SPECIAL ISSUE PREVENTIVE RESTRUCTURING 14. Cannot See the Forest for the Trees: The Belgian Transposition of the Preventive Restructuring Directive 2019/1023

1. Introduction

This article^[1] analyses the reforms^[2] introduced by the Act of 7 June 2023^[3] (‘Act’) transposing the Preventive Restructuring Directive 2019/1023^[4] (‘PRD 2019’) into the Belgian restructuring and insolvency law, codified in Book XX of the Belgian Code of Economic Law (‘BCEL’). The Act amends many aspects of the current Belgian restructuring framework and adds new procedures.

This article commences with a brief overview of the current (pre-reform) Belgian restructuring framework (Section 2). Section 3 explains the national process for the implementation of the PRD 2019, discussing why the implementation was delayed. Section 4 complements Section 3, by analysing the main reforms and delving into the key aspects of (some of) the new and amended Belgian restructuring procedures. Section 5 concludes by highlighting the key deductions and concerns. This article only discusses restructuring-related reforms, excluding amendments to liquidation and bankruptcy.

2. Overview of Belgian pre-reform restructuring and insolvency law regime

Compared to many other EU Member States, Belgium already had a well-equipped business restructuring toolbox before implementing the PRD 2019. Businesses in distress could use (1) confidential restructuring tools, and (2) judicial restructuring procedures.

2.1 Confidential restructuring tools

The BCEL offers a broad range of confidential restructuring tools. These tools involve the intervention of the Business Court but exclude the opening of formal (public) proceedings. Prior to the transposition of the PRD 2019, the following tools were available in this regard: (1) court investigation of businesses in distress,^[5] as an early warning tool, (2) business mediation,^[6] (3) out-of-court amicable settlement,^[7] and (4) the preparatory phase prior to commencing judicial restructuring.^[8]

2.2 Judicial restructuring procedures

Judicial Restructuring Procedures (‘JRPs’) are procedures whereby the debtor^[9] applies to the court for protection from creditors,^[10] with the aim of preserving all or a part of the business.^[11] To access a JRP framework, the continuity of the business must be under an imminent or long-term viability threat.^[12]

JRPs imply an automatic and general stay of enforcement^[13] applicable to all creditors holding a claim against the debtor on the date of the opening of the proceedings, excluding the post-petition claims.^[14] During this moratorium, restructuring measures come into effect for business continuity. The debtor may choose one of the following JRPs: restructuring (1) by means of a (formal) amicable agreement with creditors,^[15] (2) through a collective agreement with creditors upon a restructuring plan,^[16] or (3) via a transfer of all or a part of the assets or business under judicial authority.^[17]

3. Reforming Belgian Restructuring Laws – Implementation of the PRD 2019

Since its modernisation with the introduction of Book XX in the BCEL in 2017 (effective since 1 May 2018), Belgian insolvency law was subject to several amendments.^[18] The most recent substantive amendments were introduced by the Act of 21 March 2021, as a ‘quick’ response to the economic consequences of the COVID-19 pandemic.^[19] However, given the seriousness and urgency of the situation, the legislator paid little attention to the PRD 2019 at that time. This (Covid) Act was only intended as a temporary solution,^[20] leaving the reform of the insolvency law to bring it in line with PRD 2019 in abeyance.

In 2021, a working group^[21] was formed to establish the principles of the reform needed to implement the PRD 2019. However, the internal procedures and debates took longer than anticipated.^[22] In particular, discussions on the position of workers during restructuring delayed preparation of the draft law. The long-awaited Belgian reform Act implementing the PRD 2019 was submitted to the parliament on 26 March 2023, approved on 25 May 2023, and published in the Belgian Official Gazette on 7 July 2023. The Act has entered into force since 1 September 2023. It transposes the PRD 2019 into the Belgian insolvency law, and also adapts the legislation to the requirements set by the CJEU in the judgments of Plessers (C-509/17)^[23] and Heiploeg (Case C-237/20)^[24] regarding the transfer of businesses.^[25] The Act expands the Belgian restructuring and insolvency law toolbox to address wide-ranging economic and financial difficulties that businesses can face.

The Act is superimposed on the existing provisions of Book XX BCEL as a new layer. The layout and structure of Book XX BCEL is adapted as much as possible. However, this results in an entanglement of the numbering and composition of the text, making it difficult to follow.

4. Analysis of the New Belgian Restructuring Framework

The reform implemented by the Act introduces more restructuring options but, in parallel, causes more complexities. For an appraisal of the new restructuring framework, one needs to understand the different types of tools and procedures. Businesses are offered a wide range of options, which can be distinguished based on two perspectives. The first perspective focuses on the restructuring techniques: an amicable settlement; a restructuring plan subjected to the parties’ vote resulting in a collective agreement; and liquidation, in which the transfer of a (part of the) business ensures the continuity of the activity. As will be explained in the next sections, the amicable settlement procedure aims at concluding an agreement between the debtor and one or more of its creditors, whilst the collective agreement is the equivalent of the EU restructuring plan and can be binding upon dissenting creditors.

The second perspective focuses on the setting in which restructuring takes place: is the restructuring taking place in a confidential – either extrajudicial or judicial – setting, or is it a public judicial proceeding? The Act aims at optimally facilitating a restructuring in a confidential setting by creating a confidential preparatory variant of the existing public court procedures, such as the Confidential JRP.

