Restructuring and Insolvency in Belgium 2024

Restructuring and Insolvency in Belgium 2024 – Court of Cassation (Belgium)

RESTRUCTURING AND INSOLVENCY 2024

BELGIUM

Sander Baeyens, Emma Tielemans, Satya Staes Polet

(Freshfields Bruckhaus Deringer)

GENERAL

Legislation

1. What main legislation is applicable to insolvencies and reorganizations?

The main legislation applicable to insolvencies and reorganization is Book XX ‘Insolvency of undertakings’ of the Belgian Code of Economic Law (the Insolvency Act).

Additionally, the Act of 25 April 2014 on the status and supervision of credit institutions and the Act of 13 March 2016 on the supervision of insurance undertakings contain specific provisions relating to the reorganization and winding-up of credit institutions and insurance undertakings, respectively.

Furthermore, Book III, Title XVII of the (old) Belgian Civil Code, as amended from time to time (the Security Interests Act) contains relevant provisions in relation to security interests.

Finally, the Belgian Code of Companies and Associations contains provisions applicable to the voluntary winding-up of companies.

Excluded entities and excluded assets

2. What entities are excluded from customary insolvency or reorganization proceedings and what legislation applies to them? What assets are excluded or exempt from claims of creditors?

The Insolvency Act applies to all undertakings. Undertakings include self-employed individuals and the ‘liberal professions’ (e.g, lawyers or doctors), all legal entities and entities without legal personality. However, non-profit entities without legal personality that do not distribute profits to persons exercising a decisive influence on their management, legal persons of public law and public bodies do not fall under the scope of the Insolvency Act. The provisions of the Insolvency Act only apply to financial institutions on a residual basis (i.e, if the specific regimes in place do not provide specific rules). The provisions in relation to pre-insolvency measures and the reorganization procedure do not apply to financial institutions. Financial institutions include:

• credit institutions;
• (re)insurance undertakings;
• investment firms;
• fund managers;
• central counterparties;
• central securities depositories (and supporting institutions);
• financial holdings;
• deposit banks; and
• institutions for occupational retirement provision.

The Belgian Judicial Code outlines a certain number of assets that are excluded from insolvency proceedings involving an individual. Entities do not benefit, in principle, from such protection and none of their assets are thus exempt from claims of creditors. Additionally, public entities may benefit from sovereign immunity from enforcement in respect of certain of their assets.

Public enterprises

3. What procedures are followed in the insolvency of a government-owned enterprise? What remedies do creditors of insolvent public enterprises have?

The fact that an enterprise is government-owned does not in itself mean that it would not be subject to the Insolvency Act. A number of government (majority)-owned enterprises are not, however, subject to the bankruptcy proceedings.

Creditors of insolvent government-owned enterprises may also attach (which can lead to a forced sale of) the assets of such enterprises to obtain payment of their claims. However, such attachment is limited – that is, assets that such entities use entirely or partially within the framework of their public services are excluded from attachment procedures or other insolvency proceedings (sovereign immunity from enforcement).

Protection for large financial institutions

4. Has your country enacted legislation to deal with the financial difficulties of institutions that are considered ‘too big to fail’?

In 2014, Belgium enacted new banking legislation in line with the European regulatory framework (Directive 2013/36/EU (the Capital Requirements Directive IV), single supervisory mechanism, Directive 2014/59/EU (the Bank Recovery and Resolution Directive) and prohibition (subject to exceptions) of proprietary trading).

The Belgian banking legislation consists of four acts:

• the Act of 25 April 2014 on the status and supervision of credit institutions;
• the Act of 25 April 2014 on various provisions;
• the Act of 25 April 2014 establishing mechanisms for a macro-prudential policy and outlining the specific tasks assigned to the National Bank of Belgium (NBB) as part of its mission to contribute to the stability of the financial system; and
• the Act of 8 May 2014 on appeals against macro-prudential recommendations of the NBB.

Key elements of this legislation, taken together, include the following.

• Significant credit institutions (article 6 of Council Regulation (EU) No. 1024/2013 conferring specific tasks on the European Central Bank concerning policies relating to the prudential supervision of credit institutions) are subject to the direct supervision of the European Central Bank, which applies both the EU and Belgian rules. New credit institutions will require the approval of the European Central Bank, irrespective of their size.
• Credit institutions (that can make an appeal on the Belgian deposit guarantee scheme) are prohibited from proprietary trading under their trading book. There are a number of exceptions, such as market-making or hedging activities as further determined by the regulator, the NBB.
• Additional requirements are imposed on managers and board members. In particular, the role of the board as a key player in the control, orientation, risk management and compliance of a credit institution has been enhanced.
• The equity structure of a credit institution consists of core-equity tier 1, tier 1 and tier 2.
• Credit institutions are required to put in place recovery plans covering different hypotheses and allowing credit institutions to recover, without impact on the financial system, their viability or financial positions.
• A resolution mechanism needs to be put in place to ensure continuity of the critical functions of credit institutions, avoid systemic risk, protect state resources and protect deposits in case of a risk of default.

Courts and appeals

5. What courts are involved? What are the rights of appeal from court orders? Does an appellant have an automatic right of appeal or must it obtain permission? Is there a requirement to post security to proceed with an appeal?

The relevant court for bankruptcy and judicial reorganization proceedings is the enterprise court of the place of the center of main interests (COMI) of the debtor. If the debtor is a company or a legal person, the COMI is assumed to be the place of the registered office unless the registered office has been transferred in the three months preceding the request to open the insolvency procedure.

If the debtor is a self-employed individual, the COMI is assumed to be the place of principal activity of the debtor or, for the individual exercising a liberal profession requiring a registration, the place of registration, unless the place of activity has been transferred in the three months preceding the request to open the insolvency procedure.

The enterprise court has jurisdiction over the opening of insolvency proceedings and any disputes arising from the insolvency.

An appeal against a court order must be lodged within 15 days of the publication of the judgment in the Belgian Official Gazette or from the notification of the judgment when the appeal is lodged by the bankrupt debtor.

Subject to a number of exceptions, any other court order made during an insolvency proceeding can also be appealed within a month of the notification of the judgment.

Lodging an appeal does not suspend the appealed decision during the appeal procedure. There is no requirement to post security to proceed with an appeal.

TYPES OF LIQUIDATION AND REORGANIZATION PROCESSES

Voluntary liquidations

6. What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

A voluntary winding-up takes place when the general assembly of a company’s shareholders decides to dissolve the company in accordance with its articles of association. Generally, such a decision requires the same quorum and majority as is required for any change to the articles of association of the company. The only exception to this rule applies when the company has lost more than three-quarters of its share capital, in which case the decision to dissolve the company can be taken by one-quarter of the members present or represented at the shareholders’ meeting.

Following the decision to dissolve the company, one or more liquidators must be appointed to manage the liquidation of the company. Under the Belgian Code of Companies and Associations, the appointment of the liquidators must be confirmed by the court in the case of a deficit liquidation. As from the appointment of the liquidators, the company will be deemed to continue to exist for liquidation purposes only.

As from the date of the decision to dissolve the company, all unsecured creditors are entitled to equal treatment, meaning that they will receive payment of their debts on a pro rata basis. A voluntary liquidation in accordance with the company’s articles of association presumes, however, that there are sufficient assets to cover all claims.

Voluntary reorganizations

7. What are the requirements for a debtor commencing a voluntary reorganization and what are the effects?

Book XX of the Belgian Code of Economic Law (the Insolvency Act) provides for two types of voluntary reorganization: an amicable settlement without any court involvement (or just for the appointment of a mediator), and judicial reorganization proceedings under the supervision of the courts.

Amicable settlement

Any debtor can enter into an amicable settlement with one or more of its creditors to address a difficult financial situation or to reorganize its business and ask for the appointment of a mediator if necessary. The parties to this amicable settlement are free to determine its content, but the amicable settlement does not affect the rights of third parties.

Under the Insolvency Act, the debtor or another party can file a copy of the amicable settlement with the court registry. The purpose of such filing is to protect the terms of the settlement and the transactions concluded under it against certain effects of the ‘suspect period’. In other words, the Insolvency Act provides a safe harbor against the risk of the amicable settlement and the related transactions being set aside in a subsequent bankruptcy proceeding. Third parties who are not involved in the settlement may only consult the amicable settlement with the express consent of the debtor.

Parties may request the court to approve the amicable settlement and, where appropriate, give it an enforceable nature for all or part of the claims specified therein. The court will refuse to approve the settlement if the debtor manifestly has no prospects of economic survival or if the settlement manifestly cannot be implemented without adverse effects on the rights of third parties to the assets of the debtor.

Mediation procedure for companies in financial difficulties

Following the law of 7 June 2023 transposing Directive (EU) 2019/1023 and modifying the Insolvency Act (the Restructuring Act), when the debtor considers that insolvency is imminent, it will be able to request the Chamber of Distressed Companies within the enterprise court to hear certain creditors – individually or jointly. The Chamber of Distressed Companies will assist the debtor in negotiating with these creditors.

The objective is to informally obtain an amicable settlement with the main creditors. The debtor may request the Chamber of Distressed Companies to appoint a restructuring expert to facilitate the recovery of the company and the negotiations with the creditors. The Chamber of Distressed Companies determines the content and duration of the restructuring expert’s appointment. Both the decision on the appointment and the restructuring expert’s reports are confidential in nature.

Judicial reorganization

The aim of a judicial reorganization is to maintain, under the court’s supervision, the continuity of all or part of the debtor’s business or activities. Judicial reorganization proceedings can only be started if the continuity of the debtor’s business is threatened in the short or long term. A company meeting the conditions for bankruptcy can also apply for a judicial reorganization procedure. A request for judicial reorganization is subject to substantial information and documentation requirements to limit abuse. J

udicial reorganization involves a moratorium granted in favor of the debtor for a period of up to four months. The moratorium is not granted if it concerns a debtor who has already applied for the opening of judicial reorganization less than 12 months before, unless the court decides otherwise in a motivated decision. During this moratorium period, no enforcement can take place in principle against the debtor’s assets and no bankruptcy proceedings can be opened in respect of the debtor.

A creditor who is manifestly aggrieved by the moratorium or whose own continuity is manifestly threatened by the moratorium may request the court to annul the effects of the moratorium in relation to that creditor. At the request of any interested party or the public prosecutor, the court may appoint a temporary administrator for the duration of the moratorium if it concludes that the debtor or one of its bodies has committed a manifest gross misconduct.

The three court-supervised reorganization processes are as follows.

