Judicial reorganization and anti-abuse: has the pendulum swung too far?

The legislator wants to make the judicial reorganization procedure as attractive as possible. This is expressed in an 'open portal' approach. This approach is characterized by a limited number of access conditions to the judicial reorganization that are relatively easy to fulfill. The most important condition is that the continuity of the company must be threatened immediately or in the long term (art. XX.45, §1 CEL). In addition, it is necessary, but it is sufficient, that the reorganization procedure must be able to offer part of the solution for preserving the continuity of all or part of the assets or activities of the company (art. XX.39, first paragraph CEL ). The form or size of the activity is irrelevant. What counts is that profitability and solvency can be regained in due course thanks to the reorganisation. As soon as the entry conditions are fulfilled”appear” the company must be admitted to the reorganization procedure (art. XX.46, §2 CEL). The viability of the company and the viability of the continuity may therefore in principle not be assessed at the gateway. This assessment will not be made until later, during the period of suspension.

It was soon established that this open gateway led to abuse. Hastily drafted and incomplete petitions were filed with the sole purpose of preventing a public sale after attachment, because the filing of the petition simply suspended the attachment procedure (now elaborated in more detail in art. XX.44 CEL). This was countered by case law, followed by the legislature. It was required that all the documents listed in art. XX.41, §2 WER (including a list of creditors, the two most recent annual accounts, an accounting statement and the profit and loss account) must be filed with the registry at the same time as the application for judicial reorganization. Failing that, the request for reorganization was inadmissible.

As a result, the gateway to the reorganization procedure was narrowed. The Act of 21 March 2021 will change this. The barrier to entry will be reduced again temporarily (currently until July 16, 2022) to cope with the expected wave of reorganization requests due to the impact of the COVID-19 crisis. One of the means to achieve that aim is the temporary abolition of the inadmissibility sanction of Art. XX.41, §2 WER, because this sanction according to the draft law “exaggerated and legally incorrect” would be and the “imposed restrictions […] are not justified in view of the need for restructuring, especially in a period of economic crisis” .

However, the inadmissibility sanction was deliberately introduced at the time. This amendment to the law not only increases the risk of abuse, but also of a lack of information provision to the court and the delegated judge who must assess the reorganization request. Moreover, the judiciary did not recklessly apply the inadmissibility sanction when an application was lodged without all the required documents being attached, but took into account the intention of the legislator and the concrete circumstances of the file. In practice, therefore, this sanction did not appear to be excessive and did not constitute an unwarranted restriction on access to the reorganization procedure. Instead of amending the legislation every so often, it seems more appropriate to continue to focus on the basic ideas and principles of the reorganization procedure and their balanced application by the judiciary.

That the case law succeeds in this is discussed in an annotation by Mr. Cedric Haspeslagh in the Magazine for Belgian Commercial Law (TBH 2021, ep. 6) in which the aforementioned basic principles and evolutions are discussed in detail.