In our March Insolvency Update, we mentioned a number of legal reforms proposed by the legislator in order to avoid a wave of bankruptcies following the end of the bankruptcy moratorium on 31 January 2021. These reforms resulted in the Law of 21 March 2021, which aims to enhance and simplify the reorganisation procedures under Belgian insolvency law as well as to protect healthy companies unexpectedly affected by the coronavirus crisis. For a more detailed outline of these measures, please refer to our March Insight.
The bill entered into force on 26 March 2021, with an original applicability until 30 June 2021. By means of the Royal Decree of 24 June 2021, its duration has now been prolonged until 16 July 2022.
In addition to the moratorium on bankruptcies and the other measures to support companies during this period, a further step in insolvency law reform is the transposition of the Restructuring Directive into Belgian law. With this directive, the European legislators aim for a minimum harmonisation of insolvency law, which should contribute to the functioning of the internal market and the capital markets union.
Further changes anticipated
The Directive grants Member States a significant margin of discretion in transposition. However, it is inevitable that Belgian insolvency law will undergo substantial changes in certain areas. For example, the Directive provides for a classification of creditors for the purpose of voting on a restructuring plan and interferes with the rights of shareholders of companies in difficulty.
In short, the aim of the Directive is that viable businesses and entrepreneurs experiencing financial difficulties should have access to effective national restructuring systems, which will enable them to continue their activities. Another aim is that honest entrepreneurs who are insolvent or over-indebted should be able to obtain full debt cancellation after a reasonable period of time, thus giving them a second chance. Furthermore, the procedures for restructuring, insolvency, and debt cancellation should be more efficient, particularly in terms of the time required to complete the procedures.
The Directive covers various topics, such as "early warning tools". The main topic, laid down in Title II, concerns the "preventive restructuring regime". The preventive restructuring scheme consists of a set of minimum standards that establish the contours of a restructuring procedure, including a debtor-in-possession regime and a composition scheme whereby votes are cast in classes and dissenting classes can be forced to accept the agreement after judicial review (known as cross-class cram-down).
Given the importance of this exercise, the Belgian legislators decided to allow sufficient time for transposition (which is one reason the duration of the measures implemented by the 21 March 2021 Law has been prolonged). Transposition into Belgian law is scheduled for the first half of 2022.
We will be closely following the upcoming entry into force of this and any related new legislation.
Osborne Clarke risk tools
We have developed a self-assessment questionnaire to help our clients begin to analyse the potential risk of insolvency or financial difficulties in their commercial relationships with their business partners. We have also prepared an Insolvency Toolkit, an informative PDF outlining important features of Belgian law, best practice, and action points when facing insolvency or the threat of insolvency from a business partner. Please let us know if you wish to receive more information. If you would like to take this questionnaire, please contact your usual Osborne Clarke contact or one of our experts listed below, and we will be in touch with a toolkit in the form of a PDF after we hear from you.