This chapter will address the questionnaire from the perspective of Belgian law, whose insolvency rules are contained in the Law of 8 August 1997 on Bankruptcy (the Bankruptcy Law), as it applies to national company groups located in Belgium. With regard to international company groups, particular focus will be given to EU Council Regulation No 1346/2000 of 29 May 2000 on Insolvency Proceedings (Regulation No 1346/2000) (OJ [2000] L160) which came into force on 31 May 2002.
A. DOMESTIC FAMILY OF COMPANIES
1. If insolvency proceedings must be commenced for the family of companies, does your law permit a joint proceeding, ie, a single court file, a single judge, a single list of creditors, single notice list, or must the case for each member of the family proceed separately with no practical acknowledgement of the related proceedings?
Under Article 631 of the Judicial Code, the commercial court that has jurisdiction to declare a company insolvent is the commercial court located in the judicial district of the company’s registered office. Accordingly, for the insolvency proceedings of a group of companies with separately registered offices all located in Belgium, each of these companies must start a separate insolvency proceeding with the clerk of the commercial court of the judicial district where its registered office is located. As a consequence, there will be as many judges, lists of creditors and court files as there are companies – or members of the group – going bankrupt.
(a) What if the members of the family are organised under, or operate in, different locations within your country? Can a company from a distant location in your country commence its insolvency proceeding where its affiliate is located, if the affiliate has already commenced its insolvency proceeding?
As above, the venue for insolvency cases is determined by the company’s registered office. As a consequence, a company cannot commence insolvency proceedings where its affiliate is located if the company’s registered office is located in a different judicial district in Belgium. This is the case even if the affiliate has already commenced its insolvency proceeding.
(b) To the extent your country has different types of insolvency proceedings (such as Chapter 11 reorganisation and Chapter 7 liquidation in the US), do the members of the corporate family all have to proceed under the same type of proceeding?
Each member of the corporate group will be treated separately on the basis of its specific financial situation with respect to the question of whether each company needs to file for insolvency or for judicial composition. Indeed, the objectives of each law are different. The Law of 17 July 1997 on Judicial Composition (the Judicial Composition Law) aims to create a framework that allows companies facing temporary financial difficulties to turn around on a long-term basis and to achieve a sustained recovery. On the other hand, the Bankruptcy Law aims at quickly forcing out of the market companies which do not have an economic future, while taking into consideration the competing interests at stake. It follows that the fact that a company goes bankrupt does not mean that other members of the same corporate group will also be declared bankrupt, particularly where the other members of the group still have some economic future. As a consequence, each legal entity must be analysed separately. In addition, all proceedings will be commenced and pursued separately as well.
Furthermore, there is a difference between a judicial composition proceeding and an insolvency proceeding as far as control over the company’s operations is concerned. In fact, in the judicial composition proceeding, the company’s directors, at least initially, continue to control its assets and operations, while in an insolvency proceeding, a trustee in bankruptcy is appointed and manages the estate into which all assets and liabilities of the bankrupt company are brought.
2. Does your law permit, or prohibit, a single administrator/trustee/ receiver to administer the assets and the liabilities of the entire corporate family?
In theory, the answer is no. Since each member of a corporate group must commence insolvency proceedings separately, a trustee in bankruptcy is appointed at each proceeding for each member of the corporate group individually. However, no legal provision, under Belgian law, prohibits an affiliate company from requesting that the judge appoint the same trustee in bankruptcy as that appointed in insolvency proceedings of a parent company, when commencing insolvency proceedings.
(a) If so, is there a hearing for the court to determine whether the administration by a single party is appropriate? Are secured and unsecured creditors or other parties in interest allowed to object or be heard at such hearing?
There is no hearing at which the court determines whether administration by a single party is appropriate, since there is no legal provision for the principle of a single trustee in bankruptcy under Belgian law. Where the affiliate would like to request that the judge appoint the same trustee in bankruptcy as that in the insolvency proceedings of a parent company, the affiliate should take the initiative and make such a request when filing for bankruptcy. However, creditors, whether secured or unsecured, or any other parties with an interest are not allowed to object to such a request, and will not be in attendance at this preliminary hearing anyway. In addition, no specific formalities must be observed in order to make such a request.