These two perspectives (restructuring techniques and setting) combined lead to the following result: an amicable option exists in all settings i.e. extrajudicial and judicial, confidential and public. The collective option is only available as a judicial procedure but may take place confidentially or publicly. The Act introduced a dual collective option depending on the type of business (SME or Large Business), which again may either take place in a judicial confidential or a public judicial setting. Finally, there are different liquidation processes, which may be confidential or public. Table 1 below depicts the available options and compares the existing pre-reform framework with the new framework.

Table 1. Belgian Insolvency Landscape Before and After the Act of 7 June 2023.

Within this concise article it is impossible to discuss all these tools and procedures in detail. Therefore, we will mainly focus on the (public and confidential) JRPs through collective agreements, in particular the new procedure for Large Businesses, which is one of the primary targets of the PRD 2019 minimum standards (noting that SMEs continue to mainly rely on the extant procedures). For clarity, these procedures are highlighted in yellow in the table above. The discourse surrounding other procedures and tools, namely the confidential restructuring tools, JRPs through amicable agreements, and the liquidation procedures (the latter includes the Transfer of business under judicial authority) are only touched upon in this article.

One would hope that the newly introduced confidential and amicable tools referred to in the previous paragraph will be used in practice. The PRD 2019 strongly encourages their use, but neither the PRD 2019 nor the Belgian law regulate these tools in detail. Freedom of contract and confidentiality are core principles for these tools. The initiative for their use and the outcome depend on the debtor and the creditors involved. Nevertheless, in most cases, the court and/or a Practitioner in the Field of Restructuring (‘PIFOR’) can assist in the negotiation or homologation of the amicable agreement.^[26]

4.1 Objective and scope of the framework/proceeding

For decades, the Belgian legislator has attempted^[27] to provide debtors in distress with an appropriate preventive restructuring framework. Consequently, the transposition of the PRD 2019 is in line with a firmly established national policy, and the core objectives of the PRD 2019 and the Belgian Act are alike. That said, the Act introduces notable changes to the Belgian framework. Besides the terminological alignment and the introduction of a new procedure for Large Businesses, the new emphasis on confidential and amicable tools is noteworthy.

All restructuring tools and proceedings are exclusively available for ‘businesses’,^[28] meaning that both legal persons and entrepreneurs^[29] can benefit from the restructuring framework. Regarding the public judicial restructuring procedure (‘PubJRP’) through a collective agreement, a further distinction is made between SMEs and Large Businesses. SMEs are not defined in Book XX BCEL, however, new Article XX.66/1 BCEL considers ‘any debtor who does not qualify as a large business within the meaning of Article XX.83/1 BCEL’ to be a SME.^[30]

Likelihood of insolvency is the key criterion to access the restructuring framework (see Section 4.2). 

Regarding the duration, we need to distinguish between the public and confidential JRP’s. In accordance with the PRD 2019, the duration of the PubJRPs^[31] is subject to limitations. When the court commences the PubJRP, it also determines the duration of the procedure,^[32] which may not exceed 4 months^[33]. The debtor or PIFOR may ask for an extension of the initial 4-month period, which may only be granted in limited circumstances^[34]. However, the Act shortens the total duration (including extensions) from 18 to a maximum of 12 months, conforming with the PRD 2019.

To accommodate the PRD 2019’s provisions, the Act adds additional possibilities to end the PubJRP.^[35] The court may order (now also upon the PIFOR’s request) a premature termination of a proceeding when (1) the debtor no longer ensures the continuity of its business in accordance with the purpose of the proceedings, (2) the stay no longer supports the negotiations for a restructuring plan, or when (3) information provided to the court or creditors when lodging the application is manifestly incomplete or incorrect.^[36]

The duration of the ConfJRPs is not determined in Book XX BCEL. If requested, a stay of individual enforcement actions may be ordered for up to 4 months. The debtor can request the court to end the ConfJRP at any moment.^[37] Moreover, if an amicable agreement or a restructuring plan does not seem plausible, the PIFOR shall request the court to terminate the proceedings.

4.2 Criteria/test to enter the new framework/proceeding

All businesses facing a likelihood of insolvency can benefit from the restructuring tools and proceedings in Book XX BCEL. Accordingly ‘likelihood of insolvency’ is the key criterion to initiate the early warning mechanisms,^[38] confidential restructuring tools,^[39] or (formal) restructuring proceedings^[40] This concept is defined as ‘the condition in which the continuity of the business of the debtor, immediate or long-term, is threatened’.^[41] This implies that the Belgian legislator simply equated the new concept of likelihood of insolvency with the former criterion of a ‘threat to business continuity’.^[42]

We also emphasize that Article XX.45(3) BCEL explicitly confirms that the fact that the business meets the bankruptcy conditions does not preclude the opening of the JRP. In this matter, Belgian legislation is therefore more flexible than the PRD 2019. Thus, all businesses in difficulty, including those that are de facto already in a state of bankruptcy, can make use of the JRPs.

Although there is no explicit viability test for a PubJRP – be it amicable or collective – Article XX.62 BCEL provides the court with the power to prematurely terminate the procedure when the debtor no longer ensures the continuity of its business in accordance with the purpose of the proceedings.^[43]

For a PubJRP through collective agreement, the Act requires a justification explaining why it is reasonable to expect that the restructuring plan will prevent bankruptcy or liquidation of the company and ensure its viability, and that the necessary conditions exist for its success.^[44] Upon the adoption of the plan by the parties, the court confirms the collective agreement. At the request of any interested party, the court may refuse confirmation if it is apparent that it does not offer a reasonable prospect of averting the liquidation or bankruptcy of the debtor or of ensuring the viability of the business.^[45] These rules also apply to ConfJRPs through collective agreements (and amicable agreements^[46]).^[47]

4.3 Involved Actors

4.3.1 The Court and the Court Officers

The court involved in matters of restructuring and insolvency proceedings is the Business Court. The role of the Business Court varies depending on the type of restructuring tool or proceeding. Insolvency cases are always handled by specialised (professional and lay) judges with comprehensive knowledge of and experience in the entrepreneurial world.

