Prolongation of the law establishing a simplified judicial re-organization procedure
Anticipating numerous applications for judicial reorganization proceedings (JRPs), by companies affected by the Covid-19 economic crisis, the legislator decided to modify some of the rules in order to make them more flexible and effective, by adopting the Law of 21 March 2021 (“L.21Mar21”).
The Ministry of Justice has recently indicated that it intends to extend the duration of this law, which gives us the opportunity to review and comment on several improvements in favour of the continuity of struggling companies.
1. Immediate access to the JRP pursuant to a reduction in formalities.
Certain documents that a debtor, requesting the opening of a JRP, is required to attach to its application may be filed at a later date, and at the very latest two days before the hearing of the application.
The debtor will therefore be able to postpone submission of the documents relating to: its current accounting situation, the budget containing the estimate of income and expenditure for the duration of the requested suspension of payments, the list of deferred creditors, the statement of the measures proposed to re-establish the viability of its business or the report showing that it has properly fulfilled its obligations to inform and consult the employees or their representatives.
On the other hand, it will still be required to attach to its application the remaining information and documents required by Article XX.41 §2 of the Code of Economic Law (CEL), namely: a statement of the circumstances on which its application is based, the objectives of opening the JRP, the electronic address at which it can be contacted, and the last two annual accounts that should have been filed in accordance with the articles of association, as well as the annual accounts for the last financial year (which may not have been filed yet), and (where applicable), a copy of the seizure orders and writs of attachment of movable and immovable property, as recorded in the central file of seizure notices (“Fichier central des avis de saisie”) abbreviated as the FCA.
Again, to counter the excessive formalism imposed by the previous wording of the law and the obstacle for SMEs seeking access to JRPs, the L.21Mar21 also states that omission of the annexes, that are to be attached to the application, will no longer sanctionable by inadmissibility.
Even if it is commendable to allow companies in difficulty rapid access to JRPs, is it not also essential to have prior access to accounting data and the assistance of a professional accountant, in order to assess the appropriateness and the chances of success of any restructuring measures, whether before or during the JRP? Unfortunately, it cannot be excluded that this new flexibility will lead to problems of abuse..
2. Preparing for reorganization away from the spotlight.
In order to avoid the harmful consequences that publication of the initiation of judicial reorganization proceedings may entail, the legislator has introduced a second amendment, namely the possibility of making use of a confidential preparatory phase with a view to reaching an amicable or a collective agreement, following the example of the “pre-pack” procedures, which are widespread in Anglo-Saxon legal systems.
During this phase, new article XX.39/1 of the CEL (inserted by article 6 of L.21Mar21) provides that a judicial representative will be appointed to facilitate the conclusion, in complete confidentiality, of an agreement between the debtor and its creditors, so that the former can benefit from favorable payment conditions and thus mitigate its situation. During this phase, in order for the negotiations to be carried out, the judicial representative may apply to the President of the Court to request terms and deadlines and to delay, for a maximum period of four months, any proceedings that may be initiated by the creditors.
Since any arrangement will not be published until after it has been concluded, this phase is particularly useful for debtors who fear that too hasty a publication of their situation could damage their reputation or may undermine the willingness of certain commercial partners to cooperate.
It should be recalled that article XX.36 of the CEL already offered debtors, prior to the commencement of a JRP, the possibility of appointing a company mediator to help facilitate a future JRP, irrespective of the mechanism used (amicable agreement, collective agreement or reorganisation under court supervision). By virtue of his experience and authority, the company mediator helps the debtor to restore any possible imbalance that the latter may experience in its confidential negotiations with certain major creditors, in order to reach negotiated agreements. The use of the new article XX.39/1 will allow the debtor – this time assisted by a judicial representative – to continue the work of the company mediator, by offering the possibility to obtain, in the preparatory and confidential phase, the suspension of one or more claims.
In practice, it appears that few debtors have actually made use of the ‘pre-pack’ procedure. Perhaps this is because distressed debtors are more interested in obtaining immediate protection against all creditors under Article XX.44 of the CEL after filing of the JRP application. During the article XX.39/1 preparatory phase, the debtor will not only have to wait for a certain number of days before the judicial representative is appointed by the court, but will also have to wait for the representative to take the initiative to request relief from the court, with respect to certain individual creditors. In the meantime, certain (other) creditors may pursue enforcement measures, such as seizures of movable property or bank assets, thereby definitively obstructing the debtor’s ability to seek a compromise.
