Mr. Charles-Albert Dumont de Chassart
Counsel

Charles-Albert Dumont de Chassart is a qualified Belgian attorney admitted to the Brussels Bar since 2006.

He has a strong experience in insolvency procedures (bankruptcy, liquidation, continuity of undertakings), business restructuring and corporate law. He acts on a regular basis for creditors, banks and companies in distress. He is regularly appointed as trustee and liquidator by the Undertaking Court of Brussels.

He is also an experienced litigator in commercial and corporate matters, white collar crimes and directors liability.

He has over 15 years of professional expertise in business restructuring and insolvency law: law on continuity of undertakings, collective negotiations with creditors, debts restructuring and haircuts, distressed acquisitions and transfers under supervision of the Court, bankruptcy and liquidations. He also assists in drafting commercial contracts, especially in the aviation sector.

He also acts in the context of the continuing responsibility of directors, in particular in case of distressed situations.

Charles holds a Master’s degree from the Université catholique de Louvain and a Master of Laws in European Law from the University of Aberdeen. He also did an Erasmus in Universität Wien.

Ms. Stéphanie Nachsem
Lawyer

Stéphanie Nachsem is a member of the Brussels Bar since 2021.

She practices business law with a special focus on litigation, companies restructuring and insolvency law.

She represents clients in commercial disputes and corporate litigation matters through court proceedings and alternative dispute resolution procedures such as arbitration and mediation. She also assists financially distressed companies as well as creditors and other stakeholders in restructuring negotiations and judicial reorganisation proceedings.

She holds a Master’s degree in Business law from the University of Liège, during which she took part to the 28th Willem C. Vis International Commercial Arbitration Moot (Vis moot). In 2020, she did an exchange program at the University of Kobe (Japan) in International Business Law. She is a member of CEPANI40 since 2023.

EVOLVING DYNAMICS OF INSOLVENCY AND RESTRUCTURING IN BELGIUM

Introduction

Belgium’s insolvency and restructuring framework has undergone significant revisions with the enactment of the Belgian Act of 7 June 2023, which aligns the country’s laws with the EU Directive 2019/1023 on restructuring and insolvency.¹Directive (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), Document 32019L1023, ELI: http://data.europa.eu/eli/dir/2019/1023/oj. Effective from 1 September 2023, these reforms introduce substantial changes aimed at enhancing flexibility, promoting value-maximising transfers, and safeguarding the interests of all stakeholders involved in insolvency proceedings.

In this article we delve into the latest bankruptcy figures in Belgium and the key amendments introduced by the Act, exploring the implications for debtors, creditors, investors, and stakeholders.

Latest trends and developments in Belgium

Latest figures

In 2023, 10,243 companies were declared bankrupt in Belgium. This marks an 11% increase compared to 2022 (9,265 bankruptcies) and the third-highest result in the last decade.

With 917 bankruptcies, December strongly confirms this annual trend.

These findings should however be nuanced according to the Belgian regions (Flemish Region, Walloon Region and Brussels-Capital Region). It’s notable that the 5,908 bankruptcies recorded in the Flemish Region in 2023 is the highest total over the period 2014-2023, surpassing the previous record set at 5,287 in 2022. Although the number of bankruptcies in the Walloon Region increased by 21% compared to 2022, the 2,656 bankruptcies only represent the fourth highest result in the last decade. The Brussels- Capital Region recorded 1,679 bankruptcies, which is 5% lower than in 2022, putting 2023 among the lowest, behind 2020 and 2021.

Regarding the early trends of 2024, we’ve seen that the number of bankruptcies recorded in February 2024 exceeded both February 2023 (+20%) and February 2022 (+35.1%), reaching the highest value for the month since 2014 (931).²StatBel, Faillites mensuelles, 15 March 2024, https://statbel.fgov.be/fr/themes/entreprises/faillites/faillites-mensuelles.