(b) What about joint representation by other professionals, such as law firms or accounting or auditing firms?
Under Belgian law, a professional firm, eg a law firm, an accounting or an auditing firm, may provide services to all the members of a corporate group on insolvency matters. This solution is appropriate in such cases. However, since each company of the corporate group is registered as a different legal entity, each of these companies has to request formally the services of the professional firm and provide it, where necessary, with separate proxies.
3. Does your law encourage or discourage overlapping boards or management teams for separate members of a corporate family?
Belgian corporate law permits overlapping boards. Furthermore, as a matter of convenience and to ensure that company control remains with the same parties, this will often happen. This is also the case given that Belgian law does not require directors or managers of a company to reside where the registered office of the company is located or where the centre of main interests or of operations of the company is located.
However, persons who are directors of a parent company as well as of one or several of its affiliates are bound by the same management duties with respect to each individual company, that is the duty to act in the interests of that company. Directors must therefore act carefully in managing the different entities of a corporate group as it appears that problems of conflict of interest could arise in such cases.
(a) If the directors of a parent company are not directors of the subsidiary, but they either directly or indirectly manage the affairs of the subsidiary anyway, do your country’s laws render such people de facto or ‘shadow’ directors of the subsidiary?
According to Belgian case law (Brussels Court of Appeal, 12 February 1992, RPS, 1993, 256; Brussels Court of Appeal, 14 September 1988, TRV, 1989, 49), a person is considered as a director de facto, although not appointed as an official director, when he administers, independently, the business of the company and represents the company vis-à-vis third parties. This definition implies that if the directors of a parent company, although not appointed as official directors, directly or indirectly manage the affairs of an affiliate company, the directors of the parent company could be held liable for such control in the case of wrongful actions as if they were official directors.
(b) Do the duties or responsibilities of officers or directors of a family of companies change when the companies become insolvent? For example does their duty shift from a responsibility to the shareholders to a responsibility to the creditors. What if only one of the companies is insolvent?
Under Belgian law, the directors of a company are always responsible to the shareholders and to the company. Once the company becomes insolvent, ie when the company is in cessation of payments, but before it is declared bankrupt, directors still have a duty towards the shareholders and to the company. However, all financial transactions made by the directors to the detriment of creditors will not be enforceable against the estate.
4. Are there rules and do they change regarding members of the corporate family transferring assets among one another (such as by way of loans, capitalisation, other transactions) when the members are insolvent?
When all companies of the group are still solvent, they will first of all have to respect Articles 631 and 632 of the Company Code concerning cross-participations. These articles define a cross-participation as a situation where two companies hold equity stakes in one another’s capital. For cross-participations between parent companies and their subsidiaries, the Company Code provides that subsidiaries (whether individually or jointly) are not allowed to hold an equity stake in their parent company which entitles them to hold more than 10 per cent of the voting rights (Art 631 of the Company Code). The voting rights of shares which are held by a subsidiary in its parent company are suspended.
The Company Code establishes a special notification procedure:
Furthermore, it may happen that one of the members of the group becomes insolvent, and before being declared bankrupt, that member might be keen to favour some creditors – eg, the other members of the corporate group – to the disadvantage of the others, thereby thwarting the principle of equal treatment of all creditors. For this reason, the payments made by the bankrupt company between the date deemed to be the date of the cessation of payments of its debts to the date of the judgment of bankruptcy are non-enforceable as against the estate. This period is called the ‘suspect period’ (verdachte periode/période suspecte) (Arts 17 and 18 of the Bankruptcy Law).
The date of the cessation of payments is considered to coincide with the date of the judgment declaring the bankruptcy. However, the court may also fix this date up to six months prior to the judgment of bankruptcy if objective information dictates such a decision (Art 12 of the Bankruptcy Law).
