What formal procedures are available for the company?
Bankruptcy: covers the situation of substantial and long-term problems of solvency. Bankruptcy proceedings are exclusively aimed at the liquidation of the estate of an insolvent debtor and the distribution of the proceeds amongst his creditors.
Judicial reorganization: the purpose of these proceedings is to provide debtors, who are in principle able to live up to their legal obligations but who have a temporary liquidity problem, with the means to obtain a modification of their debts either by a reduction of these debts or by temporary refuge from their creditors. Basically there are three options available: a settlement with all creditors or two ore more; a collective settlement with all creditors via a reorganization plan; a transfer of the enterprise in part or as a whole under control of the court.
Voluntary up: a company may decide to dissolve itself. The decision of such voluntary winding-up is taken at the general assembly of shareholders, who will appoint one or more liquidators.
What informal procedures are available for the company?
An agreement between the debtor and all (or a part of) his creditors may still take place outside the control of the court i.e. through a settlement according to which the creditors agree with a temporary suspension of the payments by the debtor, or any other measure to effect the financial recovery of the enterprise. Being essentially a contractual instrument, the settlement has only a binding effect on the creditors (unsecured and/or secured) which agree with it.
Which procedures are creditor-friendly/debtor-friendly?
Taking into account the above, as a general rule, bankruptcy might be considered a rather creditor-friendly procedure and the judicial reorganization a rather debtor-creditor-friendly procedure.
What are the triggers for insolvency?
The debtor is considered to be bankrupt when he has permanently ceased to pay his debts and is no longer able to obtain credit.
An indication for insolvency may also be found in case
(i). one or more seizures have been levied on the debtor’s assets;
(ii). one or more judgments, in which the debtor has been condemned to pay, have been rendered on default against a debtor;
(iii). a writ of summons at request of the social security or the tax authorities has been served upon a debtor;
(iv). the debtor failed to publish his annual account.
What is the process for filing?
Bankruptcy: the debtor, who has permanently ceased to pay his debts and is no longer able to obtain credit, is obliged to file for bankruptcy. Bankruptcy proceedings may also be initiated by one or more creditors, the public prosecutor or the provisional administrator appointed by the court.
Judicial reorganization: the debtor files an application to the Court.
Voluntary winding-up: the initiative lies with the general assembly of the company.
Who can place the company into insolvency proceedings?
See answer 2.5.
What is the extent of court involvement?
Bankruptcy: the key person is the receiver who is appointed by the court. The liquidation of a bankrupt company’s assets and the distribution of the proceeds amongst the creditors are executed by the receiver under the control of either a supervisor appointed by the court or the court itself.
Judicial reorganization: the procedure is handled under the supervision of a delegate judge who informs the court on the evolution of the debtor’s situation. Furthermore, the composition proposal which the debtor is deemed to make, is, upon approval by the creditors, subject to homologation by the court.
Voluntary winding-up: the nomination of the liquidator by the general assembly is subject to approval by the court.
How long will the insolvency process take?
Bankruptcy: there is no rule with regard to the duration; in practice bankruptcy proceedings may last up to 3 years or more.
Judicial reorganization: the moratorium (provisional suspension of payment for debts due at the time that the provisional suspension was granted) may take 6 months, which may last up to 12 months as from the judgment which declares the procedure open and even 18 months in exceptional circumstances.
What other steps, such as notices, are required?
Bankruptcy: the judgment of bankruptcy must be published in the Belgian State Gazette and in one or more (local) newspapers. The receiver must advise the creditors with a view to filing their claim, must take out a mortgage on the debtor’s real estate and verify the debtor’s accounts.
Judicial reorganization: the judgment which declares the procedure open, must be published in the Belgian State Gazette. The debtor must inform his creditors upon the amount of their claim and the asset on which a security has been provided.
What rights does the company as debtor benefit from?