Judicial reorganization by way of amicable settlement

The negotiations of this settlement take place under the court’s supervision (through a delegated judge and where appropriate, with the assistance of the restructuring expert). Once agreed, the amicable settlement will be presented to the court and the moratorium will end. Once sanctioned by the court, the amicable settlement is protected against certain effects of the suspect period in the same way as the out-of-court amicable settlement. The same principles regarding out-of-court amicable settlements apply, except that an amicable settlement under court supervision is not confidential and will be published, and that enforcement measures are suspended during the negotiations.

Judicial reorganization by way of collective agreement

As to the judicial reorganization by way of collective agreement, the Restructuring Act has introduced a separate regime depending on the size of the company. Large companies are companies, associations or foundations that exceed one or more of the following criteria for two consecutive financial years:

• annual average of 250 employees;
• an annual turnover excluding VAT of €40 million; or
• a balance sheet total of €20 million.

All other companies are SMEs.

A judicial reorganization by way of a collective agreement starts with a verification of all claims to be included in the reorganization plan. As such, the debtor will prepare a reorganization plan involving a description of the restructuring and of the creditors’ rights following the implementation of that restructuring. Also, secured creditors may see their payments deferred and enforcement rights suspended as a consequence of the reorganization plan for a period of up to 24 months starting on the date of the approval of the plan, on the condition that they continue to be paid their interest during this period.

For SMEs, the reorganization plan must provide for at least a partial repayment of the creditors, meaning that at least 20 per cent of each debt must be repaid to each creditor. The reorganization plan is then submitted to a vote and must be approved by more than half of the creditors representing more than half of the principal amount of the claims involved. If the plan is approved, the court will sanction the reorganization plan and the moratorium will end. The debtor will then be required to implement and comply with the reorganization plan, and if they fail to do so the creditors may require the court to revoke its approval of the reorganization plan.

For large companies, several classes of creditors are introduced for the purpose of voting on the reorganization plan. In brief, creditors are classified in separate classes if their rights differ to such an extent as regards their nature, their quality or their value that there can be no question of a comparable position. In any case, a distinction should be made between extraordinary creditors and ordinary (chirographic) creditors. It is important to note that SMEs may also opt for the new procedure on a voluntary basis. Capital investors will be able to intervene at the level of voting on the reorganization plan when their interests are affected.

The plan will be deemed approved by a class if the creditors or capital investors belonging to that class, representing at least half of all amounts and interests due in principal, vote in favor. A majority vote is requested among each of the classes for the plan to be approved. The claims and interests of those who do not participate in voting are not considered. If there are non-consenting creditors, the court must consider whether the ‘best interest of creditors test’ has been met. This will be the case if no non-consenting creditor is manifestly worse off under the reorganization plan than that creditor would be if the priority rules in liquidation were applied.

If one or more classes of creditors vote against the plan, the judge can overrule this negative vote and still approve the plan, provided additional approval criteria are met. To ensure that there is nonetheless sufficient support for the plan, the plan must be approved by the majority of the classes, with at least one ‘higher’ category of creditors having voted in favor. If there are only two categories, then obviously at least one category must have voted in favor.

The non-voting classes of creditors are protected because no deviation can be made, to their disadvantage, from the legal or contractual ranking that would apply in bankruptcy or judicial liquidation, unless there is reasonable cause for such deviation and the said creditors or capital investors are not manifestly disadvantaged by it.

Both the judicial reorganization by way of amicable agreement and the judicial reorganization by way of collective agreement may also be organized in a confidential manner with the assistance of a restructuring expert. In the case of a collective agreement, as opposed to the ordinary non-confidential procedure, the debtor is not obliged to involve all creditors. Uninvolved creditors are not aware of the procedure, meaning that the moratorium cannot be imposed upon them. As to involved creditors, the court may impose a moratorium for a maximum of four months. The court will have to approve the amicable or collective agreement for it to be enforceable vis-à-vis the involved creditors.

Judicial reorganization by way of a transfer of business under court supervision

The court can order the transfer of all or part of the business of the debtor either with or without the debtor’s consent at the request of any interested party if the debtor is bankrupt or if an attempted reorganization of the debtor has failed. A regime for the transfer of specific ongoing contracts is in place when the reorganization takes the form of a transfer of business.

Following the Restructuring Act, the transfer under judicial authority is now transformed into a liquidation procedure with the aim of transferring the assets or business of a company heading for bankruptcy to maximize proceeds for creditors. The court will appoint an insolvency practitioner. Furthermore, the court must summon the debtor to declare bankruptcy or the liquidation of the debtor. The insolvency practitioner who has intervened during the reorganization will be appointed trustee in bankruptcy in a subsequent bankruptcy, or liquidator in the case of a judicial liquidation.

Successful reorganizations

8. How are creditors classified for purposes of a reorganization plan and how is the plan approved? Can a reorganization plan release non-debtor parties from liability and, if so, in what circumstances?

To be effective, the plan in the framework of a judicial reorganization by way of collective agreement must contain two key sections:

• a section describing the status of the company (such as the financial structure of the company, its different areas of business and their profitability, the quality and motivation of management), the difficulties it faces and how the debtor intends to resolve them; and
• a section containing the necessary measures to pay off its debts. Such measures may include deferral or reduction of principal or interest, conversion of debt to equity, the rescheduling of payments or a restricted right to set off claims. Secured creditors may see their payments deferred and enforcement rights suspended for up to 24 months, on the condition that they continue to be paid their interest.

The reorganization plan is then submitted to a vote and must be approved by more than half of the creditors representing more than half of the principal amount of the claims involved in case of SMEs. For large companies, the voting takes place in different classes. If the plan is approved, the court will sanction the reorganization plan and the moratorium will end. The debtor will then be required to implement and comply with the reorganization plan, and if it fails to do so the creditors may require the court to revoke its approval of the reorganization plan.

A reorganization plan may also release non-debtor parties, such as sureties and guarantors from their obligations or liabilities to the company’s creditors.

Involuntary liquidations

9. What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

Creditors can request the court to terminate any ongoing judicial reorganization proceedings when it is manifest that the debtor can no longer preserve the continuity of its business. In that case, the court may decide to declare the debtor bankrupt or force the debtor into judicial liquidation proceedings. If the debtor is not in a judicial reorganization procedure, creditors can place a debtor in bankruptcy by serving a writ of summons before the enterprise court. Petitioners are required to demonstrate that the conditions for bankruptcy are met; that is, that the debtor has ceased in a persistent manner to pay its debts and is no longer able to obtain credit.

When serious, precise and congruent evidence shows that conditions for bankruptcy are met, a creditor may also make an ex parte application for an order that the debtor is no longer entitled to manage its assets (temporary divestiture) for a period of 21 days, after which a formal request for bankruptcy, judicial dissolution or judicial reorganization must be submitted to the court.

Belgian corporate law also provides the possibility for third parties to request the dissolution, and hence the liquidation, of a company in certain cases, if:

• the net assets are lower than the minimum share capital (only for companies that have a minimum share capital requirement);
• the company has not filed its annual accounts in accordance with the Belgian Code of Companies and Associations;
• the company is removed from the Crossroads Bank for Enterprises;
• despite two summons 30 days apart, the company has not appeared before the Chamber of Distressed Companies (which is a special chamber within the enterprise court, specifically dedicated to supervising distressed companies); and
• there is a lack of fundamental managing qualifications or professional certification required by law.

In the case of bankruptcy, the estate of the company or the individual will be liquidated. However, the Belgian Judicial Code enumerates a certain number of assets that are excluded from insolvency proceedings involving an individual. Once the available assets of the company have been fully realized (whether they are sufficient to meet its outstanding debts), it will cease to exist by operation of law. If the debtor is a natural person, they may be discharged by the court for the unpaid debts remaining after the bankruptcy and the Insolvency Act explicitly provides for an exclusion of any assets or income acquired by the debtor after the bankruptcy decision to encourage a second chance for the debtor.

Involuntary reorganizations

10. What are the requirements for creditors commencing an involuntary reorganization and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

A request for a judicial reorganization procedure can, as a general principle, only be filed by the debtor. Third parties may not launch the request on behalf of the debtor. In an exceptional case, an interested third party may, on its own initiative, initiate the judicial reorganization, namely, through a writ of summons for the transfer under judicial authority.

There are, however, important exceptions to this general principle:

• the public prosecutor, a creditor or any interested buyer can ask the court to transfer all or part of the debtor’s business, if:
• the debtor is bankrupt and has failed to file a request for a judicial reorganization;
• the court refuses to grant a judicial reorganization procedure, decides to close it before it is completed or revokes the reorganization plan;
• its creditors do not approve the reorganization plan; or
• the court refuses to ratify such a reorganization plan; and
• if there are events giving rise to an ability to manage the business or if there are manifest shortcomings on the part of the debtor (or its management bodies) that are threatening the continuity of its business or its economic activities, the public prosecutor, the debtor or any interested party may request the court to appoint an administrator. The court will determine the content and the mandate of the administrator, and it is possible that in the framework of such mandate the administrator could prepare the initiation of a judicial reorganization

If the debtor (or its management bodies) has made a manifest grave error during the reorganization proceedings, the judge may appoint a temporary administrator during the moratorium period.

Furthermore, the auditor of a company will be required to inform the board or management body of that company of any material circumstances that might jeopardize the company’s continuity. If the company does not take any measures to remedy the situation, the auditor may inform the court thereof.

Expedited reorganizations

11. Do procedures exist for expedited reorganizations (e.g, ‘prepackaged’ reorganizations)?

Following the Restructuring Act, if the bankruptcy conditions are met, a company may file for bankruptcy, and may simultaneously request in this respect that prior to the declaration of bankruptcy, the transfer of all or part of its assets and activities is prepared.

If the pre-pack phase is successful, the process will be converted into liquidation. The pre-pack process consists of the following steps.

• Initiation of the pre-pack:
• a debtor company may initiate the pre-pack procedure by filing a unilateral petition with the president of the competent enterprise court if the bankruptcy conditions are met. In its petition, the company must show that this method of preparing for bankruptcy facilitates the liquidation of the company whereby the highest possible pay-out to the joint creditors is achieved and preserves employment as much as possible;
• the petition will be decided upon by the president of the enterprise court in a confidential hearing. The decision is not published and cannot be opposed by third parties; and
• if the pre-pack petition is approved, the president will appoint one or more bankruptcy trustees, hereinafter referred to as intended bankruptcy trustee, who will eventually be appointed as bankruptcy trustee in the event of bankruptcy, subject to exception, and a delegate judge, hereinafter referred to as intended delegate judge, who will also be appointed as delegate judge in the bankruptcy, subject to exception.
• During the negotiation phase (Pre-Pack Phase):
• the debtor remains in control of its business and its assets and may terminate the pre-pack procedure at any time. The debtor will, however, need to hand over certain powers in relation to the reorganization process to the intended bankruptcy trustee;
• the negotiations are conducted by the intended bankruptcy trustee. The intended bankruptcy trustee will (among others) decide which creditors to include in the negotiations, will itself participate in the negotiations, issue a report to the delegated judge appointed by the court to supervise the process and, once an agreement is reached, request the court to initiate the judicial reorganization phase; and
• the pre-pack has the same objective as judicial reorganization by way of transfer of business under court supervision, which is to transfer the assets or business of a company heading for bankruptcy to maximize proceeds for creditors. During the pre-pack phase, there is no automatic moratorium or stay on enforcement by creditors. The company itself may still request the court to open bankruptcy proceedings at any time, and the intended bankruptcy trustee may request the court to cease the pre-pack process.
• After the negotiation phase:
• if a preparatory agreement is reached, bankruptcy or judicial liquidation proceedings will be opened; and
• as of the opening of bankruptcy proceedings, the debtor will enjoy the full moratorium offered by the formal bankruptcy proceedings whereby enforcement measures against the company’s assets will in principle be suspended.