The non-enforceability laid down by Article 17 of the Bankruptcy Law is compulsory. As a result, the judge is obliged to declare certain transactions as non-enforceable against the estate. These transactions are:
Last but not least, Article 20 of the Bankruptcy Law defines the so-called actio Pauliana in case of bankruptcy. The actio Pauliana is a specific action to protect creditors’ rights. On this basis, fraudulent acts by the debtor are declared invalid vis-á-vis the creditor. The creditor, and in the case of bankruptcy, the trustee, can thus stop third parties who rely on these acts, in so far as they interfere with the rights of the creditor.
A typical case is the alienation of assets. In case of Paulian fraud, the creditor can seize the assets, although they have been alienated to a third party (unless the third party has given sufficient consideration and acted in good faith).
An actio Pauliana offers a stronger protection than tort laws, at least in those countries where it gives priority to the creditors of the fraudulent alienator over the creditors of the acquirer (as under Belgian law).
(a) Are cash sweep procedures allowed, that is, all cash from all subsidiaries is swept out to one account controlled by one of the family entities and then redistributed among the family members to pay bills?
In principle, under Belgian law, so-called cash sweep procedures, executed in accordance with the corporate purpose of the company, are allowed. However, when making such decisions, the board of directors of the company should first take into account the fact that a company can only carry out activities which aim to provide the shareholders of the company with a direct or an indirect capital gain. This means that every decision should be made with the interests of the shareholders of each individual member company of the group in mind.
However, when deciding on the validity of the decisions of boards of directors, the commercial courts will also take into consideration the interests of the (shareholders of the) group as a whole. Nonetheless, this group aspect will always be considered as a matter of secondary importance.
Furthermore, but only with respect to Belgian listed companies, and in accordance with the Law of 2 August 2002 modifying the Company Code, an important amendment was adopted concerning the provisions on intra-group transfers between Belgian listed companies and associated conflicts of interest. The amendments were made as the existing provisions were not considered sufficient to allow an appropriate balance between a listed company and its controlling shareholders and other affiliates to be achieved.
The scope of application of Article 524 of the Company Code was extended in order to cover any dealings with other entities of the same group, not merely the parent company. In an attempt not to impede the efficiency of the decision-making process, the procedure outlined below does not however apply to:
All items relating to intra-group dealings need to be presented to a committee of three independent directors, assisted by one or more independent experts. This committee defines the transaction, assesses the financial impact and gives its opinion on the potential unlawful or detrimental nature of the transaction at hand. Following receipt of the written non-binding advice of said committee, the board of directors deliberates and decides whether or not to follow the advice. The minutes of the board of directors should reflect whether the above procedure was followed and why, if relevant, the advice of the committee of independent directors was not followed. The auditor will draft a separate report on the reliability of the numbers and information contained in the advice and in the minutes of the board of directors, which will then be attached to the minutes.
Dealings of an unlisted Belgian subsidiary of a Belgian-listed parent company with other members of a company group will require the approval of the Belgian listed parent company, and the application of the above procedure.
Non-compliance with the new Article 524 of the Company Code may render the dealings null and void. Furthermore, in certain circumstances, directors could face criminal prosecution by virtue of Article 492bis of the Criminal Code, where their decisions go against the financial interests of the company, its creditors or shareholders.
Last but not least, under Belgian income tax law, all abnormal advantages granted by Belgian companies to individuals or companies subject to Belgian taxation will be added to the taxable business income of the paying company, unless these advantages are included in the taxable income of the receiving party. Any abnormal advantages granted by a Belgian company to a foreign undertaking directly or indirectly connected to the Belgian company will be included in the Belgian company’s taxable income. The same applies to advantages granted to a person or company established in a tax-haven country (Arts 79 and 207 of the Income Tax Code (Wetboek van de Inkomstenbelastingen/Code des Impôts sur les Revenus)).
An advantage is abnormal if it is received in a transaction that is not arm’s length or if there is no counter-obligation on the part of the receiving party. Examples include the sale of goods at cost price, the purchase of goods at excessive prices and interest-free loans.
