revokes the reorganisation plan;
- the debtor’s creditors reject the reorganisation plan; or
- the court refuses to ratify the reorganisation plan.
Procedure for a voluntary or mandatory sale of business
In the judgment ordering the (voluntary or mandatory) sale of the business, the court will appoint a representative (gerechtsmandataris/mandataire de justice) to carry out the sale on the debtor’s behalf. The judgment may contain instructions to the representative as to which part of the business is to be sold or may leave this to the representative’s discretion. In order to give the court-appointed representative sufficient time to organise the sale, the court can order an additional suspension of payments of up to six months from the date of its judgment.
The representative organises and carries out the sale of the business or selected activities. For instance, the representative calls for bids and compares the bids of all potential buyers, while aiming to safeguard all or some of the activities and taking into account creditors’ rights. If there are similar bids, the court-appointed representative shall select the bid which best guarantees employment. The representative is also responsible for drafting the sale and purchase agreement and related instruments, as the case may be.
The holders of mortgages on real property to be sold or a floating charge (pand op handelszaak/gage sur fonds de commerce) on the business must be consulted in advance. They can petition the court to make the sale subject to certain conditions, such as a minimum sales price.
The court-appointed representative shall request court approval to proceed with the sale. The court shall give the green light if it concludes that, given the circumstances, the rights of creditors are respected and employment is guaranteed.
The creditors shall be paid from the proceeds of the sale, which shall be distributed amongst them in accordance with the applicable rules set out in the Belgian Judicial Code. Secured creditors shall have priority to the proceeds up to the amount of their claim or the value of the assets that secured their claim, whichever is less.
Once all transfers have been realised, the court-appointed representative shall petition the court to close the proceedings.
As from the closing date of the proceedings, the buyer shall not be liable for any obligations related to the acquired business which arose prior to closing, except for those specifically mentioned in the sale and purchase agreement. Therefore, it is of the utmost importance that the agreement be precisely drafted in order to avoid discussions afterwards.
The Business Continuity Act contains provisions designed to guarantee the tax neutrality of voluntary and mandatory sales of distressed businesses. Please be on the lookout for an upcoming update on the tax aspects of the Act.