Linklaters

The Law of 31 January 2009 on the continuity of enterprises establishes a new framework for debtors that face continuity risks and seek court permission for a judicial restructuring. It is expected to enter into force soon and in any event by no later than 9 August 2009. The new law replaces the Law of 1997 on judicial composition (“gerechtelijk akkoord”/“concordat judiciaire”). The aim of the judicial restructuring is to enable the debtor to:

• conclude a settlement agreement with two or more of its creditors. Such settlement will be protected against certain voidance rules in case of the debtor’s later bankruptcy. There is also a significant tax incentive, as a waiver of debt consented to in the context of such settlement is not taxable for the debtor, although remaining fully deductible for Belgian corporate creditors (subject to further rules to be provided for by a Royal Decree);
• obtain the consent of its creditors to a collective restructuring plan for a maximum of five years. If approved by the majority of the creditors representing the majority of the claims, this plan will be binding upon all creditors; and
• transfer the whole or part of its business or activities.

Key features of the new judicial restructuring procedure are:

• the flexible condition for opening of the procedure: a threat to the debtor’s immediate or future continuity of its business or activities (or part thereof) is sufficient;
• debtor-in-possession: the debtor maintains, as a rule, the management over the company during the restructuring procedure (similar to a US Chapter 11 reorganisation);
• shielding the debtor and its assets: as from the request for a judicial restructuring, the debtor cannot be declared bankrupt or wound up by court order. Also any enforcement against the debtor’s assets for prior claims is prohibited; and
• restricted court involvement: in the context of a collective restructuring plan, the court can only verify whether the plan complies with the legal formalities and public policy.

The new law is of relevance for the debtor’s creditors and contract parties in areas such as:

• the effectiveness of payments, set-off and termination clauses during the restructuring;
• the effect of restructuring on existing financial collateral and netting arrangements, which should in principle remain unaffected to the extent that these arrangements fall under the financial collateral Law of 15 December 2004; and
• the status of new claims arising during the procedure (“boedelschulden”/ “dettes de masse”). For instance, claims arising from new money provided during the restructuring (whether based on existing or new arrangements) should have a preferred position and be bankruptcy-proof if the bankruptcy is “closely linked” to the termination of the restructuring. Such claims will, as a rule, still rank after the rights of existing pledgees, mortgagees and credit-owners.

For further information, please contact:

David Ballegeer (32) 2 501 9593 or david.ballegeer@linklaters.com
Arnaud Coibion (32) 2 501 9018 or arnaud.coibion@linklaters.com
Stefaan Loosveld (32) 2 501 9521 or stefaan.loosveld@linklaters.com