The Business Continuity Act of January 31 2009, amended in 2013, provides for specific (court-supervised) restructuring proceedings, during which the company (or debtor) is protected against its creditors' claims so that it can reorganise its business.
For debtors, one of the act's major advantages is its 'open-gate' approach. In essence, this approach means that court protection is granted if the company's continuity is threatened and the debtor files a request (supported by specific documents) in this regard. The Belgian courts of appeal have quashed judgments from first-instance courts that exceed their authority by requesting more rigorous checks before granting protection under the act.
As a result, companies neither have to prove that their continuity is threatened, nor that a reorganisation would improve their situation. Indeed, even de facto bankrupt companies have successfully applied for protection under the act.
However, the courts' largesse is not unlimited: most of them grant protection orders only for three months. If a company requires more time, it must apply to the court for an extension.
In principle, during the reorganisation process, the company's management continues to run the company. The creditors can no longer attach the assets or commence bankruptcy proceedings.
The company's management must implement either:
- an amicable agreement with some of its creditors;
- a collective agreement with all of its creditors; or
- a (partial) sale of assets as a going concern.
With regard to these options, the company can opt for an amicable, binding agreement with some of its creditors regarding the reimbursement of their claims. Alternatively, the company can submit a reorganisation plan, proposing, among other things, a reimbursement schedule for all of its creditors, which is intended to preserve and continue its activities. In the framework of this plan, the company can propose to pay only some of its debts.
Companies often group their creditors into categories and offer different levels of payment to each category, although some special secured claims cannot be reduced.
The reorganisation plan must also contain an overview of the measures that the company will implement to redress its profitability, solvency and economic and employment situation. If the reorganisation plan is accepted by the majority of the regular and unsecured creditors, who together hold a majority of the company's debt, and if all the procedural requirements have been met, the court will accept the plan and declare it binding on all of the creditors, even those who voted against it or did not participate in the vote.
When dividing its creditors into categories, the company must ensure that it does not unfairly discriminate against any of them, as doing so would be a breach of the Constitution. Further, in principle, at least 15% of each debt must be paid. Special provisions apply regarding tax and social security debts. Finally, some debtors cannot receive a debt reduction (or 'haircut'), such as fines or unpaid wages.
In general, only if a collective agreement fails will an attempt to sell all or part of the business – the third option – be considered. This option is intended to transfer the company's activities (or some of them) as a going concern to a third party, together with the required employees and assets (eg, buildings). Only the price paid for these assets can, in principle, be used to (partially) repay (some of) the creditors. The act's amendment introduced more procedural guidelines in this respect and provisions regarding a minimum price.
Limited benefits for creditors
On the other side of the coin is the limited number of actions available to creditors once the company is under the act's protection.
In certain circumstances, creditors can undertake certain measures against the debtor. First, the act's protection does not protect companies from the recovery of debts incurred after the act's protection came into force, meaning that debtors can enforce new claims.
Second, during the reorganisation process, creditors can suspend the delivery of goods and services until the company pays its outstanding debt. Creditors can also terminate (eg, for cause) contracts with companies under the act's protection.
Third, compensation between mutual claims is possible when these claims are connected or, if certain conditions have been met, based on a specific agreement the parties entered into before the reorganisation process.
In addition, if a creditor fears that the debtor company's managers are incompetent or have committed serious errors, the appointment of a court-administrator can be requested.
Finally, it is important to point out that the protection under the act applies only to the debtor concerned and, in principle, not to any co-debtors or guarantors of old or new loans.
The act can be an efficient mechanism for a company to safeguard its business from its creditors for a restructuring process. Often, however, these attempts fail and an insolvency specialist is appointed. As a result, it is important for creditors to take the necessary steps to safeguard their position and limit their exposure.
For further information on this topic please contact Bart Heynickx or Alexander Hansebout at ALTIUS by telephone (+32 2 426 1414) or email ([email protected] or [email protected]). The ALTIUS website can be accessed at www.altius.com.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