Unsuccessful reorganizations

12. How is a proposed reorganization defeated and what is the effect of a reorganization plan not being approved? What if the debtor fails to perform a plan?

A judicial reorganization will fail if, during the moratorium, it becomes clear that the debtor can manifestly no longer preserve the continuity of its business or when the moratorium no longer supports negotiations on the reorganization plan. The court may then order the termination of the moratorium period at the request of the debtor, the public prosecutor, the insolvency practitioner or any other interested party. The court will also be entitled to declare the company bankrupt or to put it into liquidation proceedings.

A reorganization plan may be refused by creditors and if there are more than half of the creditors representing more than half of the principal amount of the claims involved, the plan cannot be pursued by the debtor in case of an SME. For large companies, the plan cannot be pursued if the creditors or capital investors, representing at least half of all amounts and interests due in principal, vote against the plan. The judge may also refuse to approve the plan if it does not respect the formalities provided for by the Insolvency Act or if it is against the public order.

In case of an amicable settlement, the judge may also refuse to approve the agreement if the debtor is manifestly not economically viable, or if the agreement prejudices the rights of third parties on the assets of the debtor. As for the reorganization by way of collective agreement, the judge may also refuse the plan if the rights of creditors are unreasonably prejudiced. Once again, the plan cannot be pursued in this case, even if enough creditors voted in favor of it.

If a creditor or the public prosecutor can prove that the debtor is not carrying out the recovery plan, that the debtor will not pursue the execution of the plan and that damages will result from the non-execution or that a creditor or group of creditors are being unfairly prejudiced by the plan, the reorganization may be ended by the judge.

Corporate procedures

13. Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

Belgian company law provides for voluntary dissolution and liquidation. Involuntary dissolution and liquidation may be ordered by the enterprise court:

• at the request of any interested party or the public prosecutor if the company has failed to file its annual accounts;
• at the request of any interested party if the net assets of the company drop below the minimum share capital (only for companies that have a minimum share capital requirement);
• at the request of any interested party if the company has been removed from the Crossroads Bank for Enterprises;
• at the request of any interested party if, despite two summons 30 days apart, the company has not appeared before the Chamber of Distressed Companies; or
• at the request of any interested party if there is a lack of fundamental managing qualifications or professional certification required by law.

In all these cases, liquidators are obliged to pay out to the creditors in accordance with the principle of equal treatment, subject, however, to the rights of secured creditors or creditors benefiting from a specific statutory lien. This process is similar to bankruptcy proceedings, with the exception that the court is not, in principle at least, involved in the liquidation proceedings, which are held on an informal basis.

Also, a corporation that has been dissolved and is in the process of being liquidated can still be declared bankrupt if the conditions for bankruptcy are met.

Conclusion of case

14. How are liquidation and reorganization cases formally concluded?

Voluntary or involuntary liquidation other than bankruptcy

Where a company has been liquidated either voluntarily or involuntarily, the liquidation will end with a distribution to the shareholders of all the assets that remain (if any) after debts have been paid or provided for.

The liquidators will call a general meeting of shareholders to which the liquidators submit the final accounts and at which the shareholders appoint commissioners to review the accounts. At a second general meeting, the shareholders review the way the liquidators have performed their duties based on a report presented by the commissioners. The formal termination of the liquidation will be published and filed in the company’s official record at the enterprise court. A simplified procedure exists in case the company has no debts outstanding.

Conclusion of bankruptcy liquidation

A bankruptcy may be terminated by the court (ex officio or at the initiative of the bankruptcy trustee) when the assets will not cover the expenses of handling the bankrupt estate. Extracts of the judgment ordering the termination will be published in the Belgian Official Gazette. As a consequence of that decision, the bankrupt company will immediately be dissolved.

Termination of the bankruptcy after a full liquidation of the assets is only ordered by the court at the request of the bankruptcy trustee. The bankruptcy trustee will make the request following a final creditors’ meeting where the final accounts of the liquidation are presented and discussed, and after the final distribution of the liquidation proceeds. The debtor will be notified of the trustee’s application and will have the opportunity to oppose the closure. The termination order will only come into force one month after its publication, during which time the court may withdraw the order at the request of the creditors.

Some assets are excluded from the bankruptcy assets by the Insolvency Act. Such assets include the goods, amounts and payments that the debtor receives after the bankruptcy declaration and that are related to the debtor’s activities occurring after the bankruptcy. This is to promote a second chance for the debtor. Applying the same reasoning, a bankrupt individual (as opposed to a company) is discharged from any remaining debt if it asks for this discharge. The guarantors also benefit from this discharge.

The termination order relating to the bankruptcy of a company causes the immediate dissolution of the company. Extracts of the order will be published in the Belgian Official Gazette.

Conclusion of a judicial reorganization

A judicial reorganization is concluded by:

• the court concluding that the debtor can manifestly no longer assure the continuity of its business (i.e, that the debtor is unable to enter into an amicable settlement or a collective agreement with its creditors);
• an agreed amicable settlement presented to the court;
• the full performance of the reorganization plan;
• the revocation of the reorganization plan by the court;
• the completion of the sale of the business; and
• a declaration of bankruptcy or liquidation.

Conclusion of a pre-pack phase

If the pre-pack phase is successful and a preparatory agreement is reached, the president of the enterprise court will refer the matter to the insolvency chamber for the formal opening of expedited liquidation proceeding.

An (unsuccessful) pre-pack phase may be terminated at any time by the debtor company. It can also be terminated at the request of the intended bankruptcy trustee.

INSOLVENCY TESTS AND FILING REQUIREMENTS

Conditions for insolvency

15. What is the test to determine if a debtor is insolvent?

Belgian law has no uniform criteria to determine whether a debtor is insolvent. Each regime (bankruptcy and judicial reorganization) has different criteria. The debtor is in a state of bankruptcy from the moment it has consistently ceased to pay its debts when they fall due and no longer has the trust of its creditors. A debtor can apply for a judicial reorganization when the continuity of that debtor’s business seems to be threatened in the long or short term.

Mandatory filing

16. Must companies commence insolvency proceedings in particular circumstances?

The debtor is under a legal obligation to file for bankruptcy within one month of such time it has consistently ceased to pay its debts. However, if the debtor considers that there is a possibility for the continuity of the undertaking, it can also file for a judicial reorganization, even if the debtor is in a situation of cessation of payments. In this case, the debtor is protected from bankruptcy during the term of the judicial reorganization procedure. Such protection from bankruptcy only applies during an active judicial reorganization procedure.

DIRECTORS AND OFFICERS

Directors’ liability – failure to commence proceedings and trading while insolvent

17. If proceedings are not commenced, what liability can result for directors and officers? What are the consequences for directors and officers if a company carries on business while insolvent?

If bankruptcy proceedings are not commenced within one month of the debtor company having consistently ceased to pay its debt, the debtor may be subject to both criminal and civil liabilities. In practice, criminal sanctions will not be ordered for the sole fact of not having filed for bankruptcy in due time. Civil sanctions are, however, significant, as directors may be held personally liable for the increase of the liabilities resulting from the delay in filing for bankruptcy.

Under Belgian law, not only formally appointed directors but also de facto or shadow directors (persons that perform positive acts of management without a mandate from the company) can be held liable towards the company or third parties.

Furthermore, directors and de facto or shadow directors may be (personally or jointly and severally) held liable for (part of) the remaining debts of the bankrupt company if those directors, prior to the bankruptcy, knew or should have known that there was no reasonable prospect of continuing the company’s activities and of avoiding a bankruptcy, and they nevertheless continued a (significantly) loss-making activity (liability for wrongful trading), provided they failed to act as normal, prudent and diligent directors would in the same circumstances.

Liability claims for willful misconduct are made by the bankruptcy trustee or by the creditor if the bankruptcy trustee does not make a claim within one month of a creditor so requesting.

Directors’ liability – other sources of liability

18. Apart from failure to file for proceedings, are corporate officers and directors personally liable for their corporation’s obligations? Are they liable for corporate pre-insolvency or pre-reorganization actions? Can they be subject to sanctions for other reasons?

In general, directors and officers are not liable for the company’s debts. There are, however, in addition to the corporate rules on directors’ liability (in particular, for breaches of the company’s articles of association or Belgian company law), specific provisions applicable in relation to bankruptcy.

Accordingly, directors or former directors of a bankrupt company may be held liable at the request of the bankruptcy trustee or the creditors if, owing to their obvious and serious mismanagement, the company is unable to pay its debts in full. In this case, the directors will be liable to the extent that the creditors are not fully satisfied with the proceeds of the bankrupt estate. Also, specific legislation allows the tax and social security administration, as well as the bankruptcy trustee, to hold directors liable for certain amounts due in respect of compliance with tax and social security legislation.

Directors’ liability – defenses

19. What defenses are available to directors and officers in the context of an insolvency or reorganization?

Defenses for failure to commence proceedings and trading while insolvent

Liability exists as of the moment it has been determined that there was a failure to commence proceedings and that there was trading while insolvent. There is no requirement of causality between the late filing and the damages (i.e, the increase of the liabilities resulting from the delay in filing for bankruptcy). As a result, the only defense is to demonstrate that the company was not yet insolvent.

Defenses for other sources of liability for the debts of the company

First, directors and officers may refute their liability by proving that they did not commit a manifestly grave error. If the directors or officers prove that the error they committed was not manifest or grave, they may avoid liability. Second, directors and officers may refute their liability by proving that their mismanagement did not contribute to the bankruptcy (i.e, that there is no causality). However, the threshold for providing such proof is very high, as they will have to prove that, without their mismanagement, bankruptcy would have occurred in the same way.

Shift in directors’ duties

20. Do the duties that directors owe to the corporation shift to the creditors when an insolvency or reorganization proceeding is likely? When?

