The Act relating to the continuity of enterprises has entered into force on 1st April 2009 (“Loi relative à la continuité des enterprises / Wet betreffende de continuiteit van de ondernemingen” – the “Continuity Act“).
The Continuity Act replaces the Judicial Composition Act of 17 July 1997 (“Loi relative au concordat judiciaire / Wet betreffende het gerechtelijk akkoord“) by a more flexible system in order to enable firms in difficulty to recover their financial health. The Continuity Act is aimed at sustaining the continuity of businesses as much as economically possible by making judicial composition more accessible to debtors suffering financial difficulties and presenting more options for recovery.
The Act also provides for a more favourable tax regime entailing, amongst other things, the exemption of the benefits resulting from the reduction of debts.
1. Scope
The Continuity Act applies mainly to “‘tradesmen” (both individuals and legal persons) but also to agricultural corporations (“sociétés agricoles / landbouwvennootschappen“) and non-trading (“civil”) corporations incorporated in the form of commercial companies (however, liberal professions such as lawyers, architects and doctors are excluded from the scope).
2. Extrajudicial amicable agreement
New measures are put in place in order to detect companies encountering financial difficulties. Data and information relating to the financial situation of enterprises are collected and updated at the clerk’s office of the Commercial Court. Chambers of commercial enquiries (“chambres d’enquêtes commerciales / handelsonderzoeken“) monitor and follow the situation of enterprises, ensuring the continuity of their businesses and the protection of the creditors’ rights.
Debtors having financial difficulties may request the Commercial Court to appoint a “mediator of enterprises” (“médiateur d’entreprise / ondernemingsbemiddelaar“) whose mission will be to assist the debtor in the reorganization of his business. The debtor can also negotiate an individual amicable agreement with his creditors with a view to reorganizing his financial position or his business without any Court intervention.
3. Judicial reorganization
“Judicial reorganization” may be requested by debtors who are encountering financial difficulties and whose business continuity is at risk. Judicial reorganization aims to preserve the continuity of all or part of the debtor’s ailing enterprise. This procedure – in which the debtor is protected against his creditors – requires the debtor to demonstrate that the continuity of his business is threatened. If the debtor is a legal entity, the business continuity is presumed to be threatened when losses have reduced the company’s net assets to less than half of its share capital.
If the Court grants judicial reorganization, a suspension period of at least 6 months (which can be extended to a maximum period of 18 months) is imposed, during which the debtor cannot be declared bankrupt (nor be wound up by a Court order if it is a legal entity) and no enforcement measures can be taken. The Commercial Court appoints amongst its members a “delegated judge” (“juge délégué / gedelegeerde rechter“), who will assist the debtor and supervise the procedure.
The Continuity Act distinguishes between 3 types of judicial reorganization measures: (1) the amicable agreement, (2) the collective agreement and (3) the transfer under judicial supervision.
1) Amicable agreement: the debtor negotiates an individual agreement with his creditors (of whom there are at least two). The Act does not impose limitations on the content of the amicable agreement (more flexible payment deadlines, debt reduction that might enable an improvement in financial circumstances (“retour à meilleure fortune / wedergoedkoming“), conversion of debt into capital, etc.). If an agreement is reached, this agreement is acknowledged by the Court by means of a judgment.
2) Collective agreement: the debtor seeks the approval of his creditors for a reorganization plan. The reorganization plan cannot exceed 5 years and must be approved by a majority of creditors representing half of all sums due as a principal amount. If approved, the reorganization plan needs to be ratified by the Court.
3) Transfer under judicial supervision: the Commercial Court orders or at least supervises the transfer of all or part of the debtor’s business. Such transfer may be requested by the debtor himself but can also be ordered by the Court at the request of the prosecutor or a creditor or an interested buyer (such as a competitor), particularly in case creditors do not approve the reorganization plan or in case the Court refuses to ratify this plan. In such cases, the Court also appoints an “agent of justice” (“agent délégué / gerechtsmandataris“) whose mission will be to sell all or part of the business on behalf of the debtor.
The Law also innovates from a social law perspective: in case of judicial transfer organised upon request of the prosecutor or a third party, the transferee has the right to choose the workers who will be taken over. There is no obligation for the transferee to take over all the existing workers. Moreover, the existing social debts are not transferred to the transferee and there is no joint liability of the transferor and the transferee regarding the existing social debts provided that their payments can be guaranteed by the Indemnifying Fund for Workers (“Fonds d’indemnistation des travailleurs / Fonds tot vergoeding van werknemers“).
4. Favourable tax regime
The Continuity Act provides for tax exemption for the debtor’s profits resulting from the debt reduction granted by the creditors. Also exempted (for write-downs and provisions) are the creditors’ receivables that have been reduced in the framework of the judicial reorganization. The Act also provides for VAT refund mechanisms in case of debt reduction. These measures should make a successful restructuring possible by removing significant tax obstacles.
During the last six years (2003-2008), Emerging Market entities made some 844 acquisitions or investments in Western Europe with a combined value of nearly € 120 billion (of which some 3% in Belgium).
Recent Comments