1. The silent “pre-pack” insolvency procedures
The first major amendment aims to avoid the negative publicity of a public reorganization procedure. The term “insolvency” still has connotations that drive away many contracting parties. Consequently, it kills the business value, which is what one wants to prevent from happening in the best interests of creditors collectively. The silent preparation of an Amicable Settlement or a Collective (Debt-)Settlement takes place through the “pre-pack” method and the appointment of a restructuring practitioner by the Enterprise Court behind closed doors.
The restructuring practitioner does not take over the management of the company but only offers assistance. The principle “debtor in possession” in reorganizations still prevails.
Additionnally, the legislator has now introduced a silent bankruptcy preparation, which can be used if, through the bankruptcy process, all or part of the assets or business activity can be transferred, making the liquidation of the company easier and leading to a better outcome for the creditors and the employees. To this end, the court appoints a “prospective insolvency administrator” (beoogd curator)and a “prospective supervisory judge (beoogd rechter-commissaris).”
2. Large companies[2] have a different set of rules when it comes to reorganization through Collective (Debt-)Settlement
The second major amendment is reorganization through Collective (Debt-)Settlement for large companies. This is done by dividing the creditors mandatorily into classes (categories) and by conducting a separate voting process. Voting no longer takes place collectively, but rather on a per-class basis. Any rejection of the reorganization plan by one or more classes can be set aside under certain conditions so that the plan can still be approved and ratified. The reorganization plan then binds all classes of creditors. This is the so-called “cross-class cram-down.”
Collective (Debt-)Settlement for large companies takes place with the involvement of equity holders, so they can no longer stay on the sideline. A valuation of the business beforehand in the event of liquidation is necessary as it serves as a benchmark for the interests of (dissenting) creditors. And the court gets a very wide margin of decision-making if it ratifies a reorganization plan.
Small companies can opt for the same rules as those that apply to large companies, but they can also choose the existing judicial reorganization by means of a norml Collective (Debt-) Settlement, which has not been amended substantially.
3. Transfer of the Enterprise under Judicial Authority as an exception to CBA 32bis
The third amendment concerns reorganization by means of Transfer of Enterprise under Judicial Authority. Here, business activity remains in going-concern after the transfer, but the goal of the judicial reorganization is to liquidate the legal entity via dissolution or bankruptcy. This amendment should address the Court of Justice of the European Union’s criticism of a Belgian transfer in the Plessers ruling.
4. A more pro-active role for the Chamber for Enterprises in Difficulties
The fourth amendment allows for the Chamber for Enterprises in Difficulties to have a more active role. This organ of the Enterprise Court has already played an important role when a company is threatened by insolvency, but the Chamber can now take actions more actively.
5. Conclusion and first assessment
Whereas the old Business Continuity Act had the aim to safeguard the “pacta sunt servanda” principle as much as possible, by promising creditors the best outcome possible from the reorganization plan, this appeared to be somewhat guesswork in reality. Supervision by creditors was often outright missing, and the judge could hardly intervene.
The new judicial reorganization framework results in a higher level of involvement by the judge. This takes place through the silent procedures in which certain follow-up of the secret preparatory work can be expected. The judge’s conclusion will have more weight especially in the ratification of collective (debt-)settlements, but let’s hope this does not result in a company policy that is devised by a judge.
Valuation of companies, if they were to be liquidated, is a crucial element of a reorganization. It can cause one to look at the minimum instead of the maximum fulfillment of contracts in a reorganization. This would be detrimental to the non-privileged creditors in the reorganization, but perhaps beneficial for the new creditors and for the continuity of the company.
[1] Directive (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.
[2] Large companies, or group of companies, are those with a yearly average of more than 250 employees, or a yearly turnover of EUR 40 million (not including VAT), or a balance-sheet total of EUR 20 million.