No, there is no shift of duties provided for by law.

Directors’ powers after proceedings commence

21. What powers can directors and officers exercise after liquidation or reorganization proceedings are commenced by, or against, their corporation?

During reorganization proceedings, the company remains in charge of all its assets, and directors and officers will have to manage them to implement an amicable settlement or reorganization plan, or to complete the transfer of business.

During bankruptcy proceedings, the assets of the company are managed by the bankruptcy trustee.

During liquidation proceedings, directors and officers have no power, as the appointed liquidator will be in charge of the liquidation of the company. However, if no liquidator has been appointed, directors and officers are the presumed liquidators.

MATTERS ARISING IN A LIQUIDATION OR REORGANIZATION

Stays of proceedings and moratoria

22. What prohibitions against the continuation of legal proceedings or the enforcement of claims by creditors apply in liquidations and reorganizations? In what circumstances may creditors obtain relief from such prohibitions?

Liquidation

The immediate effect of the declaration of bankruptcy is that any legal or enforcement proceedings are suspended. Secured creditors can only commence or continue enforcement proceedings subject to limits set by the bankruptcy legislation.

Reorganization

In the case of a request for a judicial reorganization, no enforcement of any security can be effected nor can the debtor be declared bankrupt or liquidated before the court’s ruling on such a request. The judicial reorganization involves a moratorium granted to the debtor for up to four months.

During this moratorium period, no enforcement can take place in principle against the debtor’s assets and no bankruptcy proceedings can be opened in respect of the debtor. Creditors will, however, be able to effect set-off, enforce security over financial collateral and enforce receivables pledges. At the request of a creditor who is manifestly disadvantaged by the moratorium or whose own continuity is manifestly threatened by the moratorium, the court may lift the effects of the moratorium in respect of such creditor.

The court will proceed to do so only to the extent that the continuity of all or part of the debtor’s assets or business is not jeopardized thereby. This moratorium does not affect ongoing contracts, but the debtor can decide, even if not contractually permitted to do so, not to perform the obligations under the relevant contract (other than employment contracts) during the moratorium if necessary for the purposes of the reorganization plan or the transfer of the business.

However, under Book XX of the Belgian Code of Economic Law (the Insolvency Act), the suspension of enforcement does not apply to the sale of any movable or immovable assets seized by a creditor and for which the date of sale is scheduled less than two months after the filing of the request for judicial reorganization (the court can still suspend it). It also does not preclude creditors from benefiting from any new security interest (e.g, the conversion of any mortgage mandate). Finally, a pledge on receivables is not affected by the suspension, and the collection of those receivables during the suspension period remains possible.

The moratorium period will end and the creditors will, in principle, regain their full rights and may proceed to the enforcement of their rights (including the security, taking into account the limitations imposed by an agreed settlement or approved reorganization plan) against the debtor, if:

• the reorganization is unsuccessful;
• an agreed amicable settlement is presented to the court;
• a reorganization plan approved by more than half of the creditors (representing more than half of the principal amount of the claims involved) is ratified by the court; however, depending on the content of the reorganization plan, certain secured creditors can see their payments deferred and enforcement rights suspended for up to 24 months; and
• the reorganization procedure is terminated following the completion of the sale of the business.

Doing business

23. When can the debtor carry on business during a liquidation or reorganization? Is any special treatment given to creditors who supply goods or services after the filing? What are the roles of the creditors and the court in supervising the debtor’s business activities?

In the case of a judicial reorganization, the court will in principle allow the debtor to continue operating its business during the moratorium period. The debtor (or its managing bodies) may nevertheless be precluded by the court from performing any act of management if the debtor (or its management bodies) has made a manifest grave error. In that case, any interested party or the public prosecutor may request the court to appoint an administrator to continue the judicial reorganization procedure and the debtor (or its managing bodies) will cease to be involved during the reorganization.

In principle, all ongoing contracts (i.e, contracts existing before the commencement of the proceedings but that provide for further performance by the parties) will continue in effect notwithstanding the judicial reorganization but may be terminated during the judicial reorganization by the counterparty to the extent that the debtor defaults.

A contractual default by the debtor occurring before the opening of the reorganization procedure cannot be considered a valid reason for the counterparty to terminate the contract to the extent that the default is remedied within 15 days of being notified to the creditor. The debtor may, within 14 days of the opening of the judicial reorganization proceedings, decide to cease to perform its obligations under a contract (other than employment contracts) during the moratorium if necessary for the purposes of the reorganization plan or the transfer of the business.

To support the debtor in securing further business and credit, the judicial reorganization legislation provides that debts arising during the judicial reorganization period (including claims arising from new agreements as well as claims in relation to agreements for periodically renewable performance or services) will be treated preferentially over all other creditors in the event of a subsequent bankruptcy or liquidation. Also, new claims arising out of the performance of agreements after the opening of judicial reorganization proceedings are not subject to the moratorium. If the debtor fails to pay amounts due in respect of such performance after the opening of judicial reorganization proceedings, the creditor will have the ability to enforce.

Post-filing credit

24. May a debtor in a liquidation or reorganization obtain secured or unsecured loans or credit? What priority is or can be given to such loans or credit?

Liquidation

Secured or unsecured loans or credit granted after the commencement of bankruptcy or liquidation proceedings will receive preferential treatment over other claims to the extent that they can be considered as administrative expenses. The Belgian Court of Cassation has defined administrative expenses as debts contracted by the bankruptcy trustee for the purposes of the administration of the bankrupt estate.

Reorganization

Claims arising from transactions entered into after the commencement of judicial reorganization proceedings will be considered as administrative expenses in a subsequent bankruptcy or liquidation and will be treated as preferential claims.

Sale of assets

25. In reorganizations and liquidations, what provisions apply to the sale of specific assets out of the ordinary course of business and to the sale of the entire business of the debtor? Does the purchaser acquire the assets ‘free and clear’ of claims or do some liabilities pass with the assets?

Bankruptcy

The liquidation of the assets of the bankrupt estate by the bankruptcy trustee will start as of the first verification of the claims. The debtor can be heard on how the realization of the assets could yield the highest proceeds. The assets are sold by the bankruptcy trustee under the supervision of the court. Creditors can start urgency proceedings if they claim to be prejudiced by an intended sale. In this case, the court can appoint an ad hoc bankruptcy trustee to prevent the sale.

In either case, the purchaser will acquire the assets free and clear from the insolvent estate.

Judicial reorganization

During judicial reorganization proceedings, the court can order the transfer of all or part of the debtor’s business, either with or without the debtor’s consent, at the request of any interested party if the debtor is bankrupt or if an attempted reorganization of the debtor has failed. In such circumstances, the court will appoint a representative who will manage the sale and transfer. If comparable offers are also being made, priority must be given to the preservation of employment.

Following the decision by the Court of Justice of the European Union (CJEU) of 16 May 2019 (C-509/17 Christa Plessers v PREFACO NV and Belgische Staat [2019] ECLI:EU:C:424), all employees should be transferred to the acquirer in the context of a judicial reorganization procedure under judicial authority. This case was brought before the CJEU because Belgian law stipulates that an acquirer has the choice of whether to transfer employees.

However, one of the employees not transferred during the judicial reorganization of a Belgian company successfully argued that this provision was contrary to article 3 of Directive 2001/23/EC on the approximation of the laws of the member states relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses. This article sets out that ‘the transferor’s rights and obligations arising from the contract of employment or the employment relationship existing on the date of the transfer shall, by reason of the transfer, be transferred to the transferee’.

However, the latter provision does not apply if the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings that have been instituted with a view to the liquidation of the assets of the transfer under the supervision of a competent public authority (article 5 of Directive 2001/23/EC). The Antwerp labor Court asked a preliminary question to the CJEU. On 16 May 2019, in its reply to the preliminary question, the CJEU handed down the judgment concluding that the conditions were not met and that articles 3 and 4 of Directive 2001/23/EC apply.

As a result, in the context of a judicial reorganization, the transferee of the company by means of a transfer under judicial authority will most likely need to accept the transfer of all employees. However, further to a decision of 28 April 2022 of the CJEU (Heiploeg, C-237/20, ECLI:EU:C:2022:321) rendered in a context of a Dutch pre-pack procedure, some legal scholars consider that this decision could provide grounds to challenge the decision of 16 May 2019 of the CJEU.

In the Restructuring Act, the Belgian legislator has specified that the final purpose of the judicial reorganization by transfer of business under judicial authority was the liquidation of the business of the transferor.

In doing so, the Belgian legislator intends to align the Belgian rules on the judicial reorganization by transfer of business under judicial authority with the requirements of article 5(1) of Directive 2001/23/EC on the approximation of the laws of the member states relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses and, hence, to allow the transferee of the business to potentially only transfer certain (and not all) employees from the transferor. The choice of transferee must be dictated by technical, economic or organizational reasons and must be made without prohibited differentiation. Under the Restructuring Act, such choice will also be controlled by the tribunal that approves the transfer.

The Restructuring Act will enter into force on 1 September 2023. It remains to be seen whether the new law will put an end to the uncertainty around the transfer of employees of the transferor in the context of judicial reorganization by transfer of business under judicial authority.

Once an offer has been selected, the court will hear the various stakeholders, including creditors, and will either approve, impose conditions if appropriate or reject the sale. Following the completion of the sale of the business, the creditors will be entitled to exercise their rights in respect of the sale proceeds and the judicial reorganization will be terminated. The purchaser will acquire the assets free and clear out of the reorganization unless the reorganization plan provides differently.

The sale of certain assets of the company can also form part of the reorganization plan. In this case, the debtor must decide which assets to sell and at what price. The reorganization plan is then submitted to a vote and must be approved by more than half of the creditors representing more than half of the principal amount of the claims involved. The purchaser will acquire the assets free and clear unless the reorganization plan provides differently.

Negotiating sale of assets

26. Does your system allow for ‘stalking horse’ bids in sale procedures and does your system permit credit bidding in sales?

Stalking horse bids are not strictly prohibited under Belgian law but are difficult to achieve in the context of insolvency proceedings, as they would require the consent of all parties involved.

In the case of an insolvency proceeding, this is difficult to achieve as set-off after insolvency is prohibited in principle and only allowed in very limited circumstances (i.e, where both debts are closely connected).

Rejection and disclaimer of contracts

27. Can a debtor undergoing a liquidation or reorganization reject or disclaim an unfavorable contract? Are there contracts that may not be rejected? What procedure is followed to reject a contract and what is the effect of rejection on the other party? What happens if a debtor breaches the contract after the insolvency case is opened?