The Act introduces some significant changes to the court’s officers involved in the restructuring framework. The intention was to simplify the terminology, but the practical implementation in Book XX BCEL raises concerns, not to be elaborated in detail in this short contribution. The Act introduces the broad term ‘court officers’, comprising court-appointed 1) practitioners in the field of liquidation, 2) PIFORs and 3) provisional administrators.^[48] These court officers play different roles depending on the procedure.

The PRD 2019 inspired the Belgian legislator to introduce the PIFOR. Furthermore, the Act introduces a corresponding actor for liquidation procedures: ‘the practitioner in the field of liquidation’ (referred to as ‘liquidator’ in this article)^[49]. As the focus of this contribution is restructuring, we will only discuss the tasks of the PIFOR.

Article I.23(7/01) BCEL lists the tasks of the PIFOR in the JRP’s through collective agreement as (1) assisting parties in drafting and negotiating a restructuring plan, (2) supervising the debtor’s activities during the negotiations on a restructuring plan, and (3) without prejudice to the Debtor in Possession (‘DIP’) principle (see hereafter), exercising partial control over the assets and activities of the debtor before or during the negotiations in a judicial restructuring. Whilst the Act codifies the tasks of the PIFOR, the list is incomplete as the PIFOR may assume other tasks in other procedures than the JRP through collective agreement. The PIFOR could take on a diverse range of assignments, meaning that its exact rights/powers and duties should be considered separately for each restructuring tool or procedure.^[50]

If the PubJRP takes place by way of a collective agreement, regardless of whether it is an SME or Large Business proceeding, the PIFOR may be appointed upon request of the debtor or the majority (in number) of the involved creditors upon a joint request, if they offer to pay for the PIFOR’s services.^[51] Again, in a ConfJRP through a collective agreement, the PIFOR may assist the parties during the drafting of the plan.^[52]

4.3.2 The Debtor (in Possession)

The DIP principle is firmly rooted in the BCEL and reaffirmed by the Act. In principle, the debtor stays in control of all his assets and activities during all restructuring tools and procedures^[53]. However, if the debtor committed a manifestly gross misconduct, the court may appoint a provisional administrator to replace the debtor during a PubJRP.^[54] Moreover, the DIP may be assisted by other court officers depending on the tool or procedure.

4.3.3 The Creditors, including Equity Holders and Workers

In the PubJRPs^[55] different types of creditors are distinguished. Firstly, we discern the ‘creditors affected by the stay’^[56] and the ‘new creditors’^[57]. The former are creditors with an existing claim at the time proceedings are opened, the latter are creditors with a claim arising after the opening of the proceeding, which are not subjected to the general stay.^[58]

Within the group of creditors affected by the stay we distinguish ‘ordinary creditors affected by the stay’ and ‘extraordinary creditors affected by the stay’. The latter benefit from specific security interests,^[59] while the former are ordinary creditors and therefore do not have these type of security interests. Extraordinary creditors affected by the stay enjoy specific protection during SME PubJRP through collective agreement, in order to safeguard their security interests.^[60] In the JRPs through collective agreement for Large Businesses, ordinary and extraordinary creditors should always be categorised in separate classes.

Equity holders are specifically addressed by the Act and defined as any party, including shareholders, that has a proprietary interest in the debtor and is not a creditor.^[61] In the JRP for Large Businesses, the equity holders (if affected) and creditors should be separated in different classes in the restructuring plan if the rights they would have in the event of liquidation or which they receive based on the restructuring plan are so different in nature, quality, or value, that there is no question of a comparable position.^[62] However, even if such differences do not exist, the drafter of the plan may group the equity holders in separate classes to avoid discussions about the formation of classes and if it is expected that an additional class will not significantly weigh on the vote.^[63] If there are separate classes for equity holders, they should be listed and attached to the restructuring plan.^[64]

As suggested by the PRD 2019,^[65] the Act introduces the provision that, for a legal person, the board does not need the consent of the general meeting or certain equity holders for filing a request for JRP or for the implementation of a plan.^[66]

Moreover, if the implementation of the restructuring plan requires a decision by a general meeting and if the general meeting unreasonably prevents the implementation of the plan, any interested party may request the court to order the company to take the required decisions.[67] This safeguards the effectiveness of the adoption and implementation of the restructuring plan and prevents a potential jeopardy due to the application of company law.

Lastly, workers are protected to ensure ‘that individual and collective workers' rights, under Union and national labour law (…) are not affected by the preventive restructuring framework’ as required by the PRD 2019.^[68] The Act introduces a new Article concerning workers’ rights, that provides that the provisions on preventive restructuring are without prejudice to the obligations to consult and inform employees or their representatives under existing legal or contractual provisions.^[69]

Obligations under the common Belgian social law will apply, particularly regarding the right to information, regardless of any insolvency procedure, also if it concerns an extra-judicial amicable settlement. However, the obligation to provide information will depend on the type and the stage of the procedure. The provisions concerning access to the file of the procedure have also changed. Unlike before where the representatives of the workers had to request the court, they now have the right to access the public file of the procedure in the same way as creditors.^[70]

JRPs through amicable or collective agreement are procedures in which the protection of employees and their representatives are regulated either by applicable social law or by explicit provisions specified in Book XX. Is there a hierarchy?

