News & Events

The Continuity of Enterprises Act has been modified

Submitted By Firm: Lydian

Contact(s): Alexander Vandenbergen, Jan Hofkens


Patrick della Faille and Yves Lenders

Date Published: 9/13/2013

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On 1 August 2013, a law modifying the Law on the Continuity of Enterprises of 31 January 2009 (hereinafter the Law) entered into force.

Three years after the original Law entered into force some problems had become apparent such as abuses of the Law and the fact that it appeared that many companies availing of the procedures provided by it were still being eventually declared bankrupt.

Nevertheless, the new law (hereinafter the Adjustment Act) does not modify the basic principles of the original Law, which still aims at helping and preserving the on-going business of companies and ensuring their survival.

The most important changes brought about by the Adjustment Act are described below.

- Access to the procedure provided by the Law

The criteria for accessing the procedure provided by the original Law have become stricter in order to avoid recourse to a “last minute filing” for the sole purpose of avoiding a bankruptcy judgment.

  • To initiate proceedings, the debtor must now submit to the clerk's office, along with his petition, all the documents required by the Law, otherwise his petition will be deemed inadmissible (the 14 days delay that was initially granted to the debtor in order to add certain documents to his file after his petition was submitted has been annulled) (article 10 of the Adjustment Act modifying article 17 §2 of the original Law).
  • The relevant financial information has to be verified by an external accountant or by a company auditor; the debtor must now include in his petition:
    - "an accounting statement showing the assets and liabilities and the profit and loss account, no more than three months old, drawn up under the supervision of an auditor, an external accountant, an external certified accountant or an external certified accountant/tax specialist "; and
    - "a budget with an estimate of the income and expenses for at least the duration of the requested moratorium, drawn up with the assistance of an external accountant, an external certified accountant, an external certified accountant/tax specialist or an auditor ".
  • From now on, an external accountant or a company auditor is subject to the obligation to inform the Court in the event he becomes aware of facts that are likely to compromise the continuity of the company, and if he observes that the management has not properly remedied this situation in time (article 8 of the Adjustment Act which inserts an indent 5 into article 10 of the original Law).
  • The cost of initiating this procedure has been raised substantially; besides the cost of the accountant or the auditor, a fee of EUR 1,000 will have to be paid (NB this provision will enter into force by the adoption of a Royal Decree or at the latest by 31 December 2014) (article 44 of the Adjustment Act inserting an article 269/4 into the Income Tax Code).

- Changes in the goal pursued by the procedure (article 22 of the Adjustment Act which adds an indent 3° to article 39 of the original Law)

If the debtor is subject to the transfer under judicial control procedure, he is allowed to propose a reorganisation plan for the residual part of his assets.

The reason for this provision is the fact that in practice, the transfer under judicial control generally only concerns part of the debtor's assets. As a result, the debtor remains owner of the residual part. By adding an indent 3° to article 39 of the original Law, the legislator seeks to avoid the situation in which a debtor proceeds with the residual part of his assets to a declaration of bankruptcy as a first recourse, whereas measures of safeguard exist and could be applicable.

- Collective agreement (article 28 of the Adjustment Act which inserts an article 49/1 into the original Law)

The debtor has to take into account new conditions, such as:

  • the Law now limits the remission of debts to 85% of the amount due;
  • public creditors that benefit from a general lien, such as the social security office or tax administration, now enjoy the same advantages as the best treated creditors (the reorganization plan may propose lower percentages for the aforementioned creditors or categories of creditors, based on imperative and well-motivated requirements concerning the continuity of the enterprise);
  • there is now no reduction or acquittal for claims originating from labour performed before the opening of the proceedings or from criminal penalties;
  • there is now no reduction for alimony debts or for debts originating from the debtor's obligation to remedy the damage caused through his fault and related to the death or injury to the physical integrity of a person;
  • there is now no reduction of debts resulting from a first reorganisation plan and taken into account in a second collective plan within five years.

- The Court was granted a new area of competence (article 28 of the Adjustment Act inserts an article 55 in the original Law)

If the Court considers that the formalities required by Law were not complied with or that the reorganisation plan violates the public order, it can, through a fully reasoned decision and before giving a final ruling, allow the debtor to present to the creditors an amended reorganisation plan. The Court can extend the moratorium and set a new hearing date, allowing the creditors to vote on the amended reorganisation plan.

According to the Adjustment Act, this new provision gives the Court a real opportunity to set the whole reorganisation procedure back in the right direction when it notices, without engaging in a detailed economic analysis of the debtor's situation, a threat to public order or a failure to comply with formalities required by Law.

The Adjustment Act also underlines that the compliance with the formalities required by original Law should not be interpreted too narrowly (false or incomplete motivation, concealment of liabilities...).

- Transfer under judicial authority

Power of the judicial trustee (articles 33 and 36 of the Adjustment Act which modify articles 62 and 67/1 of the original Law)

  • The judicial trustee is only allowed to consider offers in which the offered price is equal or higher than the estimated value of the assets in the case of a forced sale (bankruptcy or liquidation).
  • In case bankruptcy occurs before the judicial trustee has completed his assignment, he will transfer the proceeds from the transfer to the receiver or to the liquidator and the latter will ensure their distribution. In this case, the fee of the judicial trustee is charged on the fee of the receiver or of the liquidator.

Labour Law modifications (articles 49 to 60 of the Adjustment Act modifying the Act of 20 September 1948 regarding Economic Organisation)

  • The employee representatives in the bodies of the company continue to hold their function, unless it would be agreed otherwise (article 51 of the Adjustment Act modifying article 21, §12, 1-3° of the Act of 20 September 1948).
  • Protected employees (in the context of the employee representation) keep their protected status, even after the transfer has been carried out (article 51 of the Adjustment Act modifying article 21, §12, 4° of the Act of 20 September 1948).

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