There are no specific provisions allowing the debtor to reject or disclaim an unfavorable contract. The Insolvency Act, concerning reorganizations, provides for the possibility of the debtor suspending the performance of its contractual obligations if such suspension is essential for the reorganization of the business and the counterparty is notified of the same within 14 days of the commencement of the judicial reorganization proceedings. This does not apply to employment contracts.

Concerning bankruptcies, the bankruptcy trustee must decide immediately if it continues the contracts concluded before the bankruptcy declaration that were not terminated by the declaration itself. However, such a decision cannot prejudice the rights of third parties. Counterparties of the bankrupt entity or individuals may also ask the bankruptcy trustee to take a decision within a 15-day period and they can consider the contract as terminated if no answer is given after this time by the bankruptcy trustee.

Intellectual property assets

28. May an IP licensor or owner terminate the debtor’s right to use the IP when a liquidation or reorganization is opened? To what extent may IP rights granted under an agreement with the debtor continue to be used?

Various pieces of intellectual property (IP) legislation contain provisions addressing the consequences of insolvency on IP rights, with various outcomes depending on the type of IP right. In certain cases, the owner of the relevant rights can terminate the debtor’s right to use the IP upon insolvency. However, the bankruptcy trustee may also be able to continue using the relevant IP rights in certain circumstances determined by law.

Personal data

29. Where personal information or customer data collected by a company in liquidation or reorganization is valuable, are there any restrictions in your country on the use of that information or its transfer to a purchaser?

There is no general prohibition or restriction on the transfer of personal data in cases of insolvency. However, such a transfer is likely to fall within the scope of Regulation (EU) 2016/679 (the General Data Protection Regulation or GDPR) and its Belgian implementation law of 30 July 2018.

Under the GDPR, such a transfer of data amounts to a communication of the data to a third party, which will become the new data controller after the transfer.

As with any other processing of personal data, it is necessary to assess whether the transfer is justified by any of the legal grounds set out by the Data Protection Act and the GDPR.

If the transfer of personal data is justified by the legitimate interest of the insolvent transferor, the interests and fundamental rights of the data subjects must be taken into account. It must, therefore, be assessed whether such legitimate interest is overridden by the fundamental rights and freedoms of the data subjects.

In the context of customer and employee data, it is arguable that the transfer is also in the interests of the data subjects (as they have an interest in the continuity of the business), but this may have to be assessed with additional information on the kind of data and the purposes of the processing.

In any event, data subjects should be informed of the transfer of their data to the third party or any change of data controller.

The Insolvency Act has created an electronic register relating to insolvencies and containing, among other things, all data that identifies the debtors, creditors, insolvency actors, delegate judges and bankruptcy judges.

If the insolvency process triggers a transfer of data outside the European Economic Area, the impact of the decisions of the CJEU of 16 May 2019 and 16 July 2020 (C-311/18, Data Protection Commissioner v Facebook Ireland Limited, Maximillian Schrems) should be assessed.

Arbitration processes

30. How frequently is arbitration used in liquidation or reorganization proceedings? Are there certain types of disputes that may not be arbitrated? Can disputes that arise after the liquidation or reorganization case is opened be arbitrated with the consent of the parties?

It is generally accepted that litigation directly arising in the context of insolvency proceedings cannot be referred to arbitration. Nevertheless, leading authors have cast doubt on the validation of this general prohibition, suggesting that arbitration proceedings involving the bankruptcy trustee should be allowed, except where the courts have been granted exclusive jurisdiction over the relevant matter by law.

CREDITOR REMEDIES

Creditors’ enforcement

31. Are there processes by which some or all of the assets of a business may be seized outside of court proceedings? How are these processes carried out?

The Financial Collateral Act of 15 December 2004 and the Act of 11 July 2013 on security interests both allow seizure of pledged assets outside of court proceedings. The pledgor and pledgee can agree on the terms of enforcement, including the possibility to appropriate the pledged assets.

Unsecured credit

32. What remedies are available to unsecured creditors? Are the processes difficult or time-consuming? Are pre-judgment attachments available?

Before the commencement of insolvency proceedings, unsecured creditors can enforce their rights against a defaulting debtor by obtaining a court order attaching the debtor’s assets and requiring them to be sold. A distinction should be made between a prejudgment conservatory attachment (which, for movable properties, can be obtained within days in cases of real urgency; for immovable properties, it can take up to approximately one month) and a post-judgment enforcement attachment (which requires either an enforceable judgment or an enforceable notarized deed that details the exact amount due to the creditor).

At the time of the commencement of a judicial reorganization or bankruptcy, attachment and other enforcement measures against the defaulting debtor will be suspended. The Belgian Code of Economic Law also allows for creditors to use their right to benefit from any new security interest (e.g, the conversion of a mortgage mandate or the taking of any legal mortgage by the tax authorities), even when reorganization proceedings have already begun.

CREDITOR INVOLVEMENT AND PROVING CLAIMS

Creditor participation

33. During the liquidation or reorganization, what notices are given to creditors? What meetings are held and how are they called? What information regarding the administration of the estate, its assets and the claims against it is available to creditors or creditors’ committees? What are the liquidator’s reporting obligations?

Bankruptcy procedure

Creditors are notified of the bankruptcy order by its publication in the Belgian Official Gazette and by its publication in two newspapers.

Creditors’ meetings are held on several occasions during the bankruptcy process. The first creditors’ meeting is held when the official verification report of outstanding claims is delivered and the bankruptcy trustee reports on all the admitted and contested claims. The contested claims are discussed and referred to a later court session for the decision on the subject matter.

Further creditors’ meetings may be called at any time, as the need arises. As of the third anniversary of the declaration of bankruptcy, a creditors’ meeting may be held at the request of any creditor, subject to the approval of the court (unless requested by creditors representing at least one-third of the liabilities of the bankruptcy estate, in which case court approval is not required).

At that meeting, the bankruptcy trustee needs to explain the status of the liquidation. Finally, at the end of the liquidation procedure, a creditors’ meeting is held at which the final accounts are settled. Creditors’ meetings are called by court order and the order is published in the bankruptcy register at least one month before the date of the meeting, although publication in the bankruptcy register can be replaced by a notice given by the bankruptcy trustee to all registered creditors.

In addition to the calling of meetings, creditors also exercise other powers in relation to the administration of the bankruptcy. First, creditors may challenge the official verification report of the outstanding claims within one month of its presentation to the court. Second, creditors that disagree with a planned forced sale of assets during the liquidation phase may request the ad hoc appointment of a trustee for the sale.

Creditors may also appeal against the court’s decision regarding the final discharge of the debtor, as no further action by creditors will be possible after the bankruptcy once such clearance has been given by the court. Finally, creditors are entitled to file damage claims against directors of the debtor if their obvious and serious mismanagement has contributed to the bankruptcy (the law contains an irrefutable presumption that organized tax fraud within the meaning of the money laundering legislation consists of such obvious and serious mismanagement).

Reorganization procedure

Creditors are notified of the opening of a reorganization procedure by the publication of an extract of the judgment in the Belgian Official Gazette.

When the reorganization procedure aims at obtaining an approval of a reorganization plan, the court sets a date, an hour and a place for the hearing during which the vote and the approval of the plan will occur.

Within eight days following the judgment opening the procedure, the debtor must send information to the creditors, including the list of creditors and the amount of their debts. Any creditor may contest in court the amount or the qualification of the debt made in the list they received. Creditors can also file their claims in the reorganization register.

Creditors also have powers in relation to the handling of the reorganization. First, they may ask for the appointment of a temporary administrator (for the moratorium period) in the case of serious and obvious errors of the debtor. Second, they may ask for the early termination of the reorganization procedure when the debtor is obviously incapable of continuing its activities, or when the information that was provided at the opening of the procedure was incomplete or false. Finally, they may ask for the revocation of the reorganization plan when it is not properly executed by the debtor.

Pre-pack reorganization procedure

The pre-pack itself is, in principle, confidential, and the court’s decision to open a pre-pack procedure will not be published.

Creditor representation

34. What committees can be formed (or representative counsel appointed) and what powers or responsibilities do they have? How are they selected and appointed? May they retain advisers and how are their expenses funded?

There is no formal process under Belgian law for the formation of creditors’ committees.

Enforcement of estate’s rights

35. If the liquidator has no assets to pursue a claim, may the creditors pursue the estate’s remedies? If so, to whom do the fruits of the remedies belong? Can they be assigned to a third party?

In bankruptcy proceedings, the bankruptcy trustee will have exclusive responsibility to pursue the claims of the debtor.

In a judicial reorganization, the debtor will continue to have the right to pursue any of its claims.

Claims

36. How is a creditor’s claim submitted and what are the time limits? How are claims disallowed and how does a creditor appeal? Can claims for contingent or unliquidated amounts be recognized? Are there provisions on the transfer of claims and must transfers be disclosed? How are the amounts of such claims determined?

Bankruptcy

All creditors must file their claims in the bankruptcy register by the date provided for in the bankruptcy declaration (at the latest). This date is determined by the court and must be no later than 30 days after the date of the bankruptcy order. This obligation does not apply to natural persons nor foreign legal persons, except if they are represented by a third party giving professional judicial assistance.

Creditors receive notification of the filing requirement through a message in the bankruptcy register and, to the extent their identity is known, through a letter from the bankruptcy trustee. Filing a claim requires the completion of a standard form (which contains mandatory information about the creditor, the amount of its claim and any security) and the submission of certain supporting evidence. Special provisions have also been adopted in relation to the claims filed by the employees compelling the bankruptcy trustee to assist the debtors’ employees in establishing their claim.

Creditors that do not file their claim in time lose their right to participate in any distribution and lose any priority to which they may have been entitled. They can, however, still request the ‘recognition’ of their claims up until the day of the last creditors’ meeting when all the accounts are finally settled at their own expense. If their claim is accepted at a later stage, the creditor will only be allowed to receive a portion of the assets left for distribution at that time.

The bankruptcy order will also set the date for the final verification of claims. This date must be at least five days, and no more than 30 days, after the last filing date for claims. Claims that are disputed by the bankruptcy trustee during the verification process will be decided upon by the court.

There are no provisions specifically dealing with the transfer of claims. Any transfers would thus need to comply with the general statutory and contractual provisions on the transfer of claims. Given the filing process, it is advisable that any transfer be disclosed to the bankruptcy trustee and filed with the court.

The creditor of a claim for contingent amounts can file such a claim in an insolvency proceeding and can request that the contingent nature of the claim is taken into account. In the case of the debtor’s bankruptcy, the creditor can preserve their rights by having the claim recorded and requesting any measures that they deem necessary (sealing assets, having an inventory made and so on).