3. Debt relief is no longer taxed.
Finally, a third change concerns the tax benefits for collective agreements, which are extended to voluntary arrangements (“accords amiables”). Whereas the tax authorities previously considered that debt write-offs resulting from a voluntary arrangement generated a taxable profit, in proportion to the reduction obtained, Article 48 of the 1992 Income Tax Code (CIR 92) now provides that write-offs and provisions resulting from a voluntary arrangement will be exempt, in the same way as those obtained via a collective agreement. (This exemption will apply during the relevant taxable periods until the voluntary arrangement has been fully implemented.)
4. Conclusion.
In reality, it is too early to provide an in-depth assessment of what effect the measures introduced by the Law of 21 March will have, but it is very likely that those measures will be extended, at the initiative of the Council of Ministers, until 16 July 2022..
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Prolongation of the general moratorium provided for by Royal Decree No. 15
On Wednesday 13th of May, the Belgian Government decided to extend the series of measures contained in Royal Decree No. 15 regarding the temporary suspension of enforcement measures and other measures in favour of companies during the COVID-19 crisis. The initial date of the end of the moratorium scheduled for 17 May 2020 has been postponed until 17 June 2020, which date could itself be subject to further prolongation by further legislative decree.
Further information on Royal Decree No. 15 can be found in our article “Royal Decree No. 15 regarding the temporary suspension of enforcement measures and other measures in favour of companies during the COVID-19 crisis” and its practical implications are discussed in our FAQs:
- What precautions should be taken prior to initiating new business relationships?
- What securities may be effectively taken notwithstanding the limitations imposed by Royal Decree No. 15?
- My debtor is known to be bankrupt, what can I do?
Royal Decree No. 15 regarding the temporary suspension of enforcement measures and other measures in favour of companies during the COVID-19 crisis
Many companies are facing a cash shortfall as a result of the COVID-19 crisis. How to protect their business’s continuity?
The judicial reorganisation procedure and the payment obligation suspension that it provides for (Book XX Code of Economic Law – CEL) is currently not regarded by the authorities to be an appropriate rescue measure because, firstly, it would overload the Companies Court during this period of crisis and, secondly, because the suspension applies only to ”old” debts that existed prior to the initiation of the procedure.
Consequently, the government has temporarily organised a moratorium, (or a ’ceasefire’) in order to protect any company in debt as a result of the Covid-19 crisis, which is in need of liquidity, against either precautionary or executory attachment proceedings, and against any bankruptcy or judicial settlement.
Royal Decree No 15 foresees four temporary suspension measures covering the period from 24 April 2020 to 17 May 2020 (subject to possible extension):
- Impossibility of initiating or pursuing enforcement measures as well as precautionary or executory attachment measures
EXCEPTION: precautionary and enforceable attachment of real property (as well as precautionary attachment of seagoing and inland waterway vessels) remain possible.
- No bankruptcy filing on summons or judicial resolution is possible
EXCEPTION: Possibility of filing a bankruptcy petition or an admission of bankruptcy on the claim by the Public Prosecutor’s Office or of a provisional administrator.
- Extension of payment terms within the framework of a previously approved reorganization plan
- Prohibition of unilateral or judicial termination of agreements concluded before 24 April 2020 for failure to pay a due and payable debt
EXCEPTION: employment contracts.
It is worth pointing out that such a system of legal suspension does not in any way affect the obligation as regards the payment of one’s debts, whether regarding principal, interest or indemnities. It is therefore in the interest of each company to respect the payments as far as possible, because following the moratorium, interest and damages can be claimed by the creditor.
To prevent certain companies from benefiting unduly from such protection, the creditor is given the possibility of summoning the debtor before the president of the Companies Court to request the withdrawal of this suspension. The President of the Companies Court, ruling as in summary proceedings, will assess whether the debtor has truly been affected by the Covid-19 crisis and subsequent measures, also taking into account the impact of the suspension with respect to the creditor’s interests so as to avoid a cascading (or ‘domino’) effect.
Furthermore, there is also a temporary suspension of the obligation to file a bankruptcy petition, if the conditions are met because of the COVID-19 pandemic and its consequences.
Lastly, the legislator intends to stimulate granting of credit, whether by a bank or by a supplier by, on the one hand, protecting new credits and, on the other hand, by lightening the potential liability of those who provide such credits. A renegotiated credit is not regarded as a new credit.
