Since the entry into force of the new Belgian Code of Economic Law (‘BCEL’) it is possible for a company director, in its personal capacity, to be qualified as an “enterprise” and consequently to be declared bankrupt.
The definition of an enterprise is set out in Article I.1, 1° BCEL and relates to the following organisations:
a) any natural person who independently performs a professional activity;
b) any legal person;
c) any other organisation without legal personality.
Under Belgian insolvency law, only enterprises within the meaning of Article I.1, 1° BCEL can be declared bankrupt. The qualification of a natural person being an enterprise has far-reaching consequences as the Belgian legislator is in favour of the second chance theory and offers the natural person in bankruptcy a quasi- automatic cancellation of debts (kwijtschelding/effacement). Furthermore, assets which the bankrupt has received since he or she has been declared bankrupt, on the basis of a cause originating after the bankruptcy, are excluded from the bankrupt estate. For these reasons, it can be in the interest of natural persons, e.g., company directors or managers, who are facing debts following the bankruptcy of the company, to have bankruptcy proceedings opened. This is especially the case when a director has personally given certain securities or guarantees for commitments of the company and the creditors are knocking on his or her door after the company’s bankruptcy.
Case law is not unambiguous as to when a company director can qualify as an enterprise. This is assessed on a case-by-case basis and different elements are considered, e.g., whether there is a professional activity in a structured and stable manner, the mandate is remunerated, the professional activity is designed to ensure the livelihood of the person, the person keeps accounts, the person is subject to VAT, etc. The courts often refer to the concept of “organisation”, as mentioned in Article I.1, 1° BCEL and examine whether the director effectively performs his or her duties within the framework of an “organisation”.
A decision from the Cour de Cassation on this topic was awaited, and the latter has now been confirmed in a recent decision of 18 March 2022. The Cour de Cassation ruled that a natural person is an enterprise, only when he or she constitutes an organisation consisting of an arrangement of material, financial or human resources with a view to exercising a professional activity on an independent basis. A company director who exercises his or her mandate without any organisation is thus not an enterprise.
In the appealed decision, the Court of Appeal of Mons held that the director in question could not be declared bankrupt on the following grounds:
- The preparatory legislative works of BCEL are not clear on this topic and leave room for ambiguities and contradictions.
- The notion of “independent basis” refers not only to carrying out a professional activity for which he or she is not bound by a contract of employment, but also includes the question of the responsibility for the acts performed.
Strelia Insolvency and Restructuring Newsflash – March 2022
- The notion of “professional activity” is aimed at the sustainability, i.e., the regular exercise of an activity with a view to obtaining an income necessary for one’s livelihood.
- The basic notion of the enterprise is that of “organisation”: the enterprise is characterised less by its activity or its purpose than by its organisation, i.e., by the way in which the material, financial and human resources are arranged.
- In the EU Directive 2019/1023 on preventive restructuring frameworks, discharge of debt and disqualifications, “entrepreneur” is defined as a natural person exercising a trade, business, craft or profession, therefore a director is not an entrepreneur.
- Finally, the independent natural person is not totally deprived of any protection against creditors, as he or she could benefit from a collective settlement of debts.
- The person in question was the director of a real estate company, the renumeration appeared to be very modest, no evidence was given of the extent of her professional activity as no structure was set up and no accounting documents or personal commitments were produced. The claimant did not establish that a proper organisation was set up to carry out a professional activity, thus did not constitute an enterprise.
This decision was confirmed by the Cour de Cassation.
The interpretation of the Cour de Cassation will most likely lead to more case law where the notion of “organisation consisting of an arrangement of material, financial or human resources” will be debated as it requires a case-by-case analysis. Presumably, this interpretation could have the effect of discouraging company directors from filing for a personal bankruptcy in the future.
It appears that, at some point, the Belgian federal legislator will have to make a policy choice in this regard, balancing the interests of the debtors against those of the creditors, who often remain empty handed after the bankruptcy of their (natural person) debtors. A clarification by the Parliament on the legal definition of “enterprise” will follow soon. It is expected to be in line with the above mentioned decision and will strengthen legal certainty.
Do not hesitate to reach out to the members of our insolvency and dispute resolution teams for assistance or queries on this subject matter.
Bart De Moor - Partner Advocaat/Avocat - bart.demoor@strelia.com
Camille Cornil - Senior Associate Advocaat/Avocat - camille.cornil@strelia.com
Sofie Onderbeke - Associate Advocaat/Avocat - sofie.onderbeke@strelia.com