If the conditions on which the relevant claim depends would only become effective after the declaratory judgment, the bankruptcy trustee can decide to reserve the share of this creditor until such conditions are met. As from the bankruptcy decision, interest on unpaid amounts no longer accrues unless the creditor has a claim secured by a mortgage or a pledge.

Judicial reorganizations

According to Book XX of the Belgian Code of Economic Law (the Insolvency Act), creditors must file their claims in all types of reorganizations (even for amicable settlements with only two creditors).

Set-off and netting

37. To what extent may creditors exercise rights of set-off or netting in a liquidation or in a reorganization? Can creditors be deprived of the right of set-off either temporarily or permanently?

Pursuant to the Financial Collateral Act of 15 December 2004, creditors can exercise the right of set-off after the opening of bankruptcy or judicial reorganization proceedings only to the extent that:

• the set-off right was agreed between the parties before the opening of insolvency proceedings (if the set-off right was agreed after the opening of insolvency proceedings, it will only be enforceable if the relevant creditor was lawfully unaware of the opening of insolvency proceedings affecting their debtor at the time the set-off right was agreed);
• the set-off relates to mutual debts existing at the time of the opening of the insolvency proceedings; and
• the creditor is a merchant (i.e, someone who regularly enters into commercial contracts).

Set-off and netting agreements will not be declared ineffective unless they constitute a gratuitous transaction (i.e, a transaction for no consideration) or transaction at an undervalue, or if they have been entered into with fraudulent intent.

If the conditions set out above are not met, creditors are precluded from exercising any right of set-off following the occurrence of an insolvency event except where the claims to be set off against each other are closely connected, in which case set-off will be allowed. It is generally accepted that claims arising out of the same contract can be considered as closely connected.

The above relates to all forms of conventional set-off, that is, set-off agreed between the parties. Other forms of set-off also exist, in particular statutory set-off and judicial set-off. Statutory set-off is not enforceable after the occurrence of an insolvency event except where claims are closely connected. The right of statutory set-off of the Belgian tax authorities is enforceable after the opening of insolvency proceedings. Judicial set-off is not enforceable after the occurrence of the insolvency event.

Modifying creditors’ rights

38. May the court change the rank (priority) of a creditor’s claim? If so, what are the grounds for doing so and how frequently does this occur?

A court cannot change the rank of a creditor’s claim in a bankruptcy, as such ranking is determined by law. In a judicial reorganization, a court may approve a restructuring plan that modifies the ranking of a class of claims.

Priority claims

39. Apart from employee-related claims, what are the major privileged and priority claims in liquidations and reorganizations? Which have priority over secured creditors?

Government priority claims

The most important government statutory liens are those asserted by the social security and tax authorities (including direct and indirect taxes, national, regional and local taxes). Certain other specific statutory liens also take precedence, including the following non-government priority claims:

• enforcement costs incurred in the interest of creditors generally;
• costs incurred in saving or maintaining a specific asset;
• the unpaid purchase price for the sale of movable or immovable assets;
• unpaid rent on a building; and
• unpaid premiums for the insurance of assets.

The bankruptcy legislation distinguishes between general statutory liens, which apply in general to the bankrupt estate, and specific statutory liens, which apply to specific assets within the bankrupt estate. As a general rule, specific statutory liens will take priority over general statutory liens. Priority among specific statutory liens will be determined by law, which establishes a ranking of these specific statutory liens. Secured claims will, in general, take priority over any general statutory liens.

Priority between creditors with a specific statutory lien and secured creditors has generated a substantial amount of case law, where often the date on which the security interest has become enforceable against third parties will determine priority. Administrative expenses will take priority over unsecured creditors and creditors with a general statutory lien. They will also take priority over secured creditors and creditors with a specific statutory lien, but only to the extent that they have benefited from the administrative expenses. The Insolvency Act allows for tax authorities to take a legal mortgage even after the request for reorganization, which benefits them.

Employment-related liabilities

40. What employee claims arise where employees’ contracts are terminated during a restructuring or liquidation? What are the procedures for termination? (Are employee claims as a whole increased where large numbers of employees’ contracts are terminated or where the business ceases operations?)

A restructuring involving a substantial reduction of the workforce may, depending on the number of proposed dismissals and the time frame during which these dismissals are to be made, constitute a collective dismissal. Where this is the case, specific obligations are imposed on the employer in addition to the usual statutory requirements relating to the termination of individual contracts, including a requirement to provide significant prior information to, and to continue to consult with, the employee representatives or the employees themselves, and to notify the labor authorities before any final decision is taken.

Furthermore, a collective dismissal also triggers specific employment-related measures such as the payment of a collective dismissal or closure indemnity to the dismissed employees (on top of their standard severance package) and the setting up of an outplacement service. Following the decision by the Court of Justice of the European Union (CJEU) of 16 May 2019, all employees are likely to be transferred to the acquirer in the context of a judicial reorganization procedure under judicial authority.

However, further to a decision of 28 April 2022 of the CJEU (Heiploeg, C-237/20, ECLI:EU:C:2022:321) rendered in a context of a Dutch pre-pack procedure, certain legal scholars consider that this decision could provide grounds to challenge the decision of 16 May 2019 of the CJEU.

In a restructuring involving bankruptcy proceedings, claims of employees against the employer will essentially relate to the payment of unpaid severance entitlements following the termination of their employment contracts and their pension entitlements. In the case of a reorganization, the reorganization plan cannot reduce the payments related to employment contracts for services provided before the reorganization.

Claims for unpaid severance entitlements have priority in proceedings against an insolvent employer. However, this priority comes after other prioritized claims and relates only to the proceeds of the employer’s movable assets.

With respect to pension liabilities in cases where occupational pension plans have been set up by the employer for the benefit of the employees, the main protection against employer insolvency is the external financing requirement for occupational pension schemes. As a consequence, employer insolvency must not be detrimental to an employee’s occupational complementary pension entitlements.

Where an employer has not funded an occupational pension plan sufficiently, an employee’s pension entitlements under that plan may be reduced and the Belgian Business Closure Fund may intervene. Employees can file a claim against the insolvent employer in respect of the loss suffered as a consequence of such underfunding.

Pension claims

41. What remedies exist for pension-related claims against employers in insolvency or reorganization proceedings and what priorities attach to such claims?

In Belgium, pension arrangements are externalized (e.g, with an insurance company) or held by a different entity than the employer (e.g, a pension fund). A bankruptcy of the employer will not have any influence on the rights that are already accumulated under the relevant pension arrangement. Acquired reserves are absolutely protected. There is, however, no priority attached to a claim of pension benefit.

Employees benefit from a priority right with respect to unpaid wages; however, it is not yet clear in case law whether such priority rights should also be attached to a claim of the employee concerning the unpaid contribution by the employer.

Similarly, there is no complete consensus on whether the Belgian Business Closure Fund should intervene to cover the unpaid employer’s contributions in the event of closure of the business. In any event, the Belgian Business Closure Fund’s intervention would be capped.

Environmental problems and liabilities

42. Where there are environmental problems, who is responsible for controlling the environmental problem and for remediating the damage caused? Are any of these liabilities imposed on the insolvency administrator personally, secured or unsecured creditors, the debtor’s officers and directors, or on third parties?

Environmental liability of an insolvent party will be treated like all other unsecured liabilities. Particular liabilities and obligations may be imposed through specific legislation. For instance, under the decree of the Flemish Council of 27 October 2006 concerning soil decontamination and soil protection, the curator in insolvency proceedings has the obligation to issue a soil examination for terrain owned by the company that is prone to particular risks.

Liabilities that survive insolvency or reorganization proceedings

43. Do any liabilities of a debtor survive an insolvency or a reorganization?

In the case of bankruptcy, the liabilities of a debtor will, in principle, survive insolvency.

However, an individual can request discharge from the court, and only in exceptional circumstances such discharge will not be granted. If discharge to an individual is granted, the liabilities that have been secured by a mortgage or a pledge will, however, survive.

Technically, creditors will regain their rights against a corporate debtor following the completion of insolvency proceedings. However, if the debtor is a company the decision of the court to close the insolvency proceedings entails the automatic dissolution and liquidation of the company. This means that, in practice, liabilities do not survive insolvency.

The Insolvency Act specifically excludes assets or income acquired by the debtor after the bankruptcy declaration from the bankruptcy estate.

A purchaser of the debtor’s assets in an insolvency will not be liable for the insolvent debtor’s liabilities. There are some important exceptions to this principle:

• in accepting the transfer of parts of a business in a going concern, the court may impose certain conditions, including the transfer of certain liabilities to the purchaser of the relevant assets; and
• in certain cases, liabilities specifically linked with the transferred assets may transfer as well as a direct consequence of their close connection with the relevant asset.

Distributions

44. How and when are distributions made to creditors in liquidations and reorganizations?

Distributions are made on a pari passu basis with the exception of administration expenses and creditors benefiting from a security interest or a statutory lien.

The costs, debts and expenses incurred in the management of the estate will be paid out first. Creditors enjoying a security interest or a specific statutory lien (as opposed to a general statutory lien) are then entitled to be paid out of the proceeds of the sale of the secured assets. If the proceeds of the sale of the secured assets are insufficient to pay the secured creditors, or holders of a specific statutory lien, then those creditors are admitted as unsecured creditors for the remainder of their claims.

Distributions can be made as soon as the bankruptcy trustee has verified all claims filed. Hence, the trustee will not have to wait until the closing of the bankruptcy. The bankruptcy trustee may start selling assets even earlier, that is, as soon as they consider that maintenance costs are too high.

Distributions in reorganizations are generally made in accordance with the reorganization plan or the amicable settlement agreement.

SECURITY

Secured lending and credit (immovables)

45. What principal types of security are taken on immovable (real) property?

The most important form of security over immovable property is the mortgage, which provides the mortgagee with the right to have the property sold if the debtor defaults and to use the proceeds of sale to repay the outstanding secured debt.

The creation and perfection of a mortgage requires notarized documents to be filed with the land registry and attracts stamp duty of 1 per cent of the secured amount in addition to a mortgage fee of 0.3 per cent of the secured amount and various other fees. More sophisticated creditors accept an irrevocable mortgage mandate to secure part of the amount as opposed to an effective mortgage, in particular where the amounts are substantial.

Under such mandate, the owner of the property appoints a third party related to the creditor as its attorney with the power to create an effective mortgage upon the creditor’s first demand. The advantage of an irrevocable mortgage mandate is that it does not attract stamp duties other than nominal fees. The disadvantage, however, is that the irrevocable mortgage mandate does not create effective security until it is effectively converted into a real mortgage, despite the fact that under the Belgian Code of Economic Law a creditor can benefit from the conversion of a mortgage mandate even if there has been a request for judicial reorganization.