4.4 Stay

Here again, we need to make a distinction between confidential and public restructuring tools. As one may expect, confidential restructuring tools and procedures do not offer a stay of individual enforcement actions. However, during a ConfJRP, the PIFOR may request the court for a stay of maximum of 4 months against specified creditors to safeguard the restructuring process.^[71] This option is clearly inspired by Article 6 PRD 2019.

Article XX.44 BCEL provides for a preliminary stay when the request to open a PubJRP^[72] is filed. As long as the court has not ruled on the petition, the debtor cannot be declared bankrupt (or if the debtor is a legal entity, it cannot be legally dissolved) and the debtor's movable or immovable property cannot be realised through enforcement, regardless of whether the realisation action was initiated before or after the filing of the petition. As an exception, Article XX.45(5) BCEL stipulates that there is no suspensory effect if the request to commence proceedings was submitted by a debtor who had already applied for the opening of the same proceeding in less than twelve months in advance,^[73] unless the court determines otherwise with a reasoned decision^[74].

According to Article XX.46 BCEL, a PubJRP^[75] triggers an automatic and general stay of enforcement as soon as the court opens the proceeding. Once the criteria of Article XX.45 BCEL are deemed satisfied, the court determines the duration of the stay, not exceeding 4 months, to provide the debtor with breathing space to solve the financial problems,^[76] this duration is in conformity with the PRD 2019.^[77]

In principle, the stay will affect all creditors with an existing claim^[78] at the time proceedings are opened. The stay is also applicable to secured creditors holding an existing claim.^[79] Based on Article 6(2) PRD 2019, the Act introduces an exception for a creditor who is manifestly prejudiced by the stay or if it is apparent that the creditor’s own business continuity is threatened by the stay.^[80] The creditor may request the court to lift the stay against his/her claim. However, the court will only do so as far as the continuity of all or part of the debtor's assets or activities would not be jeopardised. One possible reason for granting the request would be to prevent a snowball effect in which the creditor, and subsequently, the creditors of the creditor, are also threatened by insolvency.^[81]

The scope of the stay is codified in Articles XX.50-XX.55 BCEL. Accordingly, during the stay, no means of enforcement against the movable or immovable property of the debtor can (continue to) apply. Moreover, the debtor cannot be declared bankrupt except on declaration from her/himself. In any case, if the debtor is a legal entity, it cannot be dissolved by judicial procedure.

The debtor, PIFOR, or the liquidator may ask for an extension of the initial 4-month stay, which may only be granted in limited circumstances. However, the Act shortens the period of the total duration (including extensions) from 18 months to a maximum of 12 months, in conformity with PRD 2019.^[82]

4.5 The plan (ConfJRP and PubJRP for Large Businesses)

As mentioned above, the Act divides the collective agreement JRP into two regimes, respectively applying to SMEs and Large Businesses. The justification for this distinction stems from the PRD 2019, which provides Member States with the option to introduce and/or maintain preventive restructuring frameworks that are not imposed by the PRD 2019.^[83] The drafters of the Act decided to maintain the already existing and well-functioning regime for SMEs, with minor modifications in conformity with the PRD 2019.^[84] Such exceptions were foreseen by Article 9(4) PRD 2019 stating that ‘Member States may provide that debtors that are SMEs can opt not to treat affected parties in separate classes’. However, this does not prevent SMEs from opting for the ‘more complex system’ intended for Large Businesses, or may even oblige them to do so, when affiliated SMEs within the meaning of Article I.23(26) BCEL, meet the Large Business-thresholds if considered together.^[85]

New Article XX.83/1 BCEL^[86], which specifies the threshold, states that the JRP’s through collective agreement for Large Businesses is applicable to companies, associations, or foundations that exceed one or more of the following criteria during two consecutive financial years:

• the annual average number of employees is at least 250;
• the annual turnover excluding value added tax is EUR 40,000,000 or more; and/or
• the balance sheet total exceeds 20,000,000 euros.

In the following paragraphs, we only focus on the new ConfJRP and PubJRP for Large Businesses,^[87] i.e. the creditors’ collective agreement on a restructuring plan^[88] - which is significantly different from that of the SMEs, as explained above.^[89]

In line with the PRD 2019,^[90] the Act provides a checklist on the information needed in a restructuring plan, so that the voting creditors and equity holders are sufficiently informed.^[91] According to new Article XX.83/4 BCEL, this checklist includes inter alia the identity details, a list of assets and liabilities of the debtor; involved parties and their claims and interests; the measures and the duration for restructuring; the consequences for employees; expected new money; and if applicable, the identity of the PIFOR. Also, as mentioned above, the plan must include a justification as to why it can be expected that it would prevent bankruptcy and ensure viability.^[92]

New Article XX.83/9 BCEL provides detailed instructions on the categorisation of creditors in classes. Accordingly, creditors and equity holders are placed in different classes if two alternative criteria are met, namely either (1) the rights they would have in the event of the business’ liquidation or (2) the rights they would receive under the restructuring plan would be so different in nature, capacity, or value that they cannot be compared. This provision also stipulates that the ordinary and extraordinary creditors affected by the stay^[93] must be placed in different classes^[94].