Sectors concerned

With the exception of the information and communication sector, all sectors experienced an increase in the overall number of bankruptcies in 2023 compared to 2022. The Undertaking Courts pronounced 2,230 bankruptcies in construction and 648 bankruptcies in transportation and storage. These figures exceed the previous records established in 2014 for construction (1,977) and in 2022 for transportation and storage (577) by 12.8% and 12.3%, respectively.

In February 2024, bankruptcies surged across various sectors compared to the previous year, with significant increases in six industries. Construction saw the highest number of bankruptcies in February 2024 (229) since the previous record in February, which stood at 174 bankruptcies in 2014.³StatBel, Faillites mensuelles, 15 March 2024, https://statbel.fgov.be/fr/themes/entreprises/faillites/faillites-mensuelles. The commercial sector also witnessed a notable increase in early 2024.

These increases could be attributed to the economy now grappling with the additional challenge of escalating energy and raw material costs, stemming from international tensions arising from conflicts in Ukraine and the Middle East. With high international tensions, 2024 could bring an even greater challenge for Belgian companies, particularly in certain sectors directly affected by these rising costs.

Main reorganisation options under Belgian law: An overview

As a reminder, there were three primary options for companies facing financial distress to get protection against enforcement actions and bankruptcy filings by its creditors and to effectively continue its activities while restructuring them (ie the equivalent of Chapter 11 of the United States Bankruptcy Code):

Either in the form of a settlement with one or more select creditors (amicable agreement/accord amiable/ minnelijk akkoord), or;

• a comprehensive debt restructuring plan put to approval by all creditors that will be binding on all creditors (collective agreement/accord collectif/collectief akkoord), or;
• a transfer of all or part of its assets or activities to a third party and under court supervision (transfer under judicial authority/transfert sous autorité de justice/overdracht onder gerechtelijk gezag).

It was found that the success of judicial reorganisation procedures was very low. These procedures were found to be most effective for companies that are profitable or have a prospect of profitability with a good future business plan, but are faced with too much debt that is crippling them.

This low rate of success was also explained by the fact that these procedures impose a significant challenge on the company because of their public nature and the immediate loss of value and reputation as a result of the publications imposed by the opening of the judicial procedure. The moratorium period was granted to a company if the reorganisation procedure is published in the Belgian Official Gazette (Moniteur Belge/Belgisch Staatsblad) and in the Belgian register of companies (Banque Carrefour des Entreprises/Kruispuntbank van Ondernemingen). As a result, the debtor’s financial problems are made public, often creating unrest among employees, suppliers and investors. They will adapt their behaviour accordingly and, for instance, demand pre-payment, stop providing credit, insist on additional security from suppliers and banks and loss of customers. In many cases, the mere initiation of such proceedings brings the company into serious disrepute.

Reforms introduced by the Act of 7 June 2023: Enhancing confidentiality and efficiency

On 20 June 2019, the European Parliament adopted the EU Directive 2019/1023 on restructuring and insolvency⁴Directive (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), Document 32019L1023, ELI: http://data.europa.eu/eli/dir/2019/1023/oj. harmonising insolvency law at European level.

This directive was finally transposed into Belgian law by the Act of 7 June 2023 creating opportunities for a distress company and all its stakeholders by introducing more adaptable insolvency rules and advanced procedures tailored to the needs of today’s restructuring market.

The new insolvency provisions are effective for insolvency proceedings initiated on or after 1 September 2023.

In this section, we will present four primary changes:

• the introduction of private reorganisation procedures
• private bankruptcy procedure
• the revision of the judicial transfer of activities to comply with the TUPE Directive⁵Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses.
• the classification of creditors into distinct categories for voting on restructuring plans in large companies

a.Private reorganisation proceedings: Mitigating negative publicity

Recognising the challenges posed by public proceedings, especially in terms of loss of value and reputation, the new law aims to foster a more conducive environment for restructuring by enhancing confidentiality. Notably, the Act of 7 June 2023 introduces a significant reform by introducing a

permanent private procedure for the first two reorganisation options: amicable and collective agreements. This private procedure allows for discreet negotiations and decision-making, minimising the adverse effects of negative publicity on the debtor’s business operations while safeguarding the interests of creditors and employees.