(b) What if the redistribution results in a healthy subsidiary funding the shortfalls in another subsidiary that is losing money?
See answer to question 4(a) above.
Furthermore, when dealing with insolvent companies, directors should be extremely vigilant and only make payments, transfer money or grant securities that will ultimately benefit the shareholders of that company.
5. How does your law treat claims of one member of a corporate family against other members of the corporate family?
(a) Are such claims invalid or unenforceable ?
The Belgian Bankruptcy Law does not discriminate between claims of one member of a corporate group against other members of the corporate group (‘inter-company claims’) and claims of third parties. All claims that are properly and timely filed will be verified by the trustee in bankruptcy. As with any claims that have been filed, the trustee in bankruptcy and all other creditors could then challenge the claims. It should be noted that the fact that a claim is an inter-company claim is not, by itself, a ground for objection. Creditors are entitled to challenge debts of other creditors provided that their own debts have been properly and timely filed.
(b) If not, are such claims on equal footing with those of third party creditors, or are they subordinated, or is there other treatment required or permitted under your law?
Under Belgian law, inter-company claims are on an equal footing with those of third party creditors. The trustee in bankruptcy is not allowed to treat these claims differently from those of third party creditors.
6. Does your law allow for the pooling of assets and liabilities of all members of the corporate family, so that a creditor of one member becomes, in essence, a creditor of all members (sometimes referred to as ‘substantive consolidation’)?
Belgian law allows for the pooling of the assets and liabilities of some or all of the members of the corporate group. However, substantive consolidation has to be considered as a clear exception to the rule that the assets and liabilities as well as the creditors of bankrupt companies will be dealt with on an individual company-level basis.
(a) If so, is such pooling automatic or does it require a factual showing and court involvement?
It is indeed up to the commercial court to decide on the pooling of the assets and liabilities of the companies at stake. Depending on the degree of interference of the parent company in the management of the subsidiaries, the bankruptcy of the subsidiaries can, in certain circumstances, be extended to the parent company. This may be the case if the property of the subsidiaries and of the parent company have been inextricably mixed (Cass 1 June 1979, Pas, I, 1130). The commercial court decides on the facts before it as to whether or not group company property is considered to be inextricably linked.
(b) What proceedings (motion, request, trial, etc) are required for the court to order the pooling of assets and liabilities?
The trustee in bankruptcy and other creditors can apply for the pooling of the assets and liabilities of some or all of the companies of the group by filing a petition with the registry of the commercial court.
(c) Does your country’s law contemplate any partial pooling of assets and liabilities?
In Belgium, no explicit rule prohibits the partial pooling of assets and liabilities of two or more companies. However, in practice, the commercial court will be reluctant to accept differentiation between creditors, in order not to violate the principles of equal treatment and the safeguarding of the creditors’ rights. As a consequence, when the court decides to pool the assets and liabilities of some or all of the group companies, it will use the technique of substantive consolidation.
(d) If the pooling of assets and liabilities is called for, are there any protections for certain types of creditors, such as creditors with a lien or other security interest in particular assets?
If the commercial court decides to pool the assets and liabilities of some or all of the companies of the group, no special protective rules exist for certain types of creditors, other than the rules that govern the regular priorities between creditors.
7. How are secured creditors treated with respect to a family of companies? For instance, if a creditor has a security interest in the assets of one member of the family, and a guarantee from another member of the family, are both such claims valid in insolvency proceedings of the entire family?
The interests of each creditor, whether secured or unsecured, are taken into consideration in each insolvency proceeding where they have filed a declaration of claim. Since the insolvency proceeding of each member of the corporate group must be commenced separately, each creditor of each company will be treated separately with respect to the insolvency proceeding concerned. If creditors have an interest in the assets of several companies, they have to file a declaration of claim in each proceeding separately and will be treated for the amount of their debt in each proceeding separately.
8. Do your laws or courts provide for post-insolvency commencement of new financing that allows continued operation of the business and provides adequate protection to the lender who made the loan? Explain.