The plan cannot provide for a reduction or remission of debts of certain classes, e.g. employee wages, alimony, criminal fines, or obligations resulting from damages caused through the debtor’s fault.^[95] Moreover, the implementation period of the restructuring measures cannot be longer than five years starting from the day of the plan’s confirmation.^[96]

After the supervisory judge verifies the formalities, and at least twenty days before the hearing, the debtor, the provisional administrator, or the PIFOR (with the debtor’s explicit consent) deposits the restructuring plan in the registry, along with a list of claims.^[97] The involved creditors are informed of the developments and of their right to consult the plan in the register as well as of the date and location of the voting on the plan. Based on Article XX.83/11(6), the debtor, provisional administrator, or PIFOR need to inform the workers’ representatives of the plan.

4.6 Adoption and confirmation of the plan (ConfJRP and PubJRP for Large Businesses)

In conformity with Articles 9 and 10 PRD 2019, the Act introduces new conditions for adoption and confirmation of the collective agreement. The restructuring plan is deemed approved if the majority vote in value per class is (in principal sum with interest) in favour, resulting in a collective agreement.^[98] The requirement of a majority of creditors in headcount as applicable in the JRP for SMEs is abandoned, to enable a greater degree of flexibility for debt restructuring within dispersed groups of creditors (to include bondholders and suppliers).

The new system also provides additional powers for the court to conduct its assessment through an economic appreciation of the viability of the business, necessity and suitability of new financing to implement the restructuring plan, and fair treatment of the creditors.^[99] The court needs to verify whether the division into classes is made correctly, i.e. based on sufficiently shared interests, and equal and proportionate treatment.

The court may refuse to confirm the plan if (1) the voting procedure did not take place as prescribed by law, (2) the best interests of creditors test is not met, (3) any new finance unduly harms the creditor’s interests and is not ‘necessary, or (4) upon request of any interested party, if the plan offers no reasonable prospect of averting bankruptcy. This evaluation is conducted marginally, while considering the severity of the insolvency situation, and the risks that the debtor takes with the investments he wishes to make.^[100]

If there are dissenting creditors within a class, the court must ex officio conduct a ‘best interests of creditors’ test, meaning that no dissenting creditor may be worse off under the restructuring plan than s/he would have been in a bankruptcy scenario in which the normal ranking rules would have applied.^[101] Whether the dissenting creditor is worse off can only be determined through an estimation and comparison with a hypothetical bankruptcy.^[102] If the test is satisfied, dissenting minority creditors within a consenting class are crammed down.

The cross-class cram-down allows for a restructuring plan to be imposed on a dissenting class.^[103] For this purpose, the court will apply a (flexible) absolute priority rule.^[104] The conditions for confirming the plan – and cramming down a dissenting class – are laid down by new Article XX.83/18 BCEL. Firstly, the general conditions for confirmation of Article XX.83/17 BCEL should be met. Secondly, the plan should be approved by the majority of classes – which includes one class of secured creditors or, if that is not the case, a class that ranks above the class of unsecured creditor – or, if the previous condition is not met, at least one class of creditors that is in the money approves the plan. Thirdly, the restructuring plan may not deviate from the legal or contractual ranking in a hypothetical liquidation to the detriment of the dissenting class unless reasonable grounds for such deviation exist and these creditors or equity holders are not clearly disadvantaged thereby. Fourthly, no class may receive more than the total amount of their claims.

The absolute priority rule aims to safeguard a dissenting class of affected creditors by ensuring that it is paid in full if a subordinate class is entitled to a distribution or an interest under the restructuring plan. Consequently, and in conformity with the PRD 2019,^[105] the secured creditors are only classified in a class of secured creditors for the part of their claim for which the priority applies, and up to the (estimated) liquidation value of the underlying collateral securing such claim in bankruptcy.^[106]

Hence, unlike before, the secured creditor will be treated as an ordinary creditor for the part of the claim for which the face value exceeds the value of the underlying collateral.

However, some derogations are allowed if necessary for achieving the aims of the plan and if they do not unduly prejudice the parties to the plan. Moreover, according to the Act’s Explanatory Memorandum, equity holders, although they are not allowed to hold an interest in exchange for new financing under the absolute priority rule, may nevertheless become entitled to do so, and they may even retain an interest without providing new financing if this is crucial for business continuity.^[107]

Once the restructuring plan is confirmed, it is binding on all creditors and shareholders affected by the stay.^[108]

4.7 Possibilities for a debt-for equity swap

Article XX.75 BCEL^[109] provides the option for debt-equity swaps in a restructuring plan proposed in the context of a JRP through collective agreement for SMEs. The confirmation of the restructuring plan overrules any decision of the shareholders including decisions concerning a capital increase needed for a debt- for equity swap.

Surprisingly, the Act does not specifically mention debt- forequity swaps in a JRP through collective agreement for Large Businesses. In our opinion, this does not exclude a debt-for equity swap in a Large Business JRP. Furthermore, the new provisions to avoid equity holder abuse^[110] may be helpful to support a successful debt- forequity swap.^[111]

4.8 Executory contracts

The opening of PubJRP, and hence the accompanying stay, does not amend nor put an end to executory contracts, and they must therefore be executed.^[112] However, the debtor may unilaterally decide to, after applying for the commencement of the proceedings, temporarily suspend current agreements for the duration of the stay if deemed necessary for the restructuring of the business. However, this exception does not apply to employment contracts.

4.9 Jurisdiction for and recognition of court decisions in Europe

Regarding the jurisdiction for, and recognition of, the new and amended Belgian restructuring procedures within Europe, one should look into Annex A of the European Insolvency Regulation (‘EIR’) 2015 as well as the key features and definitions of the national procedures. Currently, it is not clear which procedures will be included in Annex A for cross-border recognition and enforcement.

