On January 31, 2009 the Belgian Parliament adopted a new law on restructuring ("loi relative à la continuité des entreprises" / "wet betreffende de continuïteit van de ondernemingen") for companies facing financial difficulties (hereafter the "Restructuring Law").

This new piece of legislation is expected to enter into force on 1 April 2009 and will replace the 1997 law on judicial composition ("wet betreffende gerechtelijk akkoord" / "loi relative au concordat judiciaire"), which law shall be abrogated at that time.

The two main objectives which govern the Restructuring Law are: (i) promoting out-of-Court or confidential restructurings, so that the debtor can avoid the negative stigma attached to any public insolvency proceeding, and (ii) providing flexible solutions to allow companies in distress to reorganise their activities.

The main rules established by the Restructuring Law can be summarised as:

I. Appointment of a Mediator

The Restructuring Law provides that the Chairman of the Commercial Court may, at the request of the debtor, appoint a mediator in order to facilitate the restructuring of its businesses. This procedure has been influenced by the French experience of the mandat ad hoc.

The Restructuring Law does not provide for any guidelines with respect to the scope of the tasks of the mediator or his/her powers. This is left to the discretion of the Court, which will rule on the basis of the circumstances of each matter.

II. Avoidance of Fraudulent Transfer Rules

Belgian Bankruptcy Law provides that certain transactions that took place during the so-called suspect period (6 months) prior to the bankruptcy order are not enforceable against the bankrupt estate and may be exempt by the Court upon request of the trustee.

The transactions covered by those rules include the granting of new security interests to secure old debts and the payments made by the debtor while the creditor was aware that the former had ceased payments ("cessation de paiements" / "staking van betaling"). The Committee of Experts responsible for drafting the bill viewed these provisions as a potential obstacle to out-of-court settlements.

Therefore, the Restructuring Law now provides that any amicable settlement made by a debtor with two or more of its creditors will no longer be subject to the above-mentioned provisions to the extent that the settlement agreement states that it has been entered into with a view to allowing the debtor to improve its financial situation or to restructure its business.

III. The Restructuring Proceedings

3.1. General Principles
The Restructuring Law establishes a new procedure which aims at preserving, under the supervision of the Court, the viability of part or all of the debtor's business (the "Restructuring Proceedings").

The Restructuring Proceedings grant the debtor a stay in order that it can achieve one of the three following objectives:

• Enter into an amicable settlement with two or more of its creditors;
• Submit a restructuring plan to all its creditors; or
• Transfer all or part of the debtor's business to a third party.

The restructuring process can also aim for a combination of these elements, such as for example, the sale of a factory and the restructuring of the rest of the business.

3.2. The Conditions for Commencing Restructuring Proceedings
Companies are able to initiate the reorganisation procedure as soon as they become aware that they are in financial difficulties and in particular when the debtor is faced with a situation of such magnitude that it threatens the short- or long-term viability of the company. With respect to legal entities, this condition will be deemed to be satisfied if, due to losses, the company's net assets have been reduced to less than one-half of the value of the share capital. However, the debtor does not need to have ceased paying its debts.

In addition, the fact that the debtor meets the conditions for bankruptcy (cessation of payments and loss of credit) does not prevent it from filing for restructuring.The normal rule is that the proceedings are initiated by the debtor filing a petition for restructuring.There is, however, a significant deviation to this rule if the restructuring is aimed at the transfer of all or part of the debtor's business to a third party. In those circumstances, the procedure can also be commenced by the public prosecutor, any creditor or even any interested third party. This means that a competitor or any other person interested in taking over the debtor's business is authorized to start proceedings against the will of the debtor.

3.3. Temporary Moratorium
The Commercial Court will then allow a moratorium for a maximum period of six months. During this period, creditors cannot enforce judgments against the debtor. The stay does not affect, however, the status of receivables that have been pledged or assigned to a third party.

3.4. Executory Contracts
The granting of the moratorium does not terminate per se agreements entered into prior to the date of the judgment. Any contractual clause providing for the automatic termination of the agreement in the event of a filing for restructuring shall be deemed null and void.

However, this limitation does not prevent the debtor's co-contracting party from terminating the contract for cause in the event that the debtor does not comply with its obligations. If such breach has occurred prior to the filing, the debtor shall benefit from a grace period of 15 days to cure the default.

On the other hand, the debtor shall be entitled to suspend the performance of any executory contract to the extent that such suspension is required to allow it to submit a restructuring plan or to make possible a transfer of its business.

3.5. Approval of the Restructuring Plan
In the event that the restructuring proceedings aim at the implementation of a restructuring plan, the latter shall be submitted to the creditors, at least fourteen days prior to the hearing where the creditors will vote on such plan.

The plan may provide for a variety of measures: rescheduling of the debts, debt/equity swaps, write-off of a portion of the debts in principal and interests as well as a social plan which may include redundancies.

If the plan is accepted by a majority of creditors accounting for more than one-half of the claims, the Court may approve it.

For further information please contact:
Mireille Dallmann
Brussels office
Tel: + 32 2 239 2620
Email: mdallmann@whitecase.com

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© 2009 White & Case LLP