As already mentioned in our previous article on this subject, the concept of the transfer of a business is one of the pillars of the reform of insolvency law in Belgium.
In our previous article regarding this subject, we introduced the concept of the transfer of a business under judicial authority, reviewed since the reform as of 1 September 2023.
This contribution constitutes the second part of the subject, and deals with the transfer of a business in the context of a private (confidential) preparation prior to bankruptcy.
1. The history of the concept of "silent bankruptcy" and what it covers
The concept of "silent bankruptcy" was already under discussion at the time of the previous legislative reform. The idea, which ended up in the bin at that time, came back to take seed in the legislator’s mind, which incorporated it into the 2023 reform and officially called it silent bankruptcy "the private preparation prior to bankruptcy / de besloten voorbereiding van een faillissement / la préparation privée d’une faillite ", also known as "pre-pack".
From now on, when a company considers that it is in a state of bankruptcy (persistent cessation of payments and credit crunch), it can ask the Court to declare it bankrupt, and that, prior to this declaration of bankruptcy, the transfer of all or part of its assets/activities can be prepared.
2. What are the advantages of the pre-pack?
The main advantages are that the procedure is private and the deadlines are fairly short. The Court will rule on the company's application within 3 working days, and will appoint a "potential receiver of the bankruptcy" for a maximum period of 60 days (appointment for an initial period of 30 days, renewable for an additional period of 30 days; extension being requested either by the potential bankruptcy receiver or by the company).
In order to obtain this private preparation prior to bankruptcy, the debtor must demonstrate that this method of preparation will facilitate the liquidation of his business and result in the highest possible payment to his creditors, but also that employment can be safeguarded as far as possible.
These are the two cumulative conditions to be entitled to this "silent bankruptcy" or "pre-pack" proceedings.
This offers the considerable advantage of being able to organise a transfer of the business(es) of a company in going concern and not in a state of declared bankruptcy. This will maximise the proceeds for creditors and prevent the value of the transferable assets from falling considerably once bankruptcy has been declared.
Unlike the court-ordered transfer reorganisation procedure as explained in the first part of this contribution, there is no grace period/ standstill period granted to the company, which is therefore not protected from its creditors. It is therefore always likely to be declared bankrupt by one of its creditors, or even by the Public Prosecutor.
This is a preparatory stage, which means that the debtor continues to manage its business, and that the priorly to the declaration of bankruptcy prepared transfer will only take place after the declaration.
Debtor and creditors also retain their right to file for bankruptcy during this period of preparation for bankruptcy. The potential bankruptcy receiver may also ask the Court to terminate his mission and the preparation of the bankruptcy. After expiration of the 30 days period (subject to an extension for an additional 30 days period), if the debtor do not take any action, the Court will proceed with the bankruptcy.
This is a real innovation. Previously, silent bankruptcy was sometimes organised "amicably", by certain big companies wishing above all to maintain employment. From now on, this preparation prior to bankruptcy is legally regulated, is overseen by a potential bankruptcy receiver and takes place under the authority of a Court.
Leo Peeters
Aurémie Glinne