However, one could anticipate that the ConfJRPs, the chamber procedures, as well as the extra-judicial amicable agreements, would not meet the definition of Article 1 EIR 2015 because they are not public nor collective procedures. PubJRPs and Transfer of business will probably be included, together with the existing procedures (bankruptcy, consumer debt collection, voluntary and judicial winding up of a company, provisional administration).

Similarly, it is still unclear which of the new actors introduced by the Act will be included in Annex B of the EIR 2015. In addition to the already listed actors, candidates are the PIFOR, the practitioner in liquidation, and the provisional administrator. Up until now^[113] the Annexes have not yet been amended, which may, in theory, be problematic for the recognition and enforcement of the restructuring procedures that are opened after 1 September 2023.

The procedures not included in Annex A would need an international private law basis within the national framework to secure cross-border recognition and enforcement. Article 116 of the Belgian Code of Private International Law determines the scope of application and refers to ‘insolvency proceedings’. One may assume that this concept conforms with the definition of the BCEL. Article I.23(1) BCEL lists the following as insolvency proceedings: extra-judicial amicable agreement, public and confidential JRPs, transfer of business under judicial authority, confidential preparation for bankruptcy, and bankruptcy. By including both confidential proceedings, as well as proceedings involving only a limited number of creditors, the Belgian Code of Private International Law offers a legal basis for those procedures (potentially) not included in Annex A.

5. Conclusion

Overall, a preliminary analysis shows that the Belgian legislator has attempted to introduce as many opportunities as possible for the debtor to restructure its business, whilst staying in conformity with the PRD 2019. The already well-equipped Belgian restructuring framework is now complemented with several additional procedures with an emphasis on confidentiality. However, one may argue that this results in a complex framework with several terminology issues which would need particular attention from the national legislator in the coming years. Another crucial issue that requires more clarity is the cross-border aspects of the new confidential procedures.

Furthermore, the two-tiered system of collective JRPs for SMEs and Large Businesses may become a concern. The legislator emphasises that this new procedure is introduced for aligning the Belgian framework with the PRD 2019, whilst maintaining the well-functioning current system for the SMEs with the ‘do-not-fix-what-is-not-broken’-mentality. It remains to be seen if the procedure for Large Businesses will become popular in practice.

Currently, it is difficult to see the forest for the trees. Only time will tell how these developments will be received in practice and what challenges they would bring.

^[1] This article covers the law, case law and literature as of 20 July 2023.

^[2] Belgische Kamer van volksvertegenwoordigers, Wetsontwerp tot omzetting van Richtlijn (EU) 2019/1023 van het Europees Parlement en de Raad van 20 juni 2019 betreffende preventieve herstructureringsstelsels, betreffende kwijtschelding van schuld en beroepsverboden, en betreffende maatregelen ter verhoging van de efficiëntie van procedures inzake herstructurering, insolventie en kwijtschelding van schuld, en tot wijziging van Richtlijn (EU) 2017/1132 en houdende diverse bepalingen inzake insolvabiliteit, adopted on 25 May 2023, for an overview of the parliamentary documents see:

https://www.dekamer.be/kvvcr/showpage.cfm?section=/none&leftmenu=no&language=nl&cfm=/site/wwwcfm/flwb/flwbn.cfm?lang=N&legislat=55&dossierID=3231 (last viewed July 2023).

^[3] Wet van 7 juni 2023 tot omzetting van Richtlijn (EU) 2019/1023 van het Europees Parlement en de Raad van 20 juni 2019 betreffende preventieve herstructureringsstelsels, betreffende kwijtschelding van schuld en beroepsverboden, en betreffende maatregelen ter verhoging van de efficiëntie van procedures inzake herstructurering, insolventie en kwijtschelding van schuld, en tot wijziging van Richtlijn (EU) 2017/1132 en houdende diverse bepalingen inzake insolvabiliteit, Belgian State Gazette, 7 July 2023. It is advisable to consult the coordinated version of Book XX to get a clear picture of the Belgian insolvency framework, as the Act merely deals with specific adjustments. The coordinated version of Book XX will be available on 1 September 2023 at: https://www.ejustice.just.fgov.be/cgi_loi/change_lg.pl?language=nl&la=N&cn=2013022819&table_name=wet (last viewed July 2023).

^[4] Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 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, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency), O.J. L 172/18.

^[5] Former Articles XX.21-29 BCEL.

^[6] Former Article XX.36 BCEL.

^[7] Former Articles XX.37-38 BCEL.

^[8] Former Article XX.39/1 BCEL. This tool was introduced during the pandemic to encourage businesses to use the existing judicial restructuring procedures. The confidential preparatory phase invites businesses to explore restructuring options.

^[9] Except for transfer of business under judicial authority, see Article XX.84(2) BCEL.

^[10] Article XX.41 BCEL.

^[11] Former Article XX.39 BCEL; I. Verougstraete et al, Manuel de l’Insolvabilité de l’Entreprise, Wolters Kluwer: Liège, 2019, 408; See also I. Verougstraete, ‘Doel van de Reorganisatie: Behoud van de Continuïteit’, Tijdschrift voor Belgisch Handelsrecht, 2019, 2019(4), 564-568.

^[12] Art XX.45 BCEL.

^[13] Opschorting (Dutch)/ Sursis (French)

^[14] The BCEL distinguishes ‘ordinary creditors and extraordinary creditors affected by the stay’. See Section 4.3.3.

^[15] Former Articles XX.64-XX.65 BCEL.

^[16] Former Articles XX.67-XX.83 BCEL.