In practical terms, the fact that the procedure is private means that decisions are not published. The information contained in the register of the procedure is confidential and is only accessible to the debtor, the creditors involved in the procedure (the ones deliberately chosen by the debtor) and the members of the courts and tribunals in the performance of their duties (Art. XX.83/22 of the Belgian Code of Economic Law).

The court will appoint a restructuring expert to oversee the process and help the debtor negotiate an amicable agreement or prepare a collective plan. As opposed to traditional public reorganisation proceedings, the debtor will not automatically enjoy protection against its creditors. The restructuring expert may, however, ask the court to grant an ad hoc moratorium to the debtor against specific creditors for a maximum of four months.

The effectiveness of this measure remains to be assessed in practice. In our opinion, a judicial reorganisation procedure by amicable agreement will certainly be easier to manage in a confidential context, as the debtor can select the creditors they wish to involve in the amicable agreement. On the other hand, concluding a private collective agreement is expected to present greater challenges due to the involvement of all creditors. The debtor’s true situation is then quickly known to everyone, which quickly triggers precautionary measures that reduce the chances of success of the reorganisation.

b.Private bankruptcy preparation: Streamlining procedures

Until 1 September 2023, under the bankruptcy regime, the court first declared the bankruptcy, after which the trustee had the option to sell the business that could be saved. This process invariably had to be done in extreme urgency and by someone who did not know the business.

The sequence of events can now be inverted. The new restructuring provisions now allow preparatory work to be carried out before the bankruptcy as such is declared. Before the court formally declares bankruptcy, the debtor can request private preparations for the transfer of all or a portion of its assets and operations. This preparatory procedure is available to debtors who meet the legal criteria for bankruptcy, demonstrating that the liquidation of the business is facilitated and allows for the highest possible amount for creditors and employment can be preserved as much as possible.

This innovative legal reform aims to mitigate the adverse effects of public bankruptcy filings, which often lead to a significant loss of enterprise value for debtors. Moreover, it facilitates value-maximising transfers of assets or activities as a going concern at market value, in the interest of creditors and employees, by enabling debtors to discreetly prepare for bankruptcy under court supervision. The procedure is once again not subject to any publication, at least as far as the preparatory phase is concerned.

Under the preparatory phase, the court appoints a “future bankruptcy trustee,” who will later be appointed as trustee at the time of the subsequent actual bankruptcy. The future bankruptcy trustee supervises the process, assesses the feasibility of the asset or activity transfer, and represent(s) creditor interests during negotiations with potential acquirers. Although the debtor retains control over the business during this phase, the future bankruptcy trustee ensures compliance with legal obligations and safeguards creditor interests. The procedure typically lasts up to 30 days, with the possibility of extension for another 30 days upon the debtor’s request, providing adequate time to identify a suitable acquirer and negotiate terms. Upon completion of the preparatory phase, the prepared transfer of assets or activities will take effect promptly after the debtor’s public declaration of bankruptcy, subject to court approval on the prepared transfer.

c.The judicial transfer of activities: Adhering to EU Directives

The Belgian reorganisation procedure by way of a business transfer under judicial authority has undergone significant revisions to align with the European TUPE Directive.⁶Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses. From 1 September 2023, it will be transformed into a liquidation procedure. This re-establishes the transferee’s possibility to choose the employees it takes over together with the business. By realigning the procedure with EU directives and CJEU case law, Belgium seeks to enhance legal certainty for transferee-buyers by reinstating their choice of employees based on technical, economic, or organisational reasons while ensuring the fair treatment of employees.

