HOW BELGIUM WANTS TO PROTECT COMPANIES WITH DEBTS (AND HOW CREDITORS ARE OFTEN FORGOTTEN): THE STANDSTILL ON BANKRUPTCIES DUE TO CORONA, AND THE JUDICIAL REORGANIZATION PROCEDURE.

bankruptcyIn Belgium, there is a whole arsenal of procedures to avoid the sudden disappearance of indebted companies and, at first sight, it looks good. However, our experience as a debt collection partner teaches us that the standard creditor is often overlooked. The government is a privileged creditor in these proceedings, so it takes no risk. Instead, it seems to pass the debt on to the other creditors. In this article, we take a look at some recently changed procedures and their impact in times of coronavirus: The Bankruptcy Moratorium (standstill) and Judicial Reorganization Procedure.

 

The bankruptcy moratorium

 

The coronavirus crisis shook the entire Belgian economic community in March 2020. The lockdown resulted in the forced shutdown of many companies for an indefinite period. Our government has taken several measures to support as many businesses and individuals as possible.

 

Think of temporary unemployment, direct financial support to companies that had seen their income plummet, deferral of payment of VAT, social security contributions and withholding tax, a more flexible credit policy, the limitation of foreclosures, and finally, the moratorium on bankruptcy, that is to say a standstill or freeze on bankruptcy declarations (royal decree n ° 15 relating to the temporary suspension of execution and other measures during the duration of the covid-19 crisis).

 

The suspension took effect on 24 April 2020. The measure was initially scheduled to last until 17 May 2020 but was extended by one month in the first phase until 17 June 2020. During the second lockdown, this operation was reinstated until 31 January 2021. Companies benefited from this measure if they were not in payment default on 18 March 2020 and if their existence was threatened by the Covid-19 pandemic and its consequences.

 

  • Advantages of the bankruptcy freeze

 

The advantage seems evident: a wave of bankruptcies, which would also drown several suppliers, is thus postponed. We are saving time, and that is consistent with the standard response to this crisis across the board. But it is an emergency solution, which is far from being a structural one. In the short term, the result is 7,500 bankruptcies in 2020, being 33% less than in the previous year.

 

  • Disadvantages of the bankruptcy freeze

 

The projections for 2021 are much less encouraging. The bankruptcy rate for this year could be more than tripled compared to 2020 (25,000 bankruptcies in total) if we are to believe the information from Trends Business Information. Graydon makes an even more pessimistic prediction of 50,000 companies that could go bankrupt in the years to come. The bankruptcy freeze has given a distorted picture of the solvency of our companies. It is not clear how efficiently companies are doing. The FEB (Federation of Belgian Enterprises) fears that some 400,000 jobs are at risk.

 

The ‘natural’ business climate was therefore severely disrupted in 2020 by the moratorium. So called “zombie companies” (sick companies with negative solvency or which do not survive without government support or protection) absorbed capital and labour that would otherwise go to healthy businesses and innovation. In addition, these companies were able to continue to accumulate debts, without creditors ever being compensated for it. Over the past year, we have received many cases of companies who placed orders during these tough times knowing full well they couldn’t foot the bill. Creditors are at the forefront of the destructive consequences.

 

The bankruptcy standstill blocked the wave of bankruptcies indeed. But if no structural plan is made to bring sick businesses back onto firm land, healthy businesses will be inexorably dragged down a spiral. Hans Degryse, professor of economics and finance at KUL, expressed the problem as follows to Trends: “You have to allow creative destruction to stimulate entrepreneurship”. So, separate the chaff from the wheat. This is of course easier said than done; you can’t just look at the past to decide where to draw the fault line. Some industries have been hit much harder than others, and companies that were perfectly healthy before the lockdown are now far from it, or the other way around.

 

To develop this much needed long-term vision, the government must also question its supportive policy and view its investments as a business should. Hans Degryse asks an interesting question on this subject: “Can’t we get a better return for the same price?” It takes boldness and vision to unplug struggling businesses, to make more resources available to businesses with potential.

