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Bankruptcy - Belgium

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TABLE OF CONTENTS

1. What are the different types and aims of insolvency proceedings? 1.
2. What are the conditions for opening each type of insolvency proceedings? 2.
3. What is the role of the various participants in each type of proceedings? 3.
4. What are the effects of the opening of proceedings? 4.
5. What are the specific rules related to certain categories of claims? 5.
6. What are the rules relating to detrimental acts? 6.
7. What are the conditions for the lodgement and admission of claims? 7.
8. What are the rules relating to reorganisation proceedings? 8.
9. What are the rules relating to the winding-up proceeding? 9.
10. What are the conditions for the closure of the proceeding? 10.

 

1. What are the different types and aims of insolvency proceedings?

Section 8 of the Mortgages Act reads1: "The debtor’s assets shall serve as the common guarantee for his creditors, and the price of those assets shall be distributed among them on an equitable basis, except where specific creditors are legally entitled to be priority."

Insolvency implies that a debtor is unable to repay his debts to his creditor(s). To ensure that the debtor’s obligations to his creditors are not nullified, there are legal procedures enabling the creditor to obtain payment in whole or in part.

The most important insolvency procedures are judicial administration, bankruptcy and the composition with creditors.

The Belgian legal system makes a distinction between tradespeople and non‑tradespeople. A tradesman is a person who performs commercial acts as his principal or secondary occupational activity. The main point about commercial acts is that they are done for profit. Only tradespeople can apply for judicial administration and be declared bankrupt.

The bankruptcy procedure is governed by the Act of 8 August 1997 (B.S., 28 October 1997, err., B.S., 7 February 2001) as no more than a winding‑up mechanism. The Act of 17 July 1997 (B.S., 28 October 1997, err., B.S., 4 December 1997) governs judicial administration as a preliminary to bankruptcy. During judicial administration the debtor is protected against his creditors and nobody can apply to have him declared bankrupt.

The composition procedure is governed by the Judicial Code (Jud. C.) for non‑tradespeople. Any natural person residing in Belgium who is not a tradesman can apply for a composition if he is durably unable to pay his debts and has not manifested his intention to apply for insolvency (section 1675/2(1) Jud. C.).

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2. What are the conditions for opening each type of insolvency proceedings?

Judicial administration

Judicial administration can be opened for any debtor tradesman who has shown no signs of bad faith if he cannot settle his debts in due time or if relatively short-term difficulties that oblige him to suspend payments threaten the continued survival of his business (section 9(1) of the Judicial Administration Act - JAA). A further condition is that the firm can be restored to financial health and profitability (section 9(2) JAA).

The application for judicial administration can be made by the debtor in writing to the Commercial Court (section 11(1) JAA). The Royal Prosecutor can also commence the procedure by summons (section 11(2) JAA).

The registry of the Commercial Court holds useful information about tradespeople with payment difficulties, accessible solely to the Royal Prosecutor and the tradesman himself (section 5 JAA). The Act calls this the data collection.

Bankruptcy

A tradesman is in a state of bankruptcy if two conditions are met: he must have durably ceased payments and he must be uncreditworthy (section 2(1) of the Bankruptcy Act).

Bankruptcy proceedings can be brought in the Commercial Court either on application by the debtor himself or on a summons by one or more creditors, the prosecution service, the receiver appointed by the court or a liquidator in the event of an international territorial insolvency proceeding in the European Union (section 6 of the Bankruptcy Act). The court can no longer declare a person bankrupt of its own motion.

The court does not have to declare a person bankrupt forthwith. It can suspend its decision for up to fifteen days to give the tradesman or the prosecution service time to apply for judicial administration (section 7 of the Bankruptcy Act).

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Section 10 of the Bankruptcy Act provides that the debtor’s application must be accompanied by a balance-sheet, accounting ledgers, the staff list and a list giving names and addresses of customers and suppliers.

