Insolvency of companies
Minister of Justice Koen Geens is steadily moving forward, and after a comprehensive overhaul of the Companies Code and the codification of the company law in the Economic Law Code, we are now set for the codification and updating of the insolvency law. The Law of 11 August 2017 saw a brand new and rather hefty Book XX added to the Economic Law Code, ‘Insolvency of companies’. Aside from the incorporation of the 1997 bankruptcy law and the 2009 continuity of companies law, a number of important changes were also included as a result of the EU insolvency regulation and, undoubtedly, also a number of rulings by the Constitutional Court and the Court of Cassation.
The basic requirements for a judicial restructuring and a bankruptcy appear to be identical to the existing legislation. In order to be eligible for a judicial restructuring, the new insolvency law still requires that the continuity of the company is endangered or is threatened with such, while the new bankruptcy proceedings still require a long-lasting suspension of payments and frozen credit.
The major new inclusions are:
- A renewed focus on prevention by means of company investigations, establishing ‘departments for companies in difficulty’ within the commercial courts and the option to appoint a ‘company mediator’;
- Intensive procedural digitisation;
- A larger scope of application for the insolvency law.
The last one in particular is groundbreaking for those practicing a liberal profession: Those in the liberal professions as well as farmers, foundations, non-profit associations and civil-law partnerships in the form of a trading company shall now fall under the insolvency law as companies and will thus also be able to be declared bankrupt. The old concept of the trader is to be overhauled. Moreover, and as the cherry on top, there is also an additional ground for liability in respect of (de facto) directors. From now on a director can also be held liable when he or she cumulatively:
- Was aware or ought to have been aware that there were manifestly no reasonable prospects of retaining the company or its activities (and thus avoiding bankruptcy);
- And still neglected to cease activities in good time.
The benchmark here is the normal cautious and meticulous director placed in the same circumstances. It is important to add that only the receiver (and not an aggrieved creditor) can lodge a claim on the basis of this new ground for liability. The new legislation will take effect on 1 May 2018.
Should you have any queries on the concrete outcomes of these new additions to the insolvency law, you are always welcome to contact Kristof Van der Goten, Senior Tax & Legal Associate.
+32 (0)3 210 91 50