Bankruptcy: the enforcement of all court decisions against the debtor is suspended and the creditors, at least the unsecured creditors and the creditors protected by a general privilege, are no longer entitled to exercise their rights of enforcement against the debtor.
Judicial reorganization: the judgment which declares the procedure open, has the following effects:
suspension of any means of enforcement on mobile assets and real estate; suspension of any declaration of bankruptcy or judicial dissolution; prohibition on seizure, it being understood that any seizure which has been levied prior to the opening of the procedure, maintains its conservatory effects.
Is there anything resembling a debtor in possession process?
To a certain extent the judicial reorganization may be resembling to a debtor in possession process.
Are there any local law red-flags particularly relevant to a situation?
See answer 2.4., second bullet point.
Are there any political factors which may come into play?
In case of a threatening bankruptcy regarding a big company involving the unemployment of a large number of employees, the Belgian federal government or a regional government may take measures with a view to maintaining as much jobs as possible.
3. Creditor issues
How are unsecured creditors affected?
Bankruptcy: as a result of the fixation principle and the distribution of the assets by the receiver
according to the “pari passu” rule, the unsecured debtors are no longer entitled to exercise their rights of enforcement against the debtor, as of the time of declaration of bankruptcy.
Judicial reorganization: the judgment which declares the procedure open, affects the (un)secured
creditors (see answer 2.10, second bullet point); the reorganization plan, once approved by the required presence-and majority quorum, is binding to the unsecured creditors.
How might a secured creditor enforce its security?
The rights of enforcement of the creditors with a specific privilege on movable assets, in particular the creditor with a floating charge, are suspended until the closure of the first report of verification of claims. In practice, the receiver inquires with the creditor holding a floating charge whether the latter agrees that the assets be realized by the receiver. In most cases the creditor with a floating charge agrees with this course of action.
When it comes to the creditors with a mortgage: if no enforcement proceedings on the real estate have commenced prior to the bankruptcy, the receiver is solely entitled to realize the real estate, This general rule does not apply to the first mortgagee, who is entitled to proceed to the realization after the first report of the verification of claims has been filed by the receiver. In practice, the receiver inquires with the mortgagee(s) whether the latter agrees that the real estate be realized by the receiver. In most cases the mortgagee(s) agree(s) with this course of action.
Will set-off apply and if so do any issues arise from this?
Set-off is only applicable when the following conditions are met: the mutual claims are (i) certain, (ii) liquid and (iii) payable at the time of set-off;
After bankruptcy set-off is in principle not possible, except when (i) all legal conditions for set-off are
met prior to the bankruptcy or (ii) even when all legal conditions for set-off are only met after bankruptcy insofar it concerns mutual claims which result from the same legal ground or which are connected i.e. arise from the same contract.
Judicial reorganization: during the moratorium set-off between (i) claims in the moratorium (i.e. claims which have arisen prior to the judgment opening the procedure or which result from the petition or decisions made in the framework of the procedure) and (ii) claims which have arisen during the moratorium, is only possible when the claims are connected.
Are there prevailing inter-company debt issues?
Blank
Is creditor recourse available in respect of any company affiliates?
An affiliate company has a separate legal personality with the result that a creditor of a company normally has no recourse against an affiliate, except when a security f.i. letter of comfort has been provided by the affiliate.
Will a creditor committee be established and if so what is its role?
Bankruptcy: when the liquidation of the bankrupt estate has been terminated, the creditors vote on the statement, including the total amount of the assets, the receiver’s fees and costs, the debts of the estate and the repartition of the assets amongst the creditors, as made by the receiver.
Judicial reorganization: the creditors vote on the reorganization plan. The plan is considered approved and is binding to all creditors, including those who have voted against the plan, when the majority of the creditors present at the meeting, which represent 50% of all claims, approves it and subsequently the court homologates the plan.
4. Continuing the business
Who controls the company in a given procedure?
Bankruptcy: the management is not entitled to dispose of the assets nor represent the company vis-à-vis third parties. The receiver takes over the disposal of the assets and the representation of the company vis-à-vis third parties, albeit under control of a judicial supervisor and the court.