Secured lending and credit (movables)

46. What principal types of security are taken on movable (personal) property?

Pledge

The principal and most traditional type of security over movable assets is the pledge, which provides the pledgee with the right to have the assets sold if the debtor defaults and to use the proceeds of the sale to repay the outstanding secured debt. This is, in principle, subject to the authorization of the courts. However, the parties can agree either at the time of the pledgor’s default or at the conclusion of the pledge on the appropriation of the pledged assets by the pledgee. Following the entry into force of the Act of 11 July 2013 on security interests (the Security Interests Act) on 1 January 2018, the framework for pledges under Belgian law has changed significantly.

Before the reform, for a pledge to secure commercial debts, it was necessary to have a pledge agreement as well as the physical transfer of possession of the pledged asset to the secured creditor or a third party acceptable to both pledger and pledgee. Given the obvious inconvenience caused by the necessity to transfer possession, Belgian law had introduced the pand handelszaak or gage sur fonds de commerce, a form of security similar to the floating charge under English law.

This floating charge covered all business assets of the pledgor with the exception of immovable property and 50 per cent of the value of the stock. The creation of a floating charge required a written agreement that must be filed with the land registry and that attracts a stamp duty of 0.5 per cent of the value of the assets covered by the floating charge. A floating charge could only be created for the benefit of an EU credit institution.

Within the current framework, a registered pledge without the physical transfer of possession of the pledged asset has become the rule. Registration of the pledge arrangement in a centralized pledge register (at minimal costs) is required to make the pledge enforceable on third parties. The moment of registration determines the ranking of the pledge arrangement.

Each registration is valid for a renewable period of 10 years and may have to be updated (e.g, if the pledge is transferred to a different pledgee pursuant to a transfer of the secured obligations). The separate regime for the pand handelszaak or gage sur fonds de commerce has, therefore, been abolished, as the new framework allows for an easy and less costly creation of a business pledge. A pledge by way of physical transfer of possession is still possible in the new framework.

Another noteworthy change is the introduction of a ‘security agent’ concept similar to the concept already included in the Financial Collateral Law (which is not affected by the Security Interests Act).

Also, the Financial Collateral Act of 15 December 2004 (the Financial Collateral Act) contains simplified rules for the creation, perfection and enforcement of a pledge over financial collateral. These rules apply to cash on account (ie, not physical cash) as well as to financial instruments. The definition of financial instruments covers shares and bonds, but also derivative contracts, dematerialized and book-entry securities, as well as any right to financial instruments.

The pledge must be agreed in writing, and the financial collateral, over which a pledge is created, must be delivered to the beneficiary of the pledge or the person acting on its behalf. This requirement is met when the financial collateral has effectively been transferred, held, registered in a register or otherwise designated as such, so that the beneficiary of the security acquires possession or control of these assets.

There is no notification requirement or court authorization procedure for the enforcement of a pledge over financial collateral. If the pledgor defaults, the pledgee has the right to sell the financial instruments or to apply the cash to satisfy the claims it has against the pledgor. The pledgee also has the right to appropriate the financial collateral but only if the parties have expressly agreed thereto and have provided a contractual mechanism for the valuation of the financial instruments.

The occurrence of a bankruptcy does not affect the enforceability of a pledge on financial collateral. However, following a recent amendment to the Financial Collateral Act, certain pledges on financial collateral cannot be enforced anymore during a judicial reorganization procedure. This is the case for pledges on bank account and credit claims and netting arrangements involving a debtor that is not a public or financial entity, or if the debtor is a public or financial entity the enforcement can only be requested by creditors that are public or financial entities, except in both cases in the event of default of the debtor.

In practice, this means that if judicial reorganization proceedings are commenced by a debtor other than a public or financial entity, creditors are not entitled to enforce their security interests or carry out netting arrangements on the sole ground that such proceedings have been opened.

Statutory lien of the unpaid seller

In the event of insolvency, an unpaid seller has a statutory lien on the asset sold to the insolvent buyer, provided that the buyer is the owner of the asset at the time of occurrence of the insolvency event and that the asset is clearly identifiable at that time.

Fiduciary transfer of title

For many years, it was unclear whether Belgian law accepted the fiduciary transfer of title. In the Sart-Tilman case, the Belgian Court of Cassation upheld the decision of the Court of Appeal of Liège, ruling that the security assignment of a claim was ineffective in the event of the insolvency of the assignor. It appears to be widely accepted among scholars that this decision only affects arrangements where the transfer was solely effected for the purpose of creating security, and does not affect more complex and well-established arrangements where the use of title as security is only one of the aspects or one of the consequences (e.g, leasing or factoring) of the transaction.

The exact scope and effects of the Sart-Tilman case are still a source of dissension and legal uncertainty under Belgian law. In 2010, the Belgian Court of Cassation held that an ineffective security assignment should be reclassified as a pledge. Special ‘protective’ legislation exists in respect of ‘repo’ transactions and transfers of book-entry securities and cash.

This protective legislation has now been updated and amended in the Financial Collateral Act. The law recognizes the validity and the enforceability of a transfer of title to financial collateral by way of security. The fiduciary transfer of title is thus valid under Belgian law and is enforceable, including in the context of insolvency proceedings affecting the debtor that has transferred financial collateral to its creditor by way of security in accordance with the Financial Collateral Act. Recent case law has clarified that the beneficiary of security by way of transfer of title will be in the same legal position as a pledgee in a situation of concursus creditorum.

The Security Interests Act also provides for such fiduciary transfer of title, except when the transferor is a consumer under the Belgian Code of Economic Law.

Retention of title

Retention of title arrangements covering movable property are effective in the event of insolvency affecting the buyer, provided that they meet certain requirements, such as a written agreement executed before the delivery of the goods and the availability of the asset in the buyer’s estate at the time of executing the retention right, and provided that any maintenance costs have been settled with the bankruptcy trustee.

CLAWBACK AND RELATED-PARTY TRANSACTIONS

Transactions that may be annulled

47. What transactions can be annulled or set aside in liquidations and reorganizations and what are the grounds? Who can attack such transactions?

All arrangements, transfers and payments made by the bankrupt debtor after the declaration of bankruptcy are void.

Moreover, any transaction or payment effected with fraudulent intent may be set aside irrespective of when it was entered into. If a transaction is set aside, the proceeds from it must be returned to the bankrupt’s estate. The bankrupt’s estate can also be required to return any money or assets it received under the transaction to the relevant creditor. However, in most cases, the creditor’s claim for restitution or repayment will form an unsecured claim in the bankruptcy.

Additionally, it is possible to annul some transactions made in a certain delay preceding the declaration of bankruptcy during what is called the ‘suspect period’, if such period is determined by the judge at the time of the bankruptcy, for a maximum of six months.

Transactions may be attacked by the bankruptcy trustee, and sometimes by the creditors themselves.

There are no provisions specifically dealing with the annulment of transactions in reorganizations.

Equitable subordination

48. Are there any restrictions on claims by related parties or non-arm’s length creditors (including shareholders) against corporations in insolvency or reorganization proceedings?

There is no specific rule in this respect. In the case of a non-arm’s length transaction, it could, however, be argued that the transaction has been concluded outside the corporate interest of the potential bankrupt company and as a result is unenforceable.

Lender liability

49. Are there any circumstances where lenders could be held liable for the insolvency of a debtor?

Belgian law does not have a specific regime regarding the liability of lenders for the insolvency of a debtor. Pursuant to the general liability rules, a lender may be held liable to an insolvent debtor or third parties (e.g, a creditor) if they committed a fault that has caused damage. More specifically, this may be the case if the lender has extended or maintained a credit facility to the debtor, creating a false appearance of creditworthiness on which (another) creditor has relied.

However, Belgian courts appear reluctant to establish the existence of a causal link between wrongly extending or maintaining a credit facility and the damage allegedly suffered by the creditor. Additionally, in the opposite scenario, a lender may be held liable if they recklessly terminate a credit facility. In this case, Belgian courts are also reluctant to hold the lender liable, precisely because the continuation of the credit facility might create a false appearance of creditworthiness.

The provisions regarding directors’ liability may also apply to a lender if it has acted as a de facto director of the insolvent company. Lenders may be deemed de facto directors if they have or had actual management power over the insolvent company before, during or after the life cycle of the credit facility. Lenders who merely assist and supervise companies in financial distress (e.g, occasionally reviewing the accounts) will, in principle, not be deemed to be such directors.

GROUPS OF COMPANIES

Groups of companies

50. In which circumstances can a parent or affiliated corporation be responsible for the liabilities of subsidiaries or affiliates?

Insolvency proceedings are organized per legal entity. ‘Piercing the corporate veil’ is very exceptional in Belgium. It would only occur if there is a commingling of assets and liabilities of different entities (e.g, no separate accounting and cross-payments of liabilities without a legal framework) or in fraudulent transactions in which several entities took part.

If a parent company is also a director (as a legal entity) of one of its subsidiaries, it could become liable as a director of that subsidiary in the event of, for example, mismanagement or breaches of law committed as a director of the subsidiary and, as a result, become liable for its debts.

Combining parent and subsidiary proceedings

51. In proceedings involving a corporate group, are the proceedings by the parent and its subsidiaries combined for administrative purposes? May the assets and liabilities of the companies be pooled for distribution purposes?

Belgian law does not formally recognize the concept of a corporate group in insolvency law and as a result, insolvency proceedings are not opened in respect of a corporate group as a whole (i.e, insolvency proceedings will be opened only to the extent the conditions for the opening of insolvency proceedings are satisfied in respect of the relevant entity of the corporate group).

The assets and liabilities of insolvent companies within a corporate group cannot be combined for distribution purposes, except to the extent that the individual estates of companies cannot be separately identified. For practical purposes, however, it is not uncommon for courts to hear the proceedings of entities belonging to the same corporate group simultaneously. Regulation (EU) 2015/848 (the Recast Regulation on Insolvency) does, however, foresee new rules on the coordination of insolvency proceedings that relate to several members of the same group of companies.

From 26 June 2017, any EU court having jurisdiction over the insolvency proceedings of a member of the same group of companies may be requested, by an insolvency practitioner appointed in insolvency proceedings opened in relation to a member of the group, to allow group coordination proceedings (article 61 of the Recast Regulation on Insolvency).

The Restructuring Act now stipulates that the judicial reorganization by way of collective agreement for large companies is also applicable to companies between which there is a relationship of affiliation and that, taken together, exceed the threshold to be qualified as a large company.

INTERNATIONAL CASES

Recognition of foreign judgments

52. Are foreign judgments or orders recognized, and in what circumstances? Is your country a signatory to a treaty on international insolvency or on the recognition of foreign judgments?