Traditionally, the Belgian judicial reorganisation procedure by way of a business transfer under judicial authority (formerly known as GRP 3/PRJ 3) allowed the interested candidate-buyer to choose the employees it would take over together with the business, provided that this choice was based on technical, economic, or organisational reasons (Article XX.86, §3 of the Belgian Code of Economic Law and Collective Labour Agreement no. 102⁷Collective Labour Agreement no. 102 of 5 October 2011 concerning the preservation of workers’ rights in the event of a change of employer due to judicial reorganisation by transfer under judicial authority.). As a burdensome (social) cost structure is often, at least partly, the cause of a debtor’s decreasing profitability and financial difficulties, the Belgian legislator considered this choice for the transferee to be crucial for this reorganisation procedure to be effective.

In 2019, the CJEU denounced this option for employee selection possibility in the renowned Plessers’ case⁸CJUE 16 May 2019, ‘Plessers’, C-509/17. See also before the CJEU ruling in the Dutch ‘Smallsteps’ case (CJUE, 22 June 2017, ‘Smallsteps’, C-126/16) and later in the Dutch ‘Heiploeg’ case (CJUE, 28 April 2022, ‘Heiploeg’, C-237/20)., ruling that it was contrary to the European TUPE Directive, which mandates the inclusion of all employees associated with the business. Despite the practical likelihood of the debtor undergoing liquidation or bankruptcy shortly after the business transfer, this reorganisation procedure was by law oriented towards the “preservation of activities.” Consequently, according to the CJEU, it was not eligible for the exception under the TUPE Directive.

As a result, both the objective and the procedure underwent revisions through the Belgian Act of 7 June 2023 transposing the EU Directive (2019/1023) to adhere to the CJEU’s case law. The transfer under judicial authority has been transformed into a liquidation procedure explicitly aimed at “the efficient liquidation of the legal entity or of the assets of the company” (new Art. XX.84 of the Belgian Code of Economic Law) and a new Art. XX.93/1 of the Belgian Code of Economic Law has been introduced requiring the courts to convene the debtor once the business transfer is court-approved and declare it either bankrupt or in liquidation. In addition, courts now have to validate the transferee’s motivation, potentially resulting in a refusal of the transfer on such grounds. Furthermore, in cases of comparable takeover offers, the offer that preserves the highest number of employees will prevail by law.

d.Collective plan reorganisations: Empowering stakeholders

The new rules regarding collective restructuring plans in large companies represent a significant change from the previous framework. Under the previous system, which continues to apply by default to SMEs, all creditors voted together without classification.

The new provisions effective as from 1 September 2023 provide that, for large companies only, creditors must be divided into different “classes” based on their rights in a liquidation scenario or their rights under the proposed plan. Additionally, shareholders will now be part of a separate category and have the right to vote when their interests are affected by the plan. Moreover, approval of a restructuring plan now requires a majority vote in each category, with at least 50% in value of creditors (or shareholders) in favour of the plan, eliminating the need for a majority in number. Under exceptional circumstances, the court can confirm a plan even if not all categories approve it, provided that the plan is approved by the majority of classes, with at least one secured or higher-ranked class having voted in favour and meets specific criteria aimed at preventing dissenting categories from being manifestly d i s a d v a n t a g e d . This change aims to preserve creditor interests and ensure fairness through the implementation of a “best interests of creditors” test, preventing dissenting creditors from seeing their situation worsen under the plan in contrast to a bankruptcy scenario.

For a more comprehensive analysis, check the dedicated series of updates written by the DLA Piper Restructuring Team of Brussels, which delves into these legislative changes: Belgium’s Insolvency Law Reform – Update Series | DLA Piper.

Conclusion: Navigating the evolving landscape

The transformative reforms introduced by the Belgian Act of 7 June 2023 represent a significant milestone in the evolution of Belgium’s insolvency and restructuring framework. As the regulatory landscape continues to evolve, it becomes imperative for businesses to adapt and leverage these changes effectively.

Our Belgian Restructuring Team (Ranked Tier 1 for Insolvency and Restructuring in Belgium by the Legal 500 since 2015) comprises insolvency practitioners and lawyers with extensive experience in navigating the complexities of the evolving regulatory landscape. We offer comprehensive support tailored to meet the unique needs of each client and achieve their restructuring objectives.