3. What is the role of the various participants in each type of proceedings?

Judicial administration

The court having material jurisdiction is the commercial court. The court with territorial jurisdiction is the court for the judicial district where the debtor had his main establishment or, in the event of a body corporate, its head office, on the day on which the judicial administration proceedings were commenced (section 53 JAA). The court rules on the application for judicial administration (section 14 JAA), allows temporary suspension of payments (section 15(1)(1) JAA), designates one or more receivers (section 15(1)(2) JAA) and in appropriate cases authorises the definitive suspension of payments (section 33(1) JAA).

A crucial role is played by the receiver. He is tasked with assisting the debtor in managing his assets, under supervision by the court (section 19(1) JAA). He reports whenever the circumstances so require and whenever the court so requests (section 19(1) JAA). The demands made of the receiver concern assurances of impartiality and independence, experience of business management and accountancy and compliance with a code of professional ethics (section 19(2) JAA).

The receiver’s specific tasks are to assist the debtor in operating his recovery or payments plan (section 29(1(2) JAA), to supervise and monitor the plan and the administration procedure (section 36(1) JAA), to report to the court on the implementation of the plan and the administration (section 36(2) JAA) and to report to the court at the end of the administration procedure (section 40(1) JAA). The receiver must also examine all incoming statements of claims by creditors, with assistance from the debtor (section 26 JAA).

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The debtor’s duty is to draw up a recovery or payments plan (section 29 JAA). He is liable to criminal prosecution if he intentionally conceals, overstates or understates part of his assets or liabilities or if he knowingly supplies incorrect information (section 46 JAA). The debtor is not allowed to engage in any form of deception. Nor may he undertake any management or decision-making acts without the receiver’s approval (section 15(1)(3) JAA).

The creditor is entitled to be heard by the court (section 13 JAA), to consult the file on the case free of charge and to receive a copy of it on payment of the cost to the court registry (section 18(2) JAA), to apply for cessation of the suspension of payments if his claims are not met (section 37(1)(2) JAA), and to have the plan amended if he can show that implementation of it will generate serious difficulties for him (section 38(2) JAA).

Bankruptcy

The court having material jurisdiction is the commercial court. The court with territorial jurisdiction is the court for the judicial district where the debtor had his main establishment or, in the event of a body corporate, its head office, on the day on which the bankruptcy proceedings were commenced (section 115 of the Bankruptcy Act). In its judgment declaring the person bankrupt, the court designates one or more liquidators in bankruptcy (section 11(1)of the Bankruptcy Act).

The judicial receiver is responsible in particular for supervising the management and winding up of the bankruptcy and expediting all necessary actions. He reports to the court on all disputes arising from the bankruptcy (except for disputes as to the claims to be entered in the liabilities). He orders such urgent measures as are needed to protect the assets in the bankrupt’s estate and chairs meetings of the creditors (section 35 of the Bankruptcy Act).

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Liquidators must be advocates with special training who offer specific assurances as to reliability in relation to winding‑up procedures (section 27(2) of the Bankruptcy Act). Each year they supply the judicial receiver with a full report on the state of the bankruptcy (section 34(1) of the Bankruptcy Act). Liquidators manage the estate in bankruptcy under the supervision of the judicial receiver (section 40 of the Bankruptcy Act) and produce the inventory of the estate (section 43(1) of the Bankruptcy Act). They represent the creditors except for what are known as the separatists (holders of liens, mortgagees and priority creditors).

Under section 9 of the Bankruptcy Act the debtor must make a declaration to the registrar of the Commercial Court that he has ceased payments. He is automatically disqualified from managing the estate in bankruptcy (section 16(1) of the Bankruptcy Act), which is placed under the control of the liquidators. But it is expressly provided that certain assets are not covered by the bankruptcy, such as articles necessary for the exercise of his occupation and the amounts and articles excluded from bankruptcy proceedings by the Judicial Code.

The creditors not represented by the receivers, that is to say the unsecured and general priority creditors, are entitled to an equitable proportion of the bankrupt’s assets after deduction of the costs of administering the estate and payments to priority creditors (section 99 of the Bankruptcy Act). Separatists act for themselves in seeking satisfaction of their claims (see below).