Since 31 May 2002, the provisions applicable to cross-border insolvency proceedings have differed depending on whether they are covered by Council Regulation (EC) 1346/2000 on insolvency proceedings. This Regulation has been replaced by Regulation (EU) 2015/848 (the Recast Regulation on Insolvency).

Within the scope of the Recast Regulation on Insolvency

The Recast Regulation on Insolvency sets out harmonized rules on conflict of laws and jurisdiction applying to intra-EU collective insolvency proceedings. The regulation specifies in Annex A the relevant insolvency proceedings to which it applies in each EU member state (other than Denmark), which for Belgium are bankruptcy, all types of judicial reorganization, liquidation, temporary divestiture and matters relating to private individuals’ collective debt rescheduling (EU insolvency proceedings). With respect to Belgium, other types of Belgian insolvency procedures bringing about mandatory pari passu ranking of unsecured creditors (e.g, voluntary or judicial winding-up or attachment proceedings under the Belgian Judicial Code) thus fall outside its scope.

Outside the scope of the Recast Regulation on Insolvency

National conflict rules: Private International Law Code

Except as set out further below, situations not covered by the Recast Regulation on Insolvency are governed by the Belgian Private International Law Code. The provisions of the Code containing the conflict of laws rules relating to insolvency proceedings follow, to a large extent, the rules set out in the Recast Regulation on Insolvency. This means that:

• insolvency proceedings falling under the Code are those existing under Belgian law (bankruptcy, judicial reorganization and collective debt rescheduling), but also foreign proceedings based on a debtor’s collective insolvency; and
• insolvency proceedings can be principal proceedings (i.e, universal proceedings having effect on all the debtor’s assets) or territorial (secondary) proceedings (i.e, having effects limited to the debtor’s assets located within the territory of the state where the proceedings are opened).

As to the criterion of jurisdiction allowing Belgian courts to open insolvency proceedings, the Code provides that main proceedings may be opened in Belgium when:

• the principal establishment of the debtor is in Belgium – in this respect, the notion of principal establishment is similar (although not exactly identical) to the concept of center of main interests (COMI) in the Recast Regulation on Insolvency; or
• the registered office of the company is in Belgium (which is an additional connecting factor by comparison with the Recast Regulation on Insolvency).

The Code also upholds the jurisdiction of the Belgian courts to open territorial proceedings when the debtor has an establishment in Belgium (and principal establishment or COMI outside the territory of the European Union).

Moreover, the Code provides for an automatic recognition of certain foreign decisions on insolvency. Execution requires an exequatur, a condition also required by the Recast Regulation on Insolvency.

Insolvency treaties

Belgium has entered into bilateral insolvency treaties with Austria, France and the Netherlands. The scope of application of such insolvency treaties has become very limited following the Recast Regulation on Insolvency and the legislative changes relating to the reorganization and winding up of credit institutions and insurance undertakings by the Law of 6 December 2004. It remains limited by the current Recast Regulation on Insolvency. The bilateral treaties only apply with respect to matters that are not covered by the Recast Regulation on Insolvency and with respect to entities that are not covered by either the Recast Regulation on Insolvency or the EU directives on the reorganization and winding up of credit institutions and insurance undertakings.

EEX

While the EEX Treaty, which for the EU member states has been effectively replaced by Regulation (EU) 1215/2012 (the Brussels I Recast Regulation), in principle does not apply to insolvency proceedings, it may nevertheless cover situations that are connected to insolvency proceedings (e.g, out-of-court settlements and claims for compensation by the bankruptcy trustee against the purchaser of assets sold by the debtor in the suspect period).

In such event, there may be a divergence between the applicable jurisdiction and enforcement rules for aspects covered by the Recast Regulation on Insolvency and others covered by the EEX Treaty. This may lead to possible parallel proceedings in several jurisdictions that are not subject to coordination and mutual information rules, similar to those applying between principal and secondary proceedings in the context of the Recast Regulation on Insolvency.

UNCITRAL Model Laws

53. Have any of the UNCITRAL Model Laws on Cross-Border Insolvency been adopted or is adoption under consideration in your country?

Belgium has neither adopted the UNCITRAL Model Law on Cross-Border Insolvency nor the UNCITRAL Model Law on Enterprise Group Insolvency or the UNCITRAL Model Law on Recognition and Enforcement of Insolvency-Related Judgments.

Foreign creditors

54. How are foreign creditors dealt with in liquidations and reorganizations?

Foreign creditors are treated in the same way as Belgian creditors in a Belgian insolvency, although:

• when taking legal proceedings in Belgium, foreign creditors can be required, to the extent no particular treaty exemption applies, to put up a bond or collateral to cover the amounts that could become due as a consequence of the proceedings (cautio judicatum solvi); and
• other than to the extent enforcement is recognized under the Brussels I Recast Regulation, a creditor can only proceed to enforcement of a foreign judgment (including attachments) if a Belgian court has made an exequatur order (i.e, a formal recognition of the judgment and confirmation that it is enforceable in Belgium).

Exceptionally, a foreign creditor’s claims may be barred or reduced in insolvency proceedings if the court finds that it has recovered assets abroad in breach of the equal treatment of creditors’ provisions.

Cross-border transfers of assets under administration

55. May assets be transferred from an administration in your country to an administration of the same company or another group company in another country?

In general, the Recast Regulation on Insolvency, and the relevant provisions of Belgian domestic law, do not allow the transfer of assets from an administration in one country to an administration in another country. One exception to this is that if secondary insolvency proceedings result in a surplus, the remaining assets will be transferred to the liquidator of the main proceedings (article 49 of the Recast Regulation on Insolvency).

COMI

56. What test is used in your jurisdiction to determine the COMI (center of main interests) of a debtor company or group of companies? Is there a test for, or any experience with, determining the COMI of a corporate group of companies in your jurisdiction?

COMI has been inserted in the Belgian Code of Economic Law as the criterion to determine the competent court in relation to an insolvency. Presumptions are created in this regard: in the case of a legal person, the COMI is assumed to be its registered office (unless this office has been transferred in the three months preceding the request for insolvency procedure), but if the debtor is self-employed the COMI is assumed to be the place of principal activity of the debtor or, for the person exercising a liberal profession requiring registration, the place of registration (unless this place has been transferred in the three months preceding the request for insolvency procedure).

Belgian law currently does not use the concept of a group of companies for insolvency purposes. Therefore, the determination of the COMI of group companies is not relevant.

Cross-border cooperation

57. Does your country’s system provide for recognition of foreign insolvency proceedings and for cooperation between domestic and foreign courts and domestic and foreign insolvency administrators in cross-border insolvencies and restructurings? Have courts in your country refused to recognize foreign proceedings or to cooperate with foreign courts and, if so, on what grounds?

The Belgian Private International Law Code states that a decision in foreign insolvency proceedings, not falling within the scope of the Recast Regulation on Insolvency, may be recognized and executed in Belgium. The competent courts for the recognition of foreign insolvency proceedings are the enterprise courts, with an exception for proceedings for insolvent individuals, for which the courts of first instance are competent. The courts will only recognize foreign decisions if certain conditions are met, such as the compatibility with Belgian public order, the respect of the rights of defense and the recognition needs to relate to a final decision.

The Private International Law Code also imposes a general obligation of cooperation on the bankruptcy trustee of the main or territorial proceedings opened in Belgium with the administrator of the foreign proceedings, subject to a condition of reciprocity and only insofar as the costs of such cooperation are not excessive, taking into account the debtor’s assets.

Although not prohibited under Belgian law, the instances in which Belgian courts have entered into communications with foreign courts in cross-border insolvencies and restructurings have been very limited. Such communication was attempted in the framework of the bankruptcy of Lernout & Hauspie Speech Products NV (L&H). At the end of 2000, L&H obtained bankruptcy protection under Chapter 11 of the US Bankruptcy Code.

At the same time, L&H filed a request for judicial composition in Belgium. In this framework, Stonington Partners Inc made a claim resulting from securities fraud. Under US law, this claim would have been subordinated to other claims and would thus effectively not have been allocated any share in the bankruptcy estate. Under Belgian law, the claim (if proven) would have ranked pari passu with all other unsecured claims. The relevant US court decided to apply US law.

The Court of Appeal overruled this decision and made a ‘strong recommendation’ to the bankruptcy judge to enter into direct communication with the Belgian bankruptcy trustees and the Belgian court. The lower court, however, refused to follow this recommendation and no actual communication between the Belgian and US courts was made.

We are not aware of any courts that have refused to recognize foreign proceedings or to cooperate with foreign courts.

Cross-border insolvency protocols and joint court hearings

58. In cross-border cases, have the courts in your country entered into cross-border insolvency protocols or other arrangements to coordinate proceedings with courts in other countries? Have courts in your country communicated or held joint hearings with courts in other countries in cross-border cases? If so, with which other countries?

There are no official cross-border insolvency protocols (or other similar arrangements) between Belgian courts and courts in other countries. The occasions in which Belgian courts have communicated with courts in other countries in cross-border insolvency proceedings have been very limited. The best-known attempt to establish such communication was made in the framework of the L&H insolvency.

Winding-up of foreign companies

59. What is the extent of your courts’ powers to order the winding-up of foreign companies doing business in your jurisdiction?

In relation to companies in the European Union, the Recast Regulation on Insolvency applies. In this respect, Belgian courts may have jurisdiction over EU companies that have their COMI in Belgium or that have an establishment in Belgium. In the latter case, the effects of those insolvency proceedings will be restricted to the assets of the debtor situated in Belgium. In relation to third-country companies for which the Recast Regulation on Insolvency is not applicable, the analysis is similar. Belgian courts may have jurisdiction over foreign companies that have an establishment in Belgium. The effects of those insolvency proceedings will be restricted to the assets of the debtor situated in Belgium.

Aside from the insolvency proceedings, Belgian courts have certain powers in relation to the Belgian branches of foreign companies. If certain disclosure requirements are not met by the branch, the management of the branch may be subject to criminal and civil liability. Also, documents that have not been filed are not enforceable against third parties and litigation claims filed by foreign companies with a branch in Belgium are inadmissible in Belgium if the certificate of incorporation has not been filed in Belgium.

UPDATE AND TRENDS IN RESTRUCTURING AND INSOLVENCY IN BELGIUM

Trends and reforms

60. Are there any emerging trends or hot topics in the law of insolvency and restructuring? Is there any new or pending legislation affecting domestic bankruptcy procedures, international bankruptcy cooperation or recognition of foreign judgments and orders?

The implementation of Directive (EU) 2019/1023 of the European Parliament and of the Council on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt (the Insolvency Directive) into Belgian law has only recently taken place. Accordingly, there is no case law yet and guidance in legal writing is limited. Therefore, the practical impact of this implementation is still to be seen.

* The information in this chapter was accurate as at September 2023.

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