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FLINN IS RECRUITING! Junior Associate Commercial Practice Team
We are looking for a Junior Associate (M/F) for our Commercial Practice Team
Your profile
You are happy to join our commercial practice team which advises clients on commercial contracts, including agreements with suppliers, distributors, agents, licensors, licensees, debtors, customers, creditors and banks, lessors and lessees, from time to time in an E-Commerce and M-Commerce environment. You are open to ADR oriented problem solving, but are capable of moving from the negotiation table to the courtroom or arbitration and of conducting complex litigation on matters such as contract termination, liability claims and trading practices. You have experience working in a Commercial legal environment both in a litigation and advisory capacity. You have an excellent command of Dutch, French and English. You share our passion for facing challenging issues in a creative way, favouring innovation and maintaining a highly personal approach towards clients. Your energy and focus on delivering high quality work means you can deliver pragmatic answers to complex questions within our client’s deadlines. You have determination and you are always a step ahead.
FLINN’s values
Innovation, creativity and a personal approach are the values that drive our practice. Our areas of practice reflect the evolving legal, business and social environment. We strongly support and encourage sports and the arts and are committed to the communities in which we live.
Working at FLINN
We listen and learn from each other and always seek to better ourselves through communication, advanced learning and sharing experience. You will be part of a dynamic team in which your voice will count. We offer competitive remuneration, a great work environment and a path to grow within FLINN! Partners at FLINN are dedicated to offering you a high quality traineeship embracing the Bar’s traditional values.
Ready to join FLINN?
Contact us by writing to joinus@flinn.law or benoit.simpelaere@flinn.law providing your CV and a cover letter.
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FLINN IS RECRUITING! Junior Associate Corporate Practice Team
We are looking for a Junior Associate (M/F) for our Corporate Practice Team
Your profile
You are happy to join our corporate team which advises clients on mergers and acquisitions, joint ventures, shareholders’ agreements, reorganisations and general corporate law. A minimum of 2-years’ experience working in a Corporate legal environment and in an advisory capacity is required. Experience as a litigator is an asset. You have an excellent command of Dutch, French and English. You share our passion to face challenging issues in a creative way, favouring innovation and maintaining a highly personal approach towards clients. Your energy and focus on delivering high quality work mean you can deliver pragmatic answers to complex questions within our client’s deadlines. You relished the challenge of quickly getting up to speed on the recently adopted Companies and Associations code. You have determination and you are always a step ahead.
FLINN’s values
Innovation, creativity and a personal approach are the values that drive our practice. Our areas of practice reflect the evolving legal, business and social environment. We strongly support and encourage sports and the arts and are committed to the communities in which we live.
Working at FLINN
We listen and learn from each other and always seek to better ourselves through communication, advanced learning and sharing experience. You will be part of a dynamic team in which your voice will count. We offer competitive remuneration, a great work environment and a path to grow within FLINN! Partners at FLINN are dedicated to offering you a high quality traineeship embracing the Bar’s traditional values.
Ready to join FLINN?
Contact us by writing to joinus@flinn.law or benoit.simpelaere@flinn.law providing your CV and a cover letter.
You can download here the job offer.
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GDPR ISSUES IN THE M&A PROCESS: 14TH International M&A CONFERENCE – VERSAILLES
M&A practitioners are more and more confronted by GDPR issues when assisting their clients. This matter was addressed by FLINN during the 14th International M&A Conference, which took place from 1 to 3 November in the prestigious TRIANON PALACE hotel in Versailles.
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DO NOT FORGET TO COMPLETE THE UBO COMPLIANCE REGISTER / SEMINAR: NEW LAW ON B2B CONTRACTS
Dear Sir, Dear Madam, The FLINN team would like to invite you to a free of charge seminar on the new Belgian law that will impact ALL B2B contractual relationships. The seminar will be held in our offices at avenue des Arts 46, 1000 Brussels, 6th floor.
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The GTDT Practice Guides – Franchise has been published!
FLINN lawyers, Leonard Hawkes and Benoit Simpelaere, have contributed on part 5: Other Legal Considerations, Electronic Commerce, Social Media and Franchising to the published Practice Guides: Franchise 2019.
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FLINN CUP – 7 SEPTEMBER 2019 IN OSTEND!
We would like to invite you to the second edition of the FLINN CUP which will take place this year on 7 September in Ostend.
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FLINN – a proud sponsor of DIApositief!
FLINN is proud to sponsor “DIApositief” the diversity project recently launched by the Brussels’ Bar.
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