The Business Continuity Act of 31 January 2009 (the "Act") creates a variety of flexible tools to promote business recovery. This update focuses on the new judicial (i.e., court-supervised) reorganisation proceedings (as opposed to out-of-court workouts and court-supervised sales of the business).
Simplified access to proceedings
As discussed in our previous update, the Business Continuity Act of 31 January 2009 (the “Act”) provides for various options to facilitate business recovery. One such option is the court-supervised sale of (all or part of) the debtor’s business.
The introduction of the court-supervised sale is an important development. Such sales are likely to become a popular option under the Act for two reasons.
Belgium has modified its law on business reorganizations that involve distressed companies. The new law of January 31, 2009, on the continuity of companies came into force on April 1, 2009, replacing an unpopular and rigid law on judicial composition proceedings that dated to 1997.
This new law simplifies the rules and procedures for reorganizing distressed companies by providing a variety of new flexible out-of-court and in-court options designed to facilitate business recovery.
As part of what appears to be a global trend, the amount of litigation in Belgium is increasing rapidly. Litigation advice is fast becoming one of the most in-demand services in legal practice, along with advice on restructuring and employment. Due to the challenging economic and financial conditions, companies are now tending to commence debt collection proceedings as soon as their debtors fail to honour their debts, and are pre-emptively restructuring their businesses in order to avoid unnecessary costs which might eventually lead to bankruptcy.
On 9 February 2009, the Act of 31 January 2009 on the continuity of companies (Loi relative à la continuité des entreprises/Wet betreffende de continuïteit van de ondernemingen, the "Act") was published in the Belgian State Gazette.
The Act – which actually consists of two separate acts for technical reasons - will replace the unsuccessful Act of 17 July 1997 on composition with creditors.
Tax treatment in the hands of the creditor
The waiver of debt results in the accounting ‘loss’ of a receivable. Such loss, however, is not automatically tax deductible in the hands of the creditor.
The deductibility of such loss may be prohibited, either because it is deemed not to be incurred to retain or increase taxable income (‘general deduction criterion’), or because it is deemed to be an ‘abnormal or benevolent advantage’ granted to the debtor (‘anti-abuse rule’).
New restructuring legislation was recently adopted in Belgium and comes into force on 1 April 2009. The Act of 31 January 2009 on the continuity of undertakings (the Act on Continuity) aims to replace the existing judicial composition procedure (concordat judiciaire/ gerechtelijk akkoord) with a more effective and flexible restructuring instrument.
The key features of the Act on Continuity are:
On 6 November 2008, the Belgian House of Representatives adopted a bill on the continuity of companies. Although the Senate has exercised its right to examine the bill and may propose amendments until 26 January 2009, we thought it useful to go ahead and address this new bill, which will replace the Act of 17 July 1997 on composition with creditors (Wet op het gerechtelijk akkoord/Loi sur le concordat judiciaire).
Last 06 November 06, the Fourth Chamber of the Superior Court of Justice, in the judgement of the special appeal n° 1,733,685/SP, brought by Volkswagen Brazil's Automotive Industry Ltda. against Matalzul Industry and Commerce Ltda., understood that, even if there is an arbitration agreement between the parties, the bankruptcy filing based on default of credit title (in this case, duplicates under protest) does not need previous establishment of arbitration court.
Introduction