In general, Article 28 of the Judicial Composition Law guarantees the survival of the company’s existing contracts, even if these contain a termination clause that applies in case of an application for judicial composition. On the other hand, if a contracting party fails to perform its contractual obligations properly, general contract law (including principles such as the exceptio non adimpleti contractus, ie the right to suspend the performance of its contractual obligations as long as the other contracting party fails to perform its contractual obligations) will prevail. Therefore, the court will always have to verify whether a creditor terminated the contract solely because the trader applied for judicial composition or whether the creditor terminated the contract because the trader did not (properly) execute his contractual obligations. This is the reason why penalty clauses, setting out the financial consequences resulting from the non-execution of contractual obligations, are inoperative during the provisional stay period.1
The fate of the so-called intuitu personae contracts, ie, contracts based on the identity of the contracting parties, is a controversial issue. While some have argued that the deterioration of the trust inherent in such contracts would allow the other party to terminate the agreements, others maintain that such an outcome would contradict the very wording of Article 28 of the Judicial Composition Law.
With regard to new financing contracts that allow for the continued operation of the business, all debts resulting from contracts concluded during the (provisional or definitive) stay period that have been approved by the suspension commissioner, 2 are to be considered as debts of the estate (schulden van de massa/dettes de la masse) if bankruptcy is declared during the stay period (Art 44, s 2 of the Judicial Composition Law).
1 The procedure of judicial composition consists of a first period during which the payment of the trader's existing debts (i.e., those preceding the granting of the provisional stay) are provisionally suspended (the 'provisional stay'). This is followed, if applicable, by a second period during which the payment of these claims is definitively suspended (the 'definitive stay'). Both periods are limited in time.
2 The suspension commissioner (commissaris inzake opschorting/commissaire au sursis) plays a key role during the proceedings. Appointed by the court, he assists the trader in the management of the enterprise during both the provisional and definitive stay periods. Experienced in company management, the suspension commissioner also assists the trader in drafting the recovery plan. The suspension commissioner reports to the court on a regular basis.
The distinction between debts in the estate (schulden in de massa/dettes dans la masse) and debts of the estate, which has been established by case law (Cass 16 June 1988, TBH 1988, 765; Cass 7 March 2002, RW 2002-03, 215), is of primary importance with regard to the distribution of the proceeds among the trader’s creditors. Debts of the estate are paid out of the estate prior to the payment of other creditors, which have debts in the estate. Then payment of the following debts is made: debts resulting from new agreements or agreements that are in existence at the time of the declaration of bankruptcy and which the trustee chooses to continue, the debts of the estate include the costs and expenses involved in the management of the estate, the fees owed to the trustee as well as all types of legal and administrative expenses incurred by the trustee on behalf of the estate. All the remaining debts will be treated as debts in the estate.
9. Are directors and officers subject to civil or criminal sanctions if:
Several cases of directors’ liability relating to the bankruptcy of a company are provided under Belgian law.3 It must be noted that not only the official directors can be held liable under Belgian law, but also all other persons who had de facto authority to manage and administer the business of the company, ie, the so-called de facto director. In addition, when considering a company in bankruptcy, only the trustee in bankruptcy and third parties (mainly unpaid creditors) can question the directors’ liability. Indeed, as we previously stated, the appointed trustee in bankruptcy takes over the control of the company and manages the estate in which all assets and liabilities of the bankrupt company are brought together.
With regard to civil liability, mainly four types of general liability can be questioned on bankruptcy of a company.
(i) Liability for insolvency within the three years of the establishment of the company: Articles 229(5), 405(5) and 456(4) of the Company Code
An action of specific liability can be brought against the founders of a company where the company is declared bankrupt in its first three years of being formed. Indeed, in such a case, if it can be proved that the authorised capital was, at the time of the establishment of the company, manifestly insufficient to ensure the normal exercise of the activity planned for a two-year period, the founders shall be held jointly and severally liable for the commitments of the company, in the proportion decided on by the courts.