 

  • End of the bankruptcy freeze

 

The bankruptcy freeze can only be a temporary solution, and it will not be prolonged. Hans Degryse’s questions prompt us to look for increased solvency rather than short-term support. Knitting a continuation of the bankruptcy freeze therefore does not seem the way to go. However, Unizo’s Danny Van Assche disagrees: “It would be totally unfair to expose companies to bankruptcy as long as the law prohibits them from generating the turnover necessary to help them out of the trough. “.

 

One can indeed wonder if the end of the bankruptcy freeze comes at the “right time”. In our opinion, there is no other option than to move on to a necessary restructuring. The government has devised a next solution, but unfortunately this does not apply Hans Degryse’s ideas. The bankruptcy moratorium will be replaced by a sort of recovery procedure, the greatest “asset” of which is an easier access to legal protection procedures.

 

Judicial reorganization procedure (“JRP” – formerly the law on the continuity of the company)

 

The Business Continuity Act (LCE / WCO) was introduced in 2009 and amended several times over the years. Firms in trouble invoking this law are protected against creditors for a specified period. The goal is to take advantage of this period to develop a (partial) repayment plan for creditors.

 

The government now wishes to facilitate access to the procedure by simplifying certain formalities and is developing the judicial reorganization procedure.

 

  • Benefits of judicial reorganization

 

As a debt collection partner, we understand the usefulness of an out-of-court repayment plan. Obviously, this procedure is also better than bankruptcy; in the event of bankruptcy, the creditor usually sees his debt go up in smoke. Our experience has taught us that, in some cases, part of the debt can be recovered and the ailing business ultimately escapes bankruptcy.

 

 

  • Disadvantages of judicial reorganization

 

It is the creditors, however, who inherit the inconvenience. Just like with a simple bankruptcy, the risk and the cost are passed on to them. Standard creditors (unprivileged ones, unlike public bodies, for example) are sent back to the end of the queue. Additionally, suppliers will be required to continue delivering to companies under JRP status, even if old invoices have remained unpaid. However, the supplier may require payment in cash. This procedure is also often very time consuming.

 

This procedure has already been described by Graydon as “a late lifeline for businesses that are often seriously ill”. Justice Minister Vincent Van Quickenborne said the following in a JRP communication: “Over the years [the old procedure] has become very strict in order to prevent abuse. Because we are in an emergency situation, the conditions are now relaxed”. This statement does not inspire much enthusiasm either.

 

There is also a lag between the end of the moratorium and the new legislation which is yet to be approved and which will likely not come into force until March. In addition, we do not know how many companies this JRP aims to save from bankruptcy.

 

The amended procedure will also provide for the possibility of preliminary out of court mediation, so that an agreement with the creditors concerned can be sought discreetly before publishing the JRP in the Official Journal. On this subject, Minister Van Quickenborne said: “This publication is often the signal for those involved to take their fingers off a company. We want to avoid that.” This seems perilous to us for future creditors.

 

Conclusion

 

We do not envy the government’s difficult task of balancing support for ailing companies while avoiding adverse effect on healthy businesses. But for a better post-covid economic landscape, we believe bolder changes would be appropriate. It is noble to try protecting the weakest, but we must not forget that we need strong and innovative companies to ensure sufficient jobs and a more stable future. In the meantime, employees but also business leaders remain locked in an economic situation that will not improve. They should be inspired for a more promising restart.

 

Meanwhile, debts are piling up. It is even more important to actively deal with unpaid invoices. An out-of-court solution is usually the best, as Minister Vincent Van Quickenborne also said. However, it does not seem advisable for us to wait until the debtor in question submits a request for JRP.

 

Questions? Do not hesitate to contact us! TCM Belgium has 25 years of experience in debt collection. And thanks to the TCM Group network, we offer solutions in more than 100 countries.