4. What are the effects of the opening of proceedings?

5. What are the specific rules related to certain categories of claims?

Judicial administration

Judicial administration initially prompts a provisional suspension of payments for an observation period of up to six months (section 15(1(1)JAA). The debtor can accordingly be subject to a partial incapacity on a scale determined by the court on the basis of the needs of the practical situation. But it is impossible for the entire power to manage and dispose of his assets to be transferred to the receiver. He can be given only a role of assistance and/or supervision.

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Creditors’ enforcement rights are also suspended: enforcement measures already started can no longer be continued and no creditor can take new measures. Attachments and seizures are impossible during the observation period (section 22 JAA).

Academic writers classify creditors in different categories, the main distinction being between general creditors (generalists) and special creditors (separatists). Generalists are unsecured creditors and general priority creditors. Separatists include special priority creditors, mortgagees and lien-holders.

The generalists are bound by and subject to the recovery and payments plan, whereas the separatists are only if they have expressly and individually signed up to it. The separatists can take no further enforcement measures: such measures are suspended. But they can demand additional securities where they can show that their existing security could undergo a substantial decline in value.

Bankruptcy

From the day when the commercial court makes the bankruptcy order, the bankrupt automatically loses all control over his assets (section 16(1) of the Bankruptcy Act). The liquidators assume control of the estate with the task of winding it up.

Winding up consists of realising the assets comprised in the estate with a view to satisfying the bankrupt’s creditors’ claims. Where there are several creditors, they are known as concurrent creditors. In principle they are all entitled to equal treatment (under section 8 of the Mortgages Act), unless there are legal grounds for giving priority. The legal grounds for giving priority are liens and mortgages. Reservation‑of-title clauses for the benefit of unpaid creditors and tangible securities such as pledges put a creditor in a stronger position than certain other creditors.

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Academic writers classify creditors in different categories, the main distinction being between general creditors (generalists) and special creditors (separatists). Generalists are unsecured creditors (governed by the equal-distribution rule) and general priority creditors and are represented by the liquidator. But they have to wait in the queue behind the separatists in the distribution of the assets in the bankrupt’s estate. Separatists must defend their own claims and are not represented by the receiver. They include special priority creditors, mortgagees and lien-holders.

To ensure that general creditors are indeed treated equally, it is impossible for one of them, once their rights have been ascertained in the composition, to apply techniques to improve their own position. Consequently it is impossible for them to apply for attachment of the bankrupt’s assets either provisionally or by way of enforcement (see section 24-25 of the Bankruptcy Act).

Separatists are subject to the principle that all enforcement measures taken to obtain payment of their claims are basically suspended (section 26 of the Bankruptcy Act).

Unpaid sellers of immovable property that is still in the estate as is and has not been incorporated after conversion into money’s worth can be the subject of a reservation of title (section 101 of the Bankruptcy Act).

Under section 21 of the Insolvency Regulations, wherever insolvency proceedings are commenced abroad and the debtor has an establishment in Belgium, the main points of the order opening the insolvency proceedings and the identity of the liquidator are announced in the Belgian Official Gazette (section 3(2) of the Bankruptcy Act).

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Judgments declaring bankruptcy, terminating bankruptcy, closing the bankrupt, declaring that the bankrupt is or is not under protection and declaring the bankrupt’s rehabilitation are announced in the Business Register (section 23(1)(12°) of the Act of 16.1.2003 establishing a Business Register, modernising the Companies Register, establishing business contact centres and laying down miscellaneous provisions).

6. What are the rules relating to detrimental acts?

Judicial administration

During the period of judicial administration the legislation does not determine a suspect period. There is an observation period during the provisional suspension of payments (section 15(1) JAA). This must not as a rule exceed six months but it may be renewed once for up to three months (section 23 JAA).

