The Act of January 31, 2009 on the continuity of companies (Loi relative à la continuité des enterprises/Wet betreffende de continuïteit van de ondernemingen, the "Act") entered into force on April 1, 2009.
According to the Royal Decree of March 27, 2009 fixing the date of entry into force, a swift entry into force was necessary in view of the current financial crisis, in order to create new legal tools for business recovery. The majority of the (few) applications filed under the old Act on Judicial composition resulted in bankruptcy instead of recovery. Beside the lack of a "rescue culture" with the Courts and in the business community, the failure of the old Act was due to the rigid and complex nature of the proceedings, the lack of flexibility and economics in its approach, the high costs of the procedure and the unattractive labour law provisions in case of transfer of business.
The new Act attempts to address these problems. Its core achievement is to facilitate business recovery by enabling the debtor to choose from a range of in-court and out-of-court options and to switch from one option to another with relative ease. The three main options for a debtor are:
- an amicable settlement with two or more creditors with a view to the restructuring of the debtor's liabilities;
- a reorganisation plan, to be approved by the creditors and the court;
- a transfer of (the viable part of) the debtor's business under court supervision.
Given the particular importance of this legislation in the current times and the novel character of this legislation entirely replacing the old Act, NautaDutilh will provide you with various newsflashes in order to properly inform you on the following selected topics of this new important Act.
The new Act promotes the conclusion of amicable settlements between the debtor and two or more creditors in order to facilitate the recovery of business. This Newsflash will for instance deal with the conditions but also the incentives which are created under the Act for such out-of-court work outs, in terms of avoiding subsequent avoidance actions and tax benefits (see also the last Newsflash hereunder). The role of a Court appointed mediator in assisting the company in negotiating agreements, will also be looked at.
Under the new Act, the legislator consciously opted for a very low threshold for opening proceedings. The Newsflash on this subject will first of all deal with the purpose and the conditions of the suspension of payments proceedings and the very limited control by the Court. It will further explain the duration and the consequences of the opening of the proceedings as well as the flexibility in the options which the debtor can choose from. Most importantly, in the Newsflash on this subject, we will explain how and when a collective reorganisation plan is created, voted and approved by the Court.
Transfer of business
The transfer of the whole or a part of the debtor's business under the new Act can be seen as a real alternative to bankruptcy. The Act introduces detailed rules on the conditions and the procedural requirements and court control. A separate Newsflash will be dedicated to this "distressed M&A" topic.
The new Act obviously affects creditors and the debtor's contractual partners. This Newsflash will cover creditors' rights in all stages of the proceedings: pre-filing; between filing and opening; after opening; in the reorganisation plan; in and after transfer of the business. The status of "new claims" will also be covered as well as set-off and netting arrangements (including the relevant provisions of the Belgian Collateral Act).
Labour law aspects of the Act
The transfer of the debtor’s activities to one or more purchasers is likely to become more popular as a result of a new provision on the transfer of employees. Without any doubt a key provision, article 61 recognises the principle that the purchaser can choose the employees it wishes to have transferred along with the business. The rights and liabilities both of the employees and the purchaser will be discussed in this Newsflash.
Tax aspects of the Act
The tax consequences of insolvency situations are often underestimated and source of legal uncertainty. The Act contains new provisions on the tax consequences both for the creditor (value reduction) and the debtor (favourable tax treatment of the debtor benefiting from waiver of debts).