COVID-19 Causes Changes in Judicial Reorganization Procedures – Insolvency / Bankruptcy / Restructuring
Belgium: COVID-19 leads to changes in judicial reorganization procedures
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The COVID-19 crisis has underscored the importance of having effective insolvency proceedings. New measures are now in force aimed at optimizing the judicial reorganization procedure. We detail the three most relevant changes.
Belgian insolvency law organizes two main types of insolvency proceedings: bankruptcy (failure / bankruptcy) which is a liquidation and reorganization procedure (gerechtelijke reorganisatie / judicial reorganization) which is a backup procedure.
After two consecutive bankruptcy moratoriums (read more here), the last of which expired on January 31, 2021, the legislator has decided to review certain existing provisions relating to judicial reorganization: companies facing financial difficulties are now offered a new instrument to facilitate their restructuring, the documentary requirements for requesting a judicial reorganization are relaxed and the favorable tax regime applicable to debt reductions is extended to debt reductions granted within the framework of amicable settlements.
These measures apply from March 26, 2021. The first two measures are only temporary. Following a recent extension, these measures will apply (at least) until July 16, 2022. Until then, the legislator aims to introduce structural changes in the judicial reorganization procedure in accordance with the European directive on restructuring.
With the new prior agreement procedure, the legislator introduced, alongside the already existing out-of-court settlement agreement, an additional instrument to protect the debtor during early restructuring negotiations with creditors. Unlike the already existing out-of-court settlement agreement, the preliminary settlement procedure is not an independent restructuring instrument. Its objective is only to facilitate negotiations with certain creditors with a view to opening a reorganization procedure by judicial or collective amicable agreement. The preliminary agreement is not a pre-pack agreement to transfer all or part of the debtor’s business.
The debtor remains in possession during the “prior agreement” but the court appoints a bailiff to supervise and manage the negotiation process. The judicial officer decides in particular on the creditors to be included in the negotiations.
As the “prior agreement” is an out-of-court procedure, the rights of creditors are in principle not affected during negotiations. However, to prevent enforcement measures from jeopardizing the continuity of the activity, the judicial officer may request, by means of a between the parties petition, the court to impose payment periods or a stay of execution on creditors, each for a maximum period of four months. These measures can apply to all types of creditors, including creditors who do not participate in negotiations and those who are not subject to a moratorium in subsequent judicial reorganization proceedings. When assessing the claim, the court considers the debtor’s situation and the potential impact on the creditors involved.
If the negotiations are successful, an amicable legal redress or by collective agreement is open. As consent to the agreement has already been prepared, the law provides for a shorter time limit for the ensuing procedure. Once the file has been filed, the court must open the reorganization procedure within 5 working days. Subsequently, for an amicable settlement, the date of the approval hearing must be set within one month of the opening. For collective agreements, the homologation hearing must be set within a maximum period of three months.
As soon as the case is filed with the court, the general protective measures of a judicial reorganization will apply, including the suspension of the obligation for the directors of the company to file for bankruptcy.
Make judicial reorganization more accessible
Currently, a judicial reorganization request is only valid if the company submits a series of documents, some of which may not be readily available, and are cumbersome and time consuming to prepare or assemble, as they require the assistance of commissioners. to accounts.
To deal with this concern, the sanction of nullity of the request for the opening of a receivership due to missing documents has been lifted. Instead, some documents may be handed over at a later stage or, subject to motivation, some documents may be omitted.
Alignment of the tax system
Belgian insolvency law provided for an advantageous tax regime for debt reductions granted within the framework of an amicable or collective legal agreement. From now on, the advantageous regime also applies to debt reductions granted under out-of-court out-of-court settlements, on condition that they are approved by the court. As a result, depreciation and provisions on receivables from co-contractors resulting from an amicable agreement benefit from a tax exemption during the taxable period until the full implementation of the plan or the settlement, or until the close of the procedure.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.
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