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Creditors: be on your guard. Belgian experiment with prepackaged bankruptcy extended until 16 July 2022  

Eric De Wilde – September 2021 – For companies fearing bankruptcy in Belgium, the procedure of court-supervised reorganization (“Gerechtelijke reorganisatie”) exists. The Covid-19 pandemic raised awareness that more measures are required to protect companies against bankruptcy. It led the Belgian government to experiment with a prepackaged bankruptcy inspired by US legislation.

The law of 21 March 2021 introduced the procedure of ‘preparatory settlement’ (“Voorbereidend akkoord” – art. XX.39/1 of the Belgian Code of Economic Law). The procedure (*) has the same focus as the court-supervised reorganization: finding a settlement with creditors, enabling companies to survive. However, it differs from the court-supervised settlement and comes with certain “flaws” for creditors.

Therefore, and despite the legislator’s good intentions, we still advise creditors to start early with a protective or executive seizure (or even a court-supervised reorganisation) rather than facing the risks of a preparatory settlement, when payment is at risk. Below, you can read why.

Court-supervised reorganization vs. preparatory settlement

The preparatory settlement is different from the court-supervised reorganization in that:

  • It opens ‘in silence’, on initiative of the debtor, and has an informal character. Not so for court-supervised reorganization, which is public: the opening is announced in the Belgian Official Gazette (Belgisch Staatsblad).
  • It is managed by a court mandatory (“gerechtsmandataris”), where the court-supervised reorganization is led by the debtor in most cases.
  • It does not imply a formal protection from the debtor against the creditors, where under the court-supervised reorganization it is not possible for the creditors to seize the assets of the debtor or to seek payment through other means.

What about creditors in this new procedure? They are confronted with new challenges, leaving them with few remedies at hand.

Knowledge of other creditors

There is no guarantee that all creditors are actually contacted and involved in this procedure.

Moreover, the uninvolved creditors shall have no access to the official list of all existing creditors, with no indication of the full amount of considered debts at stake.

Creditors will therefore not know their position compared to other creditors. This will make creditors more reluctant to accept any informal settlement as part of a ‘preparatory settlement’.

Individual protective measures

Within the frame of this procedure, protective measures against individual creditors may be granted. They can last up to four months at most. The granting of such a measure can be questioned before the Court of Appeal. This appeal can easily take one year or more.

Comprehensive reorganisation plan

The informal negotiations might lead to most creditors accepting a comprehensive reorganisation plan (‘een reorganisatieplan’), which involves all creditors. The court mandatory shall then apply for a court-supervised settlement procedure.

That is: the comprehensive reorganisation plan shall be formalized by the court.

However, such a comprehensive reorganization plan always places ‘minor’ creditors in a weak position. The plan is accepted by the majority of the creditors that altogether hold, at least, half of the total debt.

Once the plan is formalized by the court, he can file an appeal at the Court of Appeal, within fifteen days of the court’s formalization. Note that the period for appeal is very short. This appeal is dealt with urgently.

Creditors: be on your guard

As the legal maxim goes: the law is at the side of those who are alert: Ius vigilantibus…

The same applies here. When the payment of claims is at stake, creditors better start on time (with a protective or executive seizure or even a court-supervised reorganisation) before they are forced to accept court-supervised protection measures or an imposed reorganization plan.

Feel free to contact Van Gompel Advocaten for any question on how to protect your monetary claims and when to act against (a threat of) an insolvent debtor.

(*) The law is in force until 16 July 2022 while meanwhile its relevance will be evaluated.

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