Bankruptcy

The suspect period is governed by section 12(6) of the Bankruptcy Act. It is in principle a period of no more than six months before the judgment declaring the bankruptcy. Time runs from the moment when the tradesman can no longer pay his debts nor obtain credit until the day when the commercial court declares him bankrupt. The date for cessation of payments can only be anticipated where there are serious objective circumstances from which it is unequivocally clear that payments will cease before the date of the bankruptcy order.

A tradesman who is heading for bankruptcy may well be tempted to do things that he might otherwise not have done. The liquidator can then demand that transactions be declared null and void. Then he can recover assets that the bankrupt has given away or sold too cheaply. The aim is to provide the best possible assurance of equal treatment for all the creditors represented by the liquidator.

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7. What are the conditions for the lodgement and admission of claims?

Judicial administration

During the observation period the judicial receiver must also investigate statements of claims made by the debtor. In doing so he must comply with the rules determined by sections 26 ff. JAA.

As long as no decision has been given on a disputed claim, the claim will be entered provisionally in the settlement procedure, at the request of the judicial receiver and for an amount determined by the court, and account will be taken of it in establishing the plan (section 27(3) JAA).

Bankruptcy

The creditors are required to register their claims no later than a date determined in the declaration of bankruptcy. Creditors are notified of this by an announcement in the Belgian Official Gazette of an extract from the bankruptcy declaration and by a circular issued by the liquidator as soon as the creditors are known (section 62 of the Bankruptcy Act). Claims are verified by the liquidator in the presence of the bankrupt or at least after he has been called to appear (section 65 of the Bankruptcy Act).

Unsecured creditors and general priority creditors have to wait in the queue behind the special priority creditors, mortgagees and lien-holders in the distribution of the assets in the bankrupt’s estate.

8. What are the rules relating to reorganisation proceedings?

Judicial administration

During the observation period no enforcement measures may be taken or applied against movable or immovable assets. This suspension applies to all creditors, whatever security they may have, and to all counter-claims by a creditor who is the owner of property. The suspension does not apply for the benefit of co-debtors or the debtor’s guarantors (section 21(1)(1) JAA).

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The law provides that the court, on application from creditors who are the owners of property, special priority creditors, mortgagees and lien-holders who can show that their security or property is or is likely to be undergoing a serious decline in value can award them additional security on the basis of the amount of their claim (section 21, (1)(2) JAA).

Nor can attachments or seizures be ordered during the observation period. Attachment orders made before the suspension of payments remain valid as interim measures but the commercial court can, if the circumstances so require, suspend their operation after hearing the views of the debtor, the creditor and the receiver (section 22 JAA).

The order suspending operation lapses, and the creditors regain their full rights, if the interest and charges on claims for the period after the settlement are not paid.

The judgment authorising temporary suspension does not terminate agreements entered into before that date (section 28 JAA).

If transferring the undertaking helps to repay creditors and business activity and employment can thereby be preserved, the court can empower the judicial receiver to transfer the undertaking in whole or in part (section 41(1) JAA).

At the end of the negotiation period, when the receiver has investigated the various takeover proposals and discussed them with the undertaking’s management bodies and the employees’ representatives (section 41(2°) JAA), the receiver makes a proposal to the court for the transfer of all or part of the undertaking for approval. Before the court gives its decision, it consults representatives of the management and the employees.

If the transfer of the entire undertaking is proposed, the court can approve it only if more than half the creditors who have registered their claims, taken part in the vote and account for more than half the aggregate claims by value, are in agreement. It follows from the consultation of the creditors that transfer of an entire undertaking is feasible only after all registered claims have been verified.

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Bankruptcy

The sole purpose of the bankruptcy procedure is to wind up the assets in the bankrupt’s estate for the benefit of his creditors. The bankrupt undertaking disappears from the economic and legal landscape.

9. What are the rules relating to the winding-up proceeding?

Judicial administration

The aim of judicial administration is to ensure that an undertaking in difficulties enjoys timely protection and can thus escape bankruptcy. As long as the judicial administration procedure is running, there is no question of winding up.

