Key takeaways of the Bill implementing the European Restructuring Directive as submitted to Belgian Parliament on 20 March 2023

The Belgian government has submitted its draft bill implementing the European Restructuring Directive 2019/1023 (the “Bill”) to the Belgian parliament on 20 March 2023. Since Belgium, as well as the other Member States, should have implemented the European Restructuring Directive into its national law by 17 July 2021 (extendable under certain conditions to 17 July 2022), it was a long-attended initiative.

A first glance at the Bill reveals that following notable modifications to Belgian insolvency law are in the pipeline:

1. In addition to the five pre-existing insolvency procedures for undertakings, notably (i) the procedure for amicable agreements outside judicial reorganisation; the judicial reorganisation  with a view to (ii) an amicable agreement (henceforth open to agreements with only one, or more creditors), (iii) a collective agreement (with all qualifying creditors) or (iv) a court supervised transfer of the business; and (v) bankruptcy proceedings, the Bill introduces two new insolvency proceedings:

a.     (vi) the possibility of a confidential judicial reorganisation. Such procedure remains confidential and allows the debtor to reach agreements with a limited number of creditors. Unaffected creditors thus remain outside the plan and are entitled to the full payment of their claim; and

b.     (vii) a pre-pack confidential preparation of bankruptcy proceedings which allows the debtor, who believes to be in a state of bankruptcy, to request the court to declare him bankrupt, and to request that prior to the declaration of bankruptcy, the transfer of all or part of his assets and activities is prepared. The court will appoint a liquidation expert (vereffeningsdeskundige/ praticien de la liquidation), who will be act as bankruptcy trustee in subsequent bankruptcy proceedings. The liquidation expert examines to what extent the debtor’s objectives are realizable and will be involved in the preparation of the possible bankruptcy, representing the interests of the creditors. The aim of this new procedure is to avoid unlawful cessions now that such procedure is regulated by a mandatory control of the (potential) supervisory judge and court.

2. The Bill introduces new concepts:

A court mandatary (gerechtsmandataris/ mandataire de justice) is the common notion for the liquidation expert (vereffeningsdeskundige/ praticien de la liquidation), restructuring expert (herstructureringsdeskundige/ praticien de la réorganisation) and provisional administrator (voorlopige bewindvoerder/ administrateur provisoire) appointed by a judicial authority. Where the main tasks of the restructuring expert are to assist the debtor and creditors in drawing up and negotiating a reorganisation plan, the liquidation expert is responsible for verifying the claims submitted, managing the debtor’s assets and, if necessary, liquidating them.

3.     The powers of the Chamber for Companies in Difficulty are extended:

a.     In the event of imminent insolvency, the debtor may ask the Chamber for Companies in Difficulty that creditors are summoned, in order to reach a settlement that is determined by the Chamber for Companies in Difficulty.

b.     Chamber for Companies in Difficulty may appoint a restructuring expert at the request of the debtor to facilitate the rescue of the undertaking.

4.     Employee rights are strengthened:
Employee representatives in the works council, the Committee for Prevention and Protection at Work and the union delegation, the workers’ delegation, have the right to have access to the file of the public judicial reorganisation or transfer under judicial authority, without approval by the delegated judge.

5.     Equity holders’ (veto) rights are restricted:
To the extent that the implementation of the reorganisation plan requires a decision by a general meeting, and the general meeting unreasonably prevents the implementation of the plan, any interested party may request the court to order the legal entity to take the decisions that the implementation of the plan requires. Think of the example where a reorganisation plan provides for a debt-to-equity swap. Even if the plan is approved, the debt-to-equity swap will not be effective until a general meeting has decided to increase the equity of the company and to issue new shares. Shareholders could obstruct to such equity increase, making the plan de facto unworkable. Such situations will now be avoided by new Articles XX.83/20 and XX.83/40 BCEL.

6.     Judicial reorganisations by collective agreement distinguish between SMEs and large companies. Whereas in the case of SMEs, reorganisation plans are deemed approved by the creditors when the majority of them, representing at least half of the claims, approve of the plan, creditors in large companies must be divided into different classes before they can vote on a plan.

At least the following classes are distinguished: (i) equity holders, (ii) extraordinary creditors and (iii) ordinary creditors. For the reorganisation plan to be approved, a majority in each class of voters must (in principle) be obtained. However, the court can impose the plan on non-consenting classes under certain conditions, the so-called “cross-class cram-down”. For the court to impose the plan on dissenting classes, the following conditions must be met:

a.     The plan complies with the formality requirements (cfr. Article XX.83/17 BCEL);

b.     The plan has been approved by: (i) either one of the two existing classes; or, (ii) if there are more than two classes, the plan has been approved by a majority of the voting classes, provided that at least one of those classes is a class of secured creditors or is higher in rank than the class of ordinary creditors or, if not, (iii) at least one class of affected parties who could reasonably be expected to receive payment if the normal order of priority in liquidation were to be applied, approves the plan;

c.      it does not deviate to the detriment of any of the non-consenting classes from the existing legal or contractual ranking that would exist in the context of a liquidation, unless there are reasonable grounds for that deviation and the said creditors or equity holders are not manifestly disadvantaged as a result;

d.     no class of affected parties receives or retains under the reorganisation plan more than the full amount of its claims or interests.

7.     Unfortunately, the Bill remains silent as to whether company directors are excluded from the definition of undertaking for the purposes of insolvency law or not.

If you have any further questions and/or require assistance in this respect, the Restructuring Team of Racine would be glad to assist.