Judicial reorganization, the management is not set aside. The court will however appoint a delegate judge who will assist the debtor in the administration of his company.
How is the company financed?
It will be difficult to borrow money from a bank and the company is unlikely to attract investors unless it is able to produce a credible reorganization plan or provide extra securities.
Is it possible to arrange DIP funding (or similar)?
New money may be provided by virtue of a new loan agreement or as new credit pursuant to an existing loan agreement.
In case of judicial reorganization, such ‘new claims’ are not submitted to the ‘concursus creditorum’ and
are considered debts of the estate when during the period of reorganization the debtor is declared bankrupt or put into liquidation.
Alternatively, a subordinated loan i.e. a loan in terms of which the creditor waives his right to equal treatment /treatment by priority in case of concursus creditorum, may be provided.
How will proceedings affect employees and what rights do they benefit from?
Bankruptcy:
(i). Bankruptcy does not result in automatic termination of employment agreements. The receiver of the bankruptcy does have the right to terminate any employment agreement.
(ii). Employment agreements which have not been confirmed within 15 days are deemed to have been terminated.
(iii). Employee claims for unpaid salaries are privileged.
Judicial reorganization:
(i). A judicial reorganization does not result in automatic termination of employment agreements, nor does the employer have the right to suspend any employment agreements during the reorganization process.
(ii). In case of a judicial reorganization by collective agreement, the reorganization plan may provide in a reduction of salaries. Personnel representatives are being heard prior to any decision being made.
(iii). In the event of a transfer of the undertaking under judicial control, the acquirer is not obliged to accept the transfer of the entire workforce. Instead, he may choose how many he wants to take over.
Employees that are thus being transferred keep their previous employment conditions, unless they would have been collectively renegotiated. Individual negotiations are generally not permitted.
How will proceedings affect contracts or other commercial arrangements entered into by the company?
The opening of bankruptcy proceedings does not automatically lead to the termination of the contract.
The receiver can either decide to fulfill a contract or disclaim (unprofitable) contracts when he is not in a position to continue to trade and he cannot ensure that the insolvent party fulfills its obligations. The two main exceptions to this general rule are: intuitu personae contracts, which are considered to end by law in case of bankruptcy and the avoidance clause according to which the contract is automatically terminated in case of bankruptcy.
The opening of a judicial reorganization does not affect current contracts: they continue to exist. Any contractual clause which entitles either party to terminate the contract by reason of the other party filing an application for judicial reorganization or by reason of a judicial decision opening a judicial
reorganization, is void.
5. Claims issues and procedures
What is the method for the filing of claims?
Reference is made to paragraph 3.1. second point.
What is the timing for the filing of claims?
Bankruptcy: the time frame for the creditors to file their claim is maximum 1 year after the declaration of bankruptcy.
How will claims rank?
In general terms, the creditors are paid in the following order:
(iv). the new creditors or creditors of the estate
(v). the creditors with a specific security (floating charge; mortgage) (vi). the unsecured creditors
Are there other complex issues arising by virtue of the insolvency, for example an insolvency officer prescribed method for claims filing?
No.
6. Conclusion of insolvency procedure
Do cram-down procedures exist?
We understand a cram-down procedure to be the imposition by a court of a reorganization plan over the objection of some categories of creditors. In case of judicial reorganization, the approval of the
reorganization plan by the majority of the creditors present at the meeting, who represent 50% of all claims, and the homologation of the plan by the court, have binding effect to all creditors, including those who have voted against the plan.
How is the procedure formally concluded?
See answer 3.6.
What is the outlook for creditor classes?
See answer 5.3.
7. Alternative forms of restructuring
Are there non-formal procedures available to the company?
See answer 2.2.
Are there accelerated processes available?
There is a possibility of early terminating a bankruptcy proceeding, when it is clear that there are no assets or the assets are insufficient to even cover up the costs of the administration and the liquidation of the estate.