^[17] Former Articles XX.84-XX.97 BCEL. The transfer is prepared by a court appointed practitioner and approved by the court. The debtor has no decision-making powers in the transfer process.

^[18] Act of 28 April 2022 (Belgian State Gazette 1 July 2022); Act of 28 November 2021 (Belgian State Gazette 30 November 2021), Act of 27 June 2021 (Belgian State Gazette 9 July 2021), Act of 21 March 2021 (Belgian State Gazette 26 March 2021), Act of 31 July 2020 (Belgian State Gazette 7 August 2020), Act of 2 June 2019 (Belgian State Gazette 21 May 2019), Act of 13 April 2019 (Belgian State Gazette 14 May 2019), Act of 23 March 2019 (Belgian State Gazette 4 April 2019), Act of 30 July 2018 (Belgian State Gazette 5 September 2018), Act of 11 July 2018 (Belgian State Gazette 20 July 2018) and Act of 15 April 2018 (Belgian State Gazette 27 April 2018).

^[19] Act of 21 March 2021 amending Book XX of the Code of Economic Law and the Income Tax Code 1992, Belgian State Gazette 26 March 2021.

^[20] Since the reform of the Belgian insolvency law was delayed, the Act of 21 March 2021 was extended twice, see Royal Decrees of 24 June 2021 and 12 July 2022.

^[21] The working group consisted of experts from the judiciary, lawyers, academics, and the Ministry of Justice.

^[22] For more details on the process: DOC 55 3231/004 <https://www.dekamer.be/flwb/pdf/55/3231/55K3231004.pdf> (last viewed July 2023), at 15.

^[23] CJEU 16 May 2019, ECLI:EU:C:2019:424 (Plessers).

^[24] CJEU 22 April 2022, ECLI:EU:C:2022:321 (Heiploeg).

^[25] F. De Leo, ‘De overdracht van een onderneming in reorganisatie en faillissement: de stand van zaken na Smallsteps, Plessers en Heiploeg’ Tijdschrift voor Belgisch Handelsrecht, 2022, 2022(6), 765-779.

^[26] The role of the PIFOR in the confidential and amicable tools are discussed further under Section 4.3.1.

^[27] The first ‘modern’ restructuring framework was introduced in 1997, with the so-called Wet betreffende het gerechtelijk akkoord’, 17 July 1997, Belgian State Gazette 28 October 1997.

^[28] ‘Business’ is a core concept and defines the scope of the BCEL in general and Book XX in particular. For a definition of the concept ‘business’, see Articles I.1(1), I.23(7/1) and I.23(8) BCEL.

^[29] In the meaning of Article 2.1 (9) PRD 2019: natural person exercising a trade, business, craft, or profession.

^[30] For a definition on the Large Business see Section 4.5.

^[31] Please note that the same rules apply to the procedure Transfer of business under judicial authority.

^[32] The duration of the procedure is equal to the duration of the stay.

^[33] Article XX.46 BCEL. Previously, the duration of the stay was 6 months, extendable to 12 or 18 months (former Article XX.59 BCEL).

^[34] Article XX.59 BCEL. This is option also available for the ‘practitioner in the field of liquidation’ during a procedure of Transfer of Business under judicial authority. For more information on ‘practitioner in the field of liquidation' in the BCEL, see Section 4.3.1.

^[35] Articles 6(9)(a) and 6(9)(b) PRD 2019.

^[36] Article XX.62 BCEL.

^[37] Article XX.83/27 BCEL.

^[38] Articles XX.21(1), XX.21/1, XX.23(3) BCEL.

^[39] Article XX.25(2) BCEL (court investigation) and Article XX.29/1(1) BECEL (reconciliation with creditors).

^[40] For PubJRPs and Transfer of business: Article XX.45 BCEL; for ConfJRPs: Articles 83/22(4) and I.23(29) BCEL.

^[41] Article I.23(29) BCEL.

^[42] Compare PubJRPs and Transfer of business: Article XX.45 BCEL and ConfJRPs: Articles 83/22(4) and I.23(29) BCEL.

^[43] Article XX.62 BCEL.

^[44] Article XX.70(1)(7) BCEL (for SME) and Article XX.83/4(2)(8) BCEL (for Large Business).

^[45] Article XX.79(4) BCEL (for SME) and Article XX.83/17(2) BCEL (for Large Business).

^[46] The Act also updates the extra-judicial amicable agreement procedure codified in Articles XX.37-XX.38 BCEL by adding a viability test for confirming the agreement. The court may refuse to confirm the amicable agreement if the debtor has no apparent chance of economic survival or if the agreement cannot be implemented without negative consequences for third parties’ rights on the debtor’s assets.

^[47] Article XX.83/32(1) BCEL; Article XX.83/37 BCEL.

^[48] Article I.23,7°/01 BCEL.

^[49] The BCEL refers to ‘practitioner in the field of liquidation' - Article I.23(7) - to address all court officers involved in insolvency proceedings aimed at liquidation. The ‘practitioner in the field of liquidation’ includes the trustee in bankruptcy, but also the mandatory court officer appointed during a transfer of business. See Article XX.20 BCEL. For clarity, we use the familiar term ‘liquidator’ instead of ‘practitioner in the field of liquidation'.

^[50] For example, the Act also introduces a new tool where the debor may request the Chamber for a business mediation with the assistance of the PIFOR, see Article XX.29/2 BCEL. In this case, the PIFOR absorbs the tasks of the previous business mediator. Another example is the role of the PIFOR during JRPs through an amicable agreement. The debtor may be assisted by a PIFOR during the drafting of the agreement Article XX.83/22 BCEL and may continue to be assisted by a PIFOR to implement the agreement after its confirmation, see Articles XX.65(4) and XX.83/30 BCEL.

^[51] Article XX.49/2 BCEL.

^[52] Article XX.83/22 BCEL.

^[53] Article XX.I.23 (9) BCEL defines the ‘DIP’ in the context of Book XX BCEL.

^[54] Article XX.49/1 BCEL. This option also available with a Transfer of business.

^[55] The same types of creditors are distinguished in the Transfer of business.

^[56] Article I.23(11) BCEL.

^[57] Article XX.57 BCEL.

^[58] For details on the consequences of the stay, see Section 4.4.

^[59] Articles I.23(14-15) BCEL. All holders of security interests in rem (zakelijke zekerheidsrechten/sûretés réelles) are considered as extraordinary creditors, see F. De Leo, ‘Definiëring (Buiten)gewone Schuldvorderingen in de Opschorting (of hoe het heden het verleden is)’, Tijdschrift voor Belgisch Handelsrecht, 2019, 2019(10), 1211-1230.

^[60] Article XX.75/2 BCEL.

^[61] Article I.23(16/2) BCEL.

^[62] Article XX.83/9 BCEL.

^[63] Explanatory Memorandum to the Act, at 53.

^[64] Article XX.83/11 BCEL.

^[65] Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law (OJ L 169, 30.6.2017, p. 46); Article 32 PRD 2019; Recital 96 PRD 2019.

^[66] Article XX.45 BCEL; Article XX.83/32 BCEL.

^[67] Article XX.82 BCEL and Article XX.83/20 BCEL.

^[68] Article 13 PRD 2019.

^[69] Article XX.39/2 BCEL.

^[70] Article XX.40 BCEL.

^[71] Article XX.83/24 BCEL.

^[72] This preliminary stay is also applicable in the Transfer of Business proceeding.

^[73] Before the adoption of the Act, the duration was six months.

^[74] Explanatory Memorandum to the Act, at 35.

^[75] This stay is also applicable in the Transfer of Business proceeding.

^[76] Article XX.46 BCEL (PubJRP) and Article XX.85 BCEL (Transfer)

^[77] Article 6(6) PRD 2019.

^[78] This implies that new claims arising during the PubJRP or Transfer must be paid and thus are not affected by the stay, see Article XX.57 BCEL.

^[79] The BCEL refers to these secured creditors as ‘extraordinary creditors affected by the stay’, for more details see Section 4.3.3.

^[80] Article XX.59/1 BCEL.

^[81] Explanatory Memorandum to the Act, at 39.

^[82] Article XX.59 BCEL; Article 6(8) PRD 2019.

^[83] Recital 16 PRD 2019.

^[84] Explanatory Memorandum to the Act, at 41.

^[85] Explanatory Memorandum to the Act, at 42.

^[86] Introduced by Article 122 of the Act.

^[87] The rules concerning the plan, its adoption and confirmation are identical in the ConfJRP and the PubJRP. In the following paragraphs we refer to the Articles applicable in the PubJRP for Large Businesses. These rules also apply in the ConfJRP for Large Businesses, see Articles XX.83/32, XX.83/34 and XX.83/37 BCEL.

^[88] Article XX.83/2 BCEL; Article 83/3(1) BCEL.

^[89] More details in Articles XX.64-XX.83 BCEL.

^[90] Article 8 PRD 2019.

^[91] Articles XX.83/3-XX.83/7 BCEL.

^[92] Article 127 of the Act, introducing new Article XX.83/4(2)(8) BCEL.

^[93] See Section 4.3.3.

^[94] See also Recital 44 PRD 2019 and Article 9(4) PRD 2019.

^[95] Article XX.83/7 BCEL.

^[96] Article XX.83/10 BCEL.

^[97] Article XX.83/11 BCEL.

^[98] Article XX.83/14 BCEL.

^[99] Article XX.83/17 BCEL.

^[100] Explanatory Memorandum to the Act, at 57.

^[101] Article XX.83/17 1(4) BCEL. See also Recital 52, Article 2(6), and Article 10(2)(d) PRD 2019.

^[102] Explanatory Memorandum to the Act, at 56-57.

^[103] Article XX.83/18 BCEL.

^[104] The absolute priority rule cannot force creditors that are e.g., tax or social security authorities to accept a plan if they dissent under the condition that unsecured creditors receive a payment; see Explanatory Memorandum to the Act, at 59.

^[105] Recital 42 PRD 2019.

^[106] See Article XX.83/9 BCEL. The determination of the part of the claim for which a priority applies in the context of the categorization into classes is based on the value that would be expected in a bankruptcy or liquidation according to the legal ranking on the basis of its security interest. For the remainder of their claim, these creditors are included in a class of ordinary creditors affected by the stay.

^[107] Explanatory Memorandum to the Act, at 60.

^[108] Article XX.83/20 BCEL.

^[109] Article XX.75 of the BCEL.

^[110] See Section 4.3.3.

^[111] Eric Blomme, ‘The new Belgian restructuring plan for large enterprises: debt-to-equity swap’, Corporate Finance Lab, July 19, 2023, https://corporatefinancelab.org/2023/07/19/the-new-belgian-restructuring-plan-for-large-enterprises-debt-to-equity-swap/#more-17913 (last viewed July 2023).

^[112] Article XX.56 BCEL. This rule also applies for the Transfer of Business.

^[113] 1 December 2023.