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Reform of the judicial reorganization procedure - More flexible and new tools for the company in difficulty

30 Mar 2021

The new law of 21 March 2021 on the reform of the judicial reorganisation has been published in the Belgian Official Gazette on 26 March 2021.

In this newsflash, we propose to go over the main changes brought by this new legislation and their potential impact for companies in distress.

Ratio Legis

Before diving into the concrete modifications brought by this new law, let’s briefly recap the main reason explaining the adoption of the legislation.

The covid-19 crisis is not unrelated to this relatively quick reform (the first discussions on it date from June 2020) of the judicial reorganization procedure. 

It is quite intuitive that this sanitary crisis and its corollary sanitary measures put a large number of companies under pressure. This pressure will result in some cases in bankruptcy which could be avoided, if certain actions are adopted by the company in difficulty. 

After previously using temporary moratoria to support companies affected by the covid-19 crisis, the legislator is now taking a different approach. The judicial reorganisation procedure is being temporarily modified to make it easier for companies in difficulty to resort to it.

This procedure, which takes different forms, allows companies in difficulty to preserve the continuity of their activities thanks to a temporary protection, offered by the company's court, against the creditors of the company in difficulty.

However, in practice, it has been observed that companies in difficulty sometimes refrain from using these procedures because of the relatively strict formalism of the procedure. Indeed, the documents to be provided to the court in order to receive a favorable response to their request for judicial reorganization are both numerous and relatively technical. To gather them can require the mobilization of resources that the company in difficulty lacks at this precise moment, namely time and finances. 

For this reason, the legislator made the access to the judicial reorganization procedure more flexible by providing an important flexibility on the file to be submitted to the court to initiate the procedure.

Concrete changes

  • More flexibility in the documentation to provide

The most obvious change, although contained in the text, is of course the addition of an important flexibility in the file that the debtor will have to submit to the Court in order to file the application for judicial reorganisation. 

Previously, a single missing element in the debtor's file would lead to the pure and simple inadmissibility of his application. 

From now on, with the modification of article XX.41 of the Code of Economic Law, the debtor will be able to introduce his application with all or part of the required documents and has the possibility to complete the application file until two days before the introduction hearing. 

In the event that the debtor is unable to provide one or more of these documents, the debtor may explain the lack of these elements. 

The Court will decide on the relevance of these justifications in its assessment of the admissibility of the application.

  • The preparatory phase, the new (discreet) tool of the debtor

The most important modification is the possibility of the debtor to prepare an amicable agreement or a judicial reorganisation plan on a preliminary basis and outside the court. This preliminary agreement will then be validated by the court. 

A significant advantage of this possibility is that it preserves the reputation of the company while negotiations are ongoing, so that important contracts are not lost simply because of the publicity of the procedure, which can sometimes be detrimental.

By unilateral and confidential request the debtor may request the appointment of a mandatory of justice (“gerechtsmandataris” / “mandataire de justice”) to negotiate the amicable agreement or collective agreement. 

The judicial representative appointed by the judge to carry out this mission will also have increased powers. He will play a role of mediator and negotiator with the creditors but will also be able to ask the judge to take certain measures, in particular the possibility of requesting (by contradictory request) the suspension of the payability of certain debts by granting terms and delays (“termes et délais/voorwaarden en termijnen”) on them.

As from the moment the decision to refer the file to court is taken, the company will benefit from the protection granted in a classic judicial reorganisation procedure.

This protection lasts from the filing of the application until the opening of the judicial reorganisation procedure.

  • End of tax discrimination for out-of-court agreements

Finally, the reform intends to extend the tax exemption offered to creditors, with the aim of encouraging amicable settlements outside of court. 

To this end, an amendment to Article 48 of the Income Tax Code 1992 is introduced.

Indeed, creditors can now benefit from a tax exemption on the debt waivers related to non-judicial debt reorganizations.

For clear illustrations of this change, we invite you to consult the PwC article on the subject: Debt waivers without a tax cash out (?)

Entry into force - short duration of modifications

The vast majority of the new modifications come into effect as of the publication of the provisions in the Belgian Official Gazette, i.e. since 26 March 2021. The new provisions will cease to exist on 30 June 2021, unless extended by Royal Decree. 

This procedure has to be evaluated by the Minister of Justice by 15 June 2021 at the latest. The new procedure will cease to exist on 30 June 2021, unless extended by Royal Decree.

Potential impact

Among the expected effects, one could imagine a very important use of the "pre-agreement" procedures, which offers many possibilities to the debtor and the possibility to keep it confidential is undeniably a major asset.

The next few months will tell us whether this procedure will be used in practice. This procedure has to be evaluated by the Ministry of Justice by 15 June 2021 at the latest. 

We invite you to contact our experts if you have any questions on the subject or if you are confronted with companies in difficulty yourself.

Contact us

Christophe Wathion

Christophe Wathion

Senior Managing Associate, PwC Legal BV/SRL

Tel: +32 499 77 07 64

Charles Cuvelier

Charles Cuvelier

Senior Associate, PwC Legal BV/SRL

Tel: +32 472 90 24 50

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