8. International Interaction
What international framework of rules apply to the company?
The Council Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings situated in EU Member States is of interest (hereinafter: the Regulation).
This Regulation grants a special position for the creditors who have a so-called right in rem on the assets of the debtor which are located in another Member State of the EU than the state where the insolvency proceedings were opened. Those rights in rem are governed by the lex rei sitae, as an exception to the general rule of the lex concursus (the law of the state where the proceedings were opened). The opening of insolvency proceedings shall not affect the rights in rem of creditors or third parties in respect of tangible or intangible, moveable or immoveable assets belonging to the debtor which are situated within the territory of another Member State at the time of the opening of
proceedings, which means that these creditors are entitled to enforce their securities without any
restriction, as if there was no insolvency procedure, even if the legislation of the state where the assets are located imposes such restrictions.
When it comes to insolvency proceedings which do not fall under the Regulation i.e. insolvency
proceedings opened in a third state, the national law, including possible treaties, remains relevant. The Private International Law of that third state will determine the scope of the insolvency proceedings opened on its territory, that is to say whether or not they produce extra territorial effects.
Insofar Belgian Private International Law is applicable, the Belgian insolvency procedure will normally have universal effects and will, as a result, cover all the assets of the debtor, wherever these assets are located. There is, however, no guarantee that a third state will recognize the extra-territorial effects of the Belgian insolvency. The assets of the debtor in these third states will only be affected to the extent that this state recognizes the powers of the Belgian receiver.
What is the approach of the company’s jurisdiction in respect of recognition of foreign proceedings?
Under the EU-Regulation any judgment opening main insolvency proceedings handed down by a court of a Member State which has jurisdiction to that effect, shall be recognized and shall produce the same effects, without need for further formality, in all the other Member States as of the time that it becomes effective in the State of the opening of proceedings.
When it comes to insolvency proceedings which do not fall under the Regulation, Belgian Private International Law provides for the recognition by law of foreign bankruptcy proceedings.
Brazil
Eduardo Boccuzzi, Partner / Alfeu Alves Pinto, Partner, Boccuzzi Advogados Associados www.boccuzzi.com.br, email: [email protected] / [email protected], tel: 55 11 30395821 / 55 11 30395331
1. Issues arising when a company is in financial difficulties
How might a creditor take security over assets?
Usually, when creditors contract with a company they require personal securities and securities in rem.
If those securities turn out to be insufficient, the law usually allows creditors to demand their
reinforcement. Article 333, II and III, of the Civil Code determines the acceleration of obligations if personal and in rem securities become insufficient and debtor refuses to reinforce them or in case assets which serve as in rem securities suffer seizure by another creditor. Acceleration is also determined in case of perishing, deterioration or depreciation of in rem securities (provided that debtor refuses to reinforce them), and in case they are expropriated by government (art. 1425, I, IV and V, Civil Code). In addition, article 477 of the Civil Code determines that if after the conclusion of a contract one of the parties enters into financial difficulties that might render doubtful the fulfillment of contractual
obligations, the other party may refuse to fulfill their contractual obligations until debtor fulfills his or provides creditor with security.
Can transactions entered into by the company be vulnerable to attack?
In addition to our comments to the previous question, the Bankruptcy Law determines that transactions entered into by a notoriously insolvent company are to be considered fraud against creditors and shall be annulled (art. 129). Furthermore, alienation and encumbrance of assets when there is a pending execution which can lead the company into insolvency are considered fraud against execution and shall have no effect (art. 593, Code of Civil Procedure).
What director liabilities might arise from the company trading while in distress?
Directors’ liabilities which may arise from a company trading while in distress will vary according to the type of legal entity we are talking about. In case of limited liability companies and corporations,
Directors’ liabilities which may arise from a company trading while in distress will vary according to the type of legal entity we are talking about. In case of limited liability companies and corporations,