(ii) Liability for manifestly serious mistake which contributed to the insolvency of the company: Articles 265, 409 and 530 of the Company Code
On bankruptcy of a company, if the company’s liabilities exceed its assets, the directors, or former directors, may be held personally liable for all or part of the liabilities of the company, up to the amount of the shortfall, provided it has been established that such director committed a manifestly serious mistake that contributed to the insolvency of the company. It is up to the courts to decide whether or not such directors shall be held jointly and severally liable, and the share of the existing liabilities they will have to bear. There is no need to establish a causal link between the serious mistake and the bankruptcy; it suffices that the error contributed to the involuntary liquidation. It must also be noted that not only the official directors can be held liable under Articles 265, 409 and 530 of the Company Code, but also all other persons who had de facto authority to manage and administer the business of the company.
3 It must be noted that the aforementioned directors’ liabilities concern specifically the three most common forms of companies under Belgian law: (i) the public limited liability company (naamloze vennootschap/société anonyme) (NV/SA), (ii) the closely held limited liability company (besloten vennootschap met beperkte aansprakelijkheid/société personnelle à responsabilité limitée) (BVBA/SPRL) and (iii) the co-operative company with limited liability (coöperatieve vennootschap met beperkte aansprakelijkheid/société coopérative à responsabilité limitée) (CVBA/SCRL).
(iii) Liability for breaches of the Company Code and the articles of association of the company: Article 528 of the Company Code
Directors shall be held jointly and severally liable for any damages arising from infringements to the provisions of the Company Code or to the articles of association of the company.
(iv) Liability under Article 1382 of the Civil Code
Article 1382 of the Civil Code comprises the Belgian law of tort which allows the trustee in bankruptcy and third parties to question the directors’ liability for infringements under any legal provisions independently from the contractual obligations arising from the office of director.
As regards criminal liability, the Company Code provides for criminal sanctions for breaches of most of its provisions. In addition, Articles 489 to 490bis of the Criminal Code provide for some specific criminal sanctions in case of company bankruptcy (see below point (a)).
(a) Fraud or misrepresentation of a company’s finances are discovered;
With respect to criminal sanctions, Article 489ter of the Criminal Code provides that a company’s director (official or de facto) who has embezzled or fraudulently dissimulated part of the assets or accounting books, shall be punished with a term of imprisonment of between one month and five years and a fine of between €100 and €500,000.
In cases where persons have fraudulently dissimulated all or part of the assets, or have presented presumed or exaggerated creditors in the insolvency proceedings in the interest of a company which has been declared bankrupt, Article 489quinquies of the Criminal Code provides that these persons shall be punished with a term of imprisonment of between one month and two years and/or a fine of between €100 and €500,000.
Article 490bis of the Criminal Code provides for a case where a person has fraudulently organised the insolvency of his company. In such a case, this person shall be subject to a term of imprisonment of between one month and two years and/or a fine of between €100 and €500,000.
(b) They allow the company to continue to operate while knowing it does not have the ability to pay the debt being incurred;
Article 489(1) of the Criminal Code provides that where the director (official or de facto) of a bankrupt company has concluded, for the benefit of third parties and without sufficient consideration, commitments with significant consequences with respect to the company’s financial situation, this director shall be sanctioned with a term of imprisonment of between one month and one year and/or a fine of between €100 and €100,000.
In addition, according to Article 528 of the Company Code, a company’s directors shall be held jointly and severally liable for any damages resulting from the fact that they continued to operate the company’s affairs and they did not convoke the shareholders’ meeting although they acknowledged that the net assets decreased under a certain amount (Arts 633 and 634 of the Company Code).
(c) Same as (b) above but the directors believe that if some event occurs (eg chance to obtain new contract in prospect, new equity infusion, or new financing) it will be able to save the company and pay its bills.
The answer is the same as for question 9(b) above. Indeed, as soon as a company’s directors acknowledge that the company’s financial situation does not allow them to continue to operate without infringing third parties’ rights, these directors shall be held jointly and severally liable for any damages resulting from any further financial transactions (Art 528 of the Company Code).