Bankruptcy

The entire bankruptcy procedure from the judgment declaring the bankruptcy is aimed at winding up the assets in the bankrupt’s estate. Consequently, everything that is written here in connection with bankruptcy automatically and necessarily applies to the winding‑up.

Reference can be made to the following rules in particular. Every year, and for the first time twelve months after they take up duty, the liquidators provide the judicial receiver with a detailed report on the situation of the bankruptcy (section 34 of the Bankruptcy Act). The judicial receiver also reports on disputes arising from the bankruptcy and orders urgent measures where they are required in order to secure the assets in the estate (section 35 of the Bankruptcy Act).

The judicial receiver summons the bankrupt to hear his testimony, in the presence of the liquidators, as to how to make the best of the assets. A formal report is made of the hearing. The liquidators sell his immovable property, stock in trade and movable property, subject to supervision by the judicial receiver and in compliance with sections 51 and 52, without being obliged to summon the bankrupt each time (section 75(1) of the Bankruptcy Act).

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If the liquidators so request, the court, in winding up the bankrupt’s affairs, can give effect to a transfer of an undertaking on terms determined by the parties, compliance by the liquidators subject to verification by any person with an interest in the matter after the bankruptcy is closed (section 75(4) of the Bankruptcy Act).

In appropriate cases the judicial receiver orders a distribution among the creditors and determines the amount. Every payment made by order or with the consent of the judicial receiver constitutes a release for the liquidators (section 77 of the Bankruptcy Act)

10. What are the conditions for the closure of the proceeding?

Judicial administration

If the commercial court approves the definitive suspension of payments, the debtor is definitively released from all the claims registered in the recovery and payment plan once it is fully implemented (section 35(3) JAA). The debtor can thus set out with a clean slate and, if the debtor is a company or firm, it can continue to operate.

If the commercial court does not approve the definitive suspension of payments, it can, in the same judgment, declare the debtor bankrupt after hearing his testimony regarding the conditions of bankruptcy (section 33(1) JAA).

Bankruptcy

The bankruptcy procedure is no more than a winding‑up mechanism. Initially the court settles disputes regarding the accounts and improves them if it can. Then, on a proposal from the judicial receiver, it orders the closure of the bankruptcy. The judicial receiver reports to the judge in chambers on the creditors’ deliberations regarding the question of the protection to be enjoyed by the bankrupt and on the circumstances of the bankruptcy (section 80 of the Bankruptcy Act).

After the bankruptcy has been closed, it is the general rule that the bankrupt is entitled to protection if he is a natural person (i.e. not a body corporate), has no criminal record and has acted quite properly as an accountable person. The effect of the protection is that all his debts are definitively extinguished and natural persons who have stood as guarantors free of charge for the bankrupt are released from their obligations. The release given to the bankrupt, being a natural person, is also valid for the spouse if he or she has agreed to be co-debtor (sections 81-82 of the Bankruptcy Act).

A bankrupt who is eligible for protection now has the possibility of engaging in a fresh commercial business and is deemed to be rehabilitated (section 110 of the Bankruptcy Act). A bankrupt not declared eligible for protection may apply for rehabilitation if he has paid all the sums he has been ordered to pay (section 109(1) of the Bankruptcy Act)

The registrar notifies the bankrupt of the judgment terminating the bankruptcy proceedings. The court can also order that an extract from the judgment terminating the bankruptcy proceedings be published in the Belgian Official Gazette. The judgment must be published if the court declares the bankrupt eligible for protection (section 80 of the Bankruptcy Act).

The termination of the bankruptcy puts an end to the liquidators’ functions, except for the action required to give effect to the termination, and constitutes a general release for them.

Further information

1 Accessible at www.just.fgov.be Deutsch - français - Nederlands under "geconsolideerde wetgeving/législation consolidée"; cf. Civil Code, section 2091.

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Last update: 31-05-2006

 
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