 

Sources :

HOW BELGIUM WANTS TO PROTECT COMPANIES WITH DEBTS (AND HOW CREDITORS ARE OFTEN FORGOTTEN): THE STANDSTILL ON BANKRUPTCIES DUE TO CORONA, AND THE JUDICIAL REORGANIZATION PROCEDURE.

bankruptcyIn Belgium, there is a whole arsenal of procedures to avoid the sudden disappearance of indebted companies and, at first sight, it looks good. However, our experience as a debt collection partner teaches us that the standard creditor is often overlooked. The government is a privileged creditor in these proceedings, so it takes no risk. Instead, it seems to pass the debt on to the other creditors. In this article, we take a look at some recently changed procedures and their impact in times of coronavirus: The Bankruptcy Moratorium (standstill) and Judicial Reorganization Procedure.

 

The bankruptcy moratorium

 

The coronavirus crisis shook the entire Belgian economic community in March 2020. The lockdown resulted in the forced shutdown of many companies for an indefinite period. Our government has taken several measures to support as many businesses and individuals as possible.

 

Think of temporary unemployment, direct financial support to companies that had seen their income plummet, deferral of payment of VAT, social security contributions and withholding tax, a more flexible credit policy, the limitation of foreclosures, and finally, the moratorium on bankruptcy, that is to say a standstill or freeze on bankruptcy declarations (royal decree n ° 15 relating to the temporary suspension of execution and other measures during the duration of the covid-19 crisis).

 

The suspension took effect on 24 April 2020. The measure was initially scheduled to last until 17 May 2020 but was extended by one month in the first phase until 17 June 2020. During the second lockdown, this operation was reinstated until 31 January 2021. Companies benefited from this measure if they were not in payment default on 18 March 2020 and if their existence was threatened by the Covid-19 pandemic and its consequences.

 

  • Advantages of the bankruptcy freeze

 

The advantage seems evident: a wave of bankruptcies, which would also drown several suppliers, is thus postponed. We are saving time, and that is consistent with the standard response to this crisis across the board. But it is an emergency solution, which is far from being a structural one. In the short term, the result is 7,500 bankruptcies in 2020, being 33% less than in the previous year.

 

  • Disadvantages of the bankruptcy freeze

 

The projections for 2021 are much less encouraging. The bankruptcy rate for this year could be more than tripled compared to 2020 (25,000 bankruptcies in total) if we are to believe the information from Trends Business Information. Graydon makes an even more pessimistic prediction of 50,000 companies that could go bankrupt in the years to come. The bankruptcy freeze has given a distorted picture of the solvency of our companies. It is not clear how efficiently companies are doing. The FEB (Federation of Belgian Enterprises) fears that some 400,000 jobs are at risk.

 

The ‘natural’ business climate was therefore severely disrupted in 2020 by the moratorium. So called “zombie companies” (sick companies with negative solvency or which do not survive without government support or protection) absorbed capital and labour that would otherwise go to healthy businesses and innovation. In addition, these companies were able to continue to accumulate debts, without creditors ever being compensated for it. Over the past year, we have received many cases of companies who placed orders during these tough times knowing full well they couldn’t foot the bill. Creditors are at the forefront of the destructive consequences.

 

The bankruptcy standstill blocked the wave of bankruptcies indeed. But if no structural plan is made to bring sick businesses back onto firm land, healthy businesses will be inexorably dragged down a spiral. Hans Degryse, professor of economics and finance at KUL, expressed the problem as follows to Trends: “You have to allow creative destruction to stimulate entrepreneurship”. So, separate the chaff from the wheat. This is of course easier said than done; you can’t just look at the past to decide where to draw the fault line. Some industries have been hit much harder than others, and companies that were perfectly healthy before the lockdown are now far from it, or the other way around.

 

To develop this much needed long-term vision, the government must also question its supportive policy and view its investments as a business should. Hans Degryse asks an interesting question on this subject: “Can’t we get a better return for the same price?” It takes boldness and vision to unplug struggling businesses, to make more resources available to businesses with potential.

