Judicial reorganization
Judicial reorganization Judicial reorganization offers protection against creditors to companies facing temporary difficulties. The company still has sufficient orders and can continue operating. It could recover from its debts, but needs a feasible repayment plan that reflects the company’s ability to repay.
Protection during judicial reorganization
The judicial reorganization procedure provides a period of suspension of payment, giving the debtor a break to resolve its financial problems. During this period, the company cannot be declared bankrupt and no executory attachment can be made by bailiffs.
The judicial reorganization procedure offers many legal possibilities for the company to recover from its debts. The debtor can receive repayment plans for a maximum of five years. The longer the repayment period, the smaller the monthly amount that must be paid. The debtor can also request its creditors to accept only a portion of the debt, rather than the full amount.
Formalities to start the procedure
It is a judicial procedure, which means that a petition must be filed with the court to use it. The petition is submitted via the website www.regsol.be. Certain documents must be attached to the petition, which must be prepared by experts and are not free. A fee must be paid upon filing with Regsol.
The judicial reorganization procedure was formerly known as the “continuity of companies” law (WCO) before May 1, 2018. The procedure described below applies to all procedures initiated after May 1, 2018. The WCO remains applicable to ongoing procedures opened before May 1, 2018.
The purpose of the judicial reorganization (formerly WCO) is to overcome financial difficulties and avoid bankruptcy. The procedure protects a company against its creditors for a period determined by the court (maximum of 6 months, extendable up to a maximum of 18 months). This can be achieved in three ways:
- Amicable settlement: the debtor negotiates an agreement with one or more creditors. It is not necessary to reach an agreement with all creditors. At least two creditors must agree to participate, and the debtor needs the agreement of the creditor with whom he or she wants to negotiate.
- Collective agreement: the debtor proposes a reorganization or repayment plan to all creditors. If a majority of the debtor’s creditors agree, the plan is binding on everyone who is included in it, meaning that those who did not agree must still follow the plan. After the creditor’s approval, the plan must also be approved by the court.
- Transfer under judicial supervision: the debtor wishes to sell its business or part of it. A court-appointed receiver will take on this task. The proceeds of the sale will be distributed among the creditors.
The debtor must request the initiation of the procedure from the Enterprise Court by means of a petition. This petition must comply with a number of legally determined rules. The debtor must choose one of the three above-mentioned objectives. However, he or she can always ask the court to change this objective during the procedure.
If the company in difficulty opts for an amicable settlement, it negotiates with one or more creditors. It is free to choose which creditors to negotiate with and is not required to involve all creditors in the agreement.
If the company chooses a collective agreement, it must present the plan to its creditors. The objective is to repay all or part of the debts over a period of up to five years. A vote will be taken on the plan. It will be approved if the majority of the present creditors, representing at least half of the total debt, agrees. The court will homologate the plan, meaning that it will be included in a judgment, giving it legal force and making it binding on all creditors, including those who did not participate in the vote or disagreed.
To ensure that companies in a hopeless financial situation can still be partially saved, it is possible to sell the profitable parts/activities of the company as part of the judicial reorganization. In this case, the acquirer is exempted from all risks associated with the company transferor in a bad financial situation.
During the judicial reorganization procedure, the company-debtor obtains a “suspension of payment” for (in principle) a maximum of 6 months. The debtor will not have to pay his existing creditors during this period (note: debts incurred after the start of the procedure must still be paid!). However, he can still choose to pay them voluntarily. During the suspension period, the creditors themselves cannot take enforcement action on their claims, for example, by means of seizure or forced sale. Additionally, the company-debtor cannot be declared bankrupt/judicially dissolved during this period unless he requests it himself.
However, with the amendment of the law on May 1, 2018, the procedure has become stricter. For example, it is still possible to proceed with a public sale due to a seizure during the procedure when the sale date was already scheduled and would take place within a period of two months after the filing of the petition.
Frequently asked questions about judicial reorganisation
A judicial reorganisation is a legal procedure that temporarily protects companies from creditors in order to overcome financial difficulties.
There are three types: an amicable settlement, a collective agreement, and a transfer under judicial supervision.
The suspension lasts up to 6 months, with the possibility of extension up to 18 months, subject to court approval.
We assist companies legally in applying for and implementing reorganisation plans, including negotiations with creditors.
Not automatically. During the suspension, the company cannot be declared bankrupt unless it applies for it itself or the proceedings fail.
