Trustees cannot appeal a prior judgment authorizing a transfer of a business as part of reorganization proceedings

Brussels’ court of appeal confirms: a judgement authorizing a sale of the business as part of reorganization proceedings, cannot be appealed by the trustees appointed in subsequent bankruptcy proceedings or by employees who have not been taken over

In 2020 Racine assisted as counsel a major IT restructuring firm during its restructuring proceedings with a view to organize a court supervised sale of its business. Those proceedings have resulted in a successful transfer of a large part of the business and employment to two third parties, pursuant to the authorization of the Brussels’ business court. The company filed for bankruptcy shortly thereafter.

The bankruptcy trustees, who disagreed with the court decision authorizing the transfer, subsequently filed an appeal against that decision. At the same time, they had initiated third party opposition proceedings against the same court decision, together with some employees who were not taken over. The Business court rejected the claimant’s demands in those latter proceedings already in February 2021. This triggered however a second appeal by both the trustees and employees.

All those proceedings have now been settled in a decision of the Brussels’ court of appeal of 28 June 2021. In short, the court of appeal found that none of the claimants disposed of the required legal interest to seek the annulment of the judgment authorizing the transfer of the business.

As regards the trustees’ appeal, the court first of all reminded that a party cannot file an appeal against a decision which has fully awarded what has been requested by it in first instance. As the transfer of the business was requested at the time by the company itself (be it, then still represented by its directors), the court ruled that the trustees, as new representatives of the company, lack the legal interest to file an appeal.

In respect of the appeal filed by certain employees who were not taken over, the court ruled that a hypothetical annulment of the court decision cannot be in the interest of the employees, as it would imply that also the transfer of the business itself must be undone. The undoing of the transfer would adversely affect the rights of those employees (as creditors of the bankruptcy), as this would:

·        increase the debts and liabilities of the bankrupt estate significantly

·        result in a loss of value of the returned assets, being most notably contracts which would terminate in case of a bankruptcy and therefore have practically no value

As the former company itself was also summoned to those proceedings by the claimants as a defendant, Racine defended the interests thereof on behalf of its former directors. The team consisted of our partner Stijn Vanschoubroek and our counsel Rubben Lindemans.

This is an important court decision, as it gives legal certainty to parties who acquire a business in distress as part of reorganization proceedings. Such legal certainty is key in any state adhering to the rule of law. Especially in these particular COVID-19 times which require effective restructuring tools to preserve a maximum of economic value of business that are still suffering from financial difficulties.