The long-awaited new law amending Book XX of the Code of Economic Law and the Income Tax Code 1992 just came into force. This replaces the "COVID-moratorium" and creates the possibility to restructure a company through a “preparatory agreement”.
This new concept is part of a temporary legislative arrangement (valid until 30 June 2021) until lawmakers adopt a more thorough reform of the insolvency procedure, which is expected by mid-July, in view of transposing the new EU directive on restructuring and insolvency. Paul Van der Putten and Pieter Wouters summarize this new restructuring tool.
A year ago, the Covid-19 pandemic and lockdowns brought major businesses around the world to a halt, plunging them into financial crisis. To come to the aid of affected local companies, the Belgian Government announced that companies in difficulty could invoke a temporary moratorium (Royal Decree No. 15 of 24 April 2020) whereby any debtor-company was in principle protected from enforcement measures sought by creditors and from being declared (or forced to be declared) bankrupt. The temporary moratorium had an initial validity until mid-June 2020 and was reintroduced by law in December 2020 during the second national lockdown. At the end of January 2021, the government decided not to extend the temporary moratorium but, instead, promised new measures by the end of March. For the first quarter of 2021, it was agreed that banks and tax authorities would act flexibly and leniently towards companies with payment difficulties.
The new measures that were promised are now here. They include the “preparatory agreement” (voorbereidend akkoord / accord préparatoire) concept, which has been newly added as Article XX.39/1 of the Code of Economic Law. This concept allows the debtor-company to negotiate an amicable settlement with two or more creditors, or to negotiate a debt-restructuring plan that involves all creditors without any obligation to publish any notices. In this way, debtor-companies can try to solve their liquidity problems in peace and, when ready, they can announce the solution they are ready to offer. The purpose is to prevent or restrict reputational harm and to prevent panic among creditors and trading partners.
Here is an overview of the steps to obtaining a “preparatory agreement”:
- The debtor-company, whose “business continuity is immediately threatened or is threatened in time”, files a unilateral petition seeking the enterprise court to appoint a judicial commissioner (gerechtsmandataris / mandataire de justice). The appointment of the judicial commissioner is not made public.
- Given the situation and negotiations, the judicial commissioner can seek the Court to permit conditions and/or postponement of payment of all or part of the debt that are suited to the needs of the debtor-company. The duration of such conditions and instalments may not exceed four months. The court, on its own initiative or on that of a creditor or the judicial commissioner, can terminate the conditions and/or instalments at any time if it has given a reasoned decision for the termination and after it has heard the debtor-company.
- It is not necessary to involve all creditors in the negotiations at once. Depending on the situation and, in particular, the number of creditors and their capacity, the judicial commissioner may decide to start negotiations with a few creditors and to extend these negotiations to other creditors at a second stage. The debtor-company participates in the negotiations, and it can completely or partly renounce at any time its action to reach a “preparatory agreement”.
- The “preparatory agreement” is then presented to the president of the court, who can decide that it can be submitted to the court. In such case, the court will open an accelerated process of the judicial reorganisation proceedings with fewer strict formalities. These proceedings will usually end in one month maximum if an amicable settlement has to be sanctioned, or three months maximum if a debt-restructuring plan has to be voted by all creditors.
The provisions concerning the “preparatory agreement” mechanism remain in force until 30 June 2021, but the Government can still extend it. In fact, an extension is expected given the difficulties in containing the Covid-19 pandemic. In addition, new changes to insolvency law have been announced, as Belgium is now working on transposing the Restructuring and Second Chance Directive (2019/1023), which must be implemented by this summer.