 

  • End of the bankruptcy freeze

 

The bankruptcy freeze can only be a temporary solution, and it will not be prolonged. Hans Degryse’s questions prompt us to look for increased solvency rather than short-term support. Knitting a continuation of the bankruptcy freeze therefore does not seem the way to go. However, Unizo’s Danny Van Assche disagrees: “It would be totally unfair to expose companies to bankruptcy as long as the law prohibits them from generating the turnover necessary to help them out of the trough. “.

 

One can indeed wonder if the end of the bankruptcy freeze comes at the “right time”. In our opinion, there is no other option than to move on to a necessary restructuring. The government has devised a next solution, but unfortunately this does not apply Hans Degryse’s ideas. The bankruptcy moratorium will be replaced by a sort of recovery procedure, the greatest “asset” of which is an easier access to legal protection procedures.

 

Judicial reorganization procedure (“JRP” – formerly the law on the continuity of the company)

 

The Business Continuity Act (LCE / WCO) was introduced in 2009 and amended several times over the years. Firms in trouble invoking this law are protected against creditors for a specified period. The goal is to take advantage of this period to develop a (partial) repayment plan for creditors.

 

The government now wishes to facilitate access to the procedure by simplifying certain formalities and is developing the judicial reorganization procedure.

 

  • Benefits of judicial reorganization

 

As a debt collection partner, we understand the usefulness of an out-of-court repayment plan. Obviously, this procedure is also better than bankruptcy; in the event of bankruptcy, the creditor usually sees his debt go up in smoke. Our experience has taught us that, in some cases, part of the debt can be recovered and the ailing business ultimately escapes bankruptcy.

 

 

  • Disadvantages of judicial reorganization

 

It is the creditors, however, who inherit the inconvenience. Just like with a simple bankruptcy, the risk and the cost are passed on to them. Standard creditors (unprivileged ones, unlike public bodies, for example) are sent back to the end of the queue. Additionally, suppliers will be required to continue delivering to companies under JRP status, even if old invoices have remained unpaid. However, the supplier may require payment in cash. This procedure is also often very time consuming.

 

This procedure has already been described by Graydon as “a late lifeline for businesses that are often seriously ill”. Justice Minister Vincent Van Quickenborne said the following in a JRP communication: “Over the years [the old procedure] has become very strict in order to prevent abuse. Because we are in an emergency situation, the conditions are now relaxed”. This statement does not inspire much enthusiasm either.

 

There is also a lag between the end of the moratorium and the new legislation which is yet to be approved and which will likely not come into force until March. In addition, we do not know how many companies this JRP aims to save from bankruptcy.

 

The amended procedure will also provide for the possibility of preliminary out of court mediation, so that an agreement with the creditors concerned can be sought discreetly before publishing the JRP in the Official Journal. On this subject, Minister Van Quickenborne said: “This publication is often the signal for those involved to take their fingers off a company. We want to avoid that.” This seems perilous to us for future creditors.

 

Conclusion

 

We do not envy the government’s difficult task of balancing support for ailing companies while avoiding adverse effect on healthy businesses. But for a better post-covid economic landscape, we believe bolder changes would be appropriate. It is noble to try protecting the weakest, but we must not forget that we need strong and innovative companies to ensure sufficient jobs and a more stable future. In the meantime, employees but also business leaders remain locked in an economic situation that will not improve. They should be inspired for a more promising restart.

 

Meanwhile, debts are piling up. It is even more important to actively deal with unpaid invoices. An out-of-court solution is usually the best, as Minister Vincent Van Quickenborne also said. However, it does not seem advisable for us to wait until the debtor in question submits a request for JRP.

 

Questions? Do not hesitate to contact us! TCM Belgium has 25 years of experience in debt collection. And thanks to the TCM Group network, we offer solutions in more than 100 countries.

 

Sources :

Don’t wait another second – collect your money

Focus on your business, we’ll take care of your outstanding payments. Contact us to find out more.

Don’t wait another second – collect your money

Focus on your business, we’ll take care of your outstanding payments. Contact us to find out more.