The COVID-19 pandemic has put the rescue of struggling however viable companies entrance of the agenda. The preliminary response of the Belgian authorities and legislator was a moratorium on enforcement measures and chapter petitions. Such moratorium can nevertheless not be a structural answer in the long run, and expired on 31 January 2021.
The eye then shifted to the development of the prevailing authorized framework. Thankfully, Belgium already advantages from a pre-bankruptcy moratorium process designed to rescue struggling companies (the “judicial reorganization”). Though this process is nicely designed, it does endure one key downside: its public nature. In mild of cultural and different components, the opening of such public process typically results in a lack of confidence from suppliers and prospects and triggers additional lack of worth.
On this context, on 11 March 2021, the Belgian Chamber of Representatives authorised a legislation modifying the Belgian insolvency code (the “Pre-Pack Legislation”). The Pre-Pack Legislation will shortly be printed within the Belgian State Gazette and enter into impact. The Pre-Pack Legislation will introduce, amongst different measures, a private pre-pack reorganization. The important thing options of this pre-pack reorganization are as follows:
The pre-pack reorganization just isn’t a brand new process. Moderately, it takes the type of a court-authorized and court-supervised preparatory negotiation part (the “Pre-Pack Section”). If profitable, the method will probably be transformed into an everyday public judicial reorganization process (the “Judicial Reorg Section”).
Within the Pre-Pack Section, a judicial officer will probably be appointed by the courtroom to take part within the negotiations with the (key) collectors.
The Judicial Reorg Section will then have the target of both an amicable settlement authorised by and binding on two or extra particular person collectors, or a collective settlement authorised by a majority creditor vote and binding on all dissenting collectors.
In extra element
As at all times with new laws, the Pre-Pack Legislation raises various questions. We’ve got tried to answer a few of the most essential ones.
What’s the added worth of the (private) Pre-Pack Section if a (public) Judicial Reorg Section stays necessary?
As a result of an settlement with key collectors will have already got been discovered within the Pre-Pack Section, the Judicial Reorg Section could be carried out on an expedited timetable. As well as, suppliers and prospects could also be extra comfy in such state of affairs and worth destruction prevented (or a minimum of lowered).
How is the judicial officer appointed? Can she or he get replaced? What about charges and prices?
The judicial officer is appointed by the courtroom primarily based on experience and relying on the precise necessities of the state of affairs. The debtor could suggest a selected particular person as judicial officer however there is no such thing as a obligation for the courtroom to just accept such proposal. In any case, the judicial officer will act independently from the debtor. As such, she or he won’t solely bear in mind the pursuits of the debtor but additionally these of the collectors.
The debtor could unilaterally terminate the method, however doesn’t have the best to unilaterally change the judicial officer.
The debtor will bear the charges and prices of the judicial officer.
What’s the position of the judicial officer? Does the debtor stay in possession?
The debtor (board of administrators) will retain all administration powers in relation to the enterprise, however might want to hand over sure powers in relation to the reorganization course of. For instance, the judicial officer will obtain the next powers and duties:
she or he will determine which collectors to incorporate within the negotiations;
she or he will “take part within the negotiations”;
she or he will safeguard the due info of the collectors;
she or he will subject a report back to the delegated decide appointed by the courtroom to oversee the method; and
she or he will, upon termination of the Pre-Pack Section, request the courtroom to maneuver to the Judicial Reorg Section.
How debtors and judicial officers will work together in relation to the reorganization course of, and the place management over the negotiations will in the end lie, stays to be seen. For instance, what if debtor and judicial officer take a very totally different view to the negotiations?
From the debtor perspective, this (partial) lack of management is a possible drawback in comparison with customary judicial reorganization proceedings. Certainly, in a typical judicial reorganization course of, the debtor stays totally accountable for the method (topic to restricted exceptions).
Does the debtor profit from a moratorium throughout the Pre-Pack Section?
In precept, no. The judicial officer can nevertheless petition the courtroom for fee phrases and a suspension of enforcement measures from specified collectors. The courtroom will determine on such petition. The length of the fee phrases could not exceed 4 months.
What concerning the obligation to file for chapter inside one month of case of cessation of funds?
The duty for the debtor (board of administrators) to file for chapter inside one month of cessation stays relevant throughout the Pre-Pack Section however is suspended within the Judicial Reorg Section.
Are contractual provisions that present for a termination of contract by purpose of opening a pre-pack reorganisation enforceable?
This isn’t clear. Contractual provisions that present for a termination of contract by purpose of the opening of a judicial reorganisation (Judicial Reorg Section) are usually not enforceable. Though it will be smart to have an identical rule in relation to the opening of the Pre-Pack Section, there is no such thing as a specific provision within the Pre-Pack Legislation confirming this.
What are a few of the key concerns for a debtor?
The initiative to open a pre-pack reorganisation is completely with the debtor (board of administrators). The debtor will therefore have to determine whether or not it can file for this process, or reasonably put in place an off-the-cuff negotiation with key collectors adopted by a typical judicial reorganisation process as soon as an in precept settlement has been discovered.
This will probably be a query of weighing the benefits of the pre-pack reorganisation (e.g. courtroom validated course of, chance to acquire fee phrases) in opposition to the disadvantages (e.g. charges and prices of the judicial officer, partial lack of management of the reorganisation course of). A lot will depend upon the concrete circumstances of the state of affairs.
What are a few of the key concerns for a lender?
Lenders wouldn’t have the initiative in relation to the opening of the pre-pack reorganisation. They might nevertheless problem any request for fee phrases and suspension of enforcement measures. As well as, they need to contemplate any means to improve themselves to the standing of secured creditor earlier than the opening of the Judicial Reorg Section. Certainly, collectors who profit from safety on the time of the opening of the Judicial Reorg Section can’t be affected by the reorganisation plan save particular person consent (and save fee phrases for a interval of not more than 24-36 months). In observe, lenders are prone to convert their mortgage mandates (in the event that they haven’t already accomplished so).
Lenders ought to additional word that new financing supplied by them throughout the Pre-Pack Section won’t profit from any particular precedence within the Judicial Reorg Section and/or a possible subsequent chapter.
When does the Pre-Pack Legislation enter into impact?
The Pre-Pack Legislation will enter into impact on the date of its publication within the Belgian State Gazette (anticipated shortly), however will stop to use on 30 June 2021. This expiry date could also be postponed by royal decree, and hopefully it can. Nonetheless, this – extremely uncommon – sundown mechanism may give rise to unintended points. For instance: what if a debtor remains to be in Pre-Pack Section on the time of expiry of the Pre-Pack Legislation?
How does all of this work together with the EU preventive restructuring frameworks directive?
The present judicial reorganization course of and the brand new pre-pack reorganization are in keeping with the goals of the Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks. They’re nevertheless not totally compliant with this Directive, and the Belgian insolvency code will therefore must be additional amended within the close to future.
In mild of the numerous choices which the Directive leaves to nationwide legislators, the character and extent of those additional amendments to the Belgian insolvency code stays to be seen. Nonetheless it might be, it appears already inevitable that the Belgian legislator won’t be prepared by the unique implementation deadline of 17 July 2021.
To be continued…
It’s unlikely that the Pre-Pack Legislation would be the magic bullet that can supply an answer for each state of affairs of monetary misery. The goals of the Pre-Pack Legislation are nevertheless commendable, and it’ll little question represent a helpful extra instrument within the restructuring toolbox.