The new insolvency law is ready… but its implementation shows some delay

This draft act, that was already known before, implies a significant change in insolvency law, taking into account the European Insolvency Regulation on the one hand and the current concept of enterprise, the practice of current insolvency proceedings and the specific needs that emerge from practice on the other hand. The now fragmented legislation (including the existing Bankruptcy Act of 1997 and the 2009 Act concerning the Continuity of Enterprises (as amended in 2013) will therefore be coordinated and replaced. However, the high expectations regarding the insertion of a silent bankruptcy were not met. The intention was to enable a company that is virtually bankrupt to be sold prior to a bankruptcy by a pre-receiver creating more value than in case of bankruptcy. Minister Geens had this deleted as a result of a European judgment that challenged the principle.

The main principles of the new insolvency law are the following:

The basic requirements regarding judicial reorganization, respectively bankruptcy, remain identical compared to the current legislation. In order to be eligible for judicial reorganization, the new insolvency law still requires that the continuity of the enterprise is at risk or may become at risk. The new bankruptcy procedure still sets as conditions a continued suspension of payment and a lack of creditworthiness. The most important changes occur in the following areas:

The scope is extended to the “enterprise” and is no longer limited to the old concept of merchant. From now on, liberal professions, farmers, foundations, NPOs, partnerships and civil partnerships under the form of a trading company will also fall under the scope of the new insolvency law.

Focus lies on modernization and, in particular, digitization of procedures, what should contribute to efficiency. The insolvency procedure will be fully electronic.

In addition, more attention will be paid to prevention with regard to companies in difficulty.

A new figure can also be deployed, the company mediator, to facilitate the reorganization of all or a part of the assets or activities of a company.

The possible excusability of the failed entrepreneur after the current bankruptcy procedure will be replaced by a debt waiver. In case of waiver of the debts, the failed entrepreneur will be deemed to have been rehabilitated.

In particular with regard to the judicial reorganization procedures, a number of ambiguities and inaccuracies were eliminated from the 2009 Act concerning Continuity of Companies. Undoubtedly, a number of earlier judgements of the Constitutional Court and the Court of Cassation will have formed the basis for this.

The new insolvency law sinserts the known liability of (factual) directors in case of an apparent gross error that contributed to the bankruptcy directly in the new insolvency law. This liability is now included in the Companies Code. In addition to the apparently gross error, an additional ground of liability is also introduced. Particularly with regard to a (factual) director who knew or should have known that there was apparently no reasonable prospect for maintaining the company or its activities and avoiding bankruptcy and failed to act as a normally cautious and careful director in the same circumstances. Only the receiver (and not a disadvantaged creditor) can initiate a claim based on this new liability ground. The well-known exceptions for small businesses, NPOs, foundations, etc. remain in force.

Furthermore, the new insolvency law also deals with cross-border insolvencies.

Somewhat disappointing is that, despite the fact that the draft act was indeed approved by September 2017 (as announced by Minister Geens), book XX will not enter into force until 1 May 2018. In spring 2018, we will give you a thorough explanation of the new law, so that further Royal Decrees implementing the new legislation can also be considered.

To be continued …

Sara Burm – Bart Brunet