B. INTERNATIONAL FAMILY OF COMPANIES
1. If one or more members of the corporate family is incorporated under or governed by the laws of another country, does that change your answers to any of the questions set forth above?
At an international level, Belgium has signed the UNCITRAL Model Legal Provisions on Cross-Border Insolvency (the Model Law). However, Belgium has not yet ratified the Model Law, which means that the provisions contained in it are not yet in force.
At a European level, Belgium had concluded bilateral agreements with some other countries. This was the case with the UK, France, the Netherlands and Austria. These bilateral agreements provided a framework for handling insolvency proceedings of different members of a corporate group located within the countries concerned. However, EU Council Regulation No 1346/2000 of 29 May 2000 on Insolvency Proceedings, which entered into force on 31 May 2002 and which provides a framework for handling cross-border insolvency proceedings between group members located within the European Union, replaces certain provisions in these four bilateral agreements. Regulation No 1346/2000 is binding in its entirety and directly applicable in all EU Member States from the day of its entry into force.
Indeed, Regulation No 1346/2000 sets out rules regulating the bringing of insolvency proceedings in two or more EU Member States. Accordingly, the member of a corporate group must commence main proceedings under the jurisdiction of the EU Member State on the territory of which the company has the centre of its main interests. The judgments opening and closing the main proceedings and the legal effects of those judgments must be recognised in all other EU Member States (Arts 16 and 17 of Regulation No 1346/2000). In addition to the main proceedings, ‘secondary proceedings’ may be brought in other EU Member States, either by the trustee in bankruptcy in the main proceedings, or any other person or authority empowered to request that insolvency proceedings be brought under the law of the EU Member State within the territory of which the secondary proceedings are brought. However, the effects of these secondary proceedings are restricted to the assets of the debtor situated within the territory of that EU Member State (Art 27 of Regulation No 1346/2000). This is mainly because of the substantial differences in the laws of the various EU Member States.
Once the jurisdiction has been determined, the applicable law is the law of the proceedings. This choice of law principle is subject to exceptions regarding securities (Art 5 of Regulation No 1346/2000), real property, employment contracts, etc.
In addition, the trustees appointed in the main proceedings must also be recognised and will be able to exercise their powers in other EU Member States without the need for a further court order. Both the trustees in the main proceedings and in the secondary proceedings must be duty bound to communicate information to each other. Furthermore, the trustees in the secondary proceedings must give the trustees in the main proceedings an early opportunity of submitting proposals on the liquidation or use of the assets in the secondary proceedings (Art 31 of Regulation No 1346/2000).
With regard to the rules on creditors’ rights, creditors can declare their debts both at the main proceedings and at secondary proceedings. The trustees in bankruptcy in the main and any secondary proceedings may lodge claims which have already been lodged in other proceedings where they were also appointed, provided that the interests of creditors are served thereby (Art 32 of Regulation No 1346/2000). Also, all creditors, including national tax or social security authorities, must be treated equally (Art 39 of Regulation No 1346/2000).
In addition, the court, which brought the secondary proceedings, must stay the process of liquidation in whole or in part on receipt of a request from the trustee in the main proceedings. This is the case provided that in the event it requires the trustee in bankruptcy in the main proceedings to take a suitable measure to guarantee the interests of the creditors in the secondary proceedings and of individual classes of creditors. The trustee’s request may be rejected if it is evident that it is of no interest to creditors in the main proceedings.
2. If insolvency/restructuring proceedings are instituted for corporate family members in different countries:
(a) What controls as to where the case must be filed (eg, centre of main interests, principal place of business, location of parent, etc)?
Where members of a corporate group are located in Belgium and in non-EU Member States, and have companies with registered offices located in Belgium, the insolvency proceedings of these companies must be commenced with the clerk of the commercial court of the judicial district where their registered offices are located in Belgium.
Where all members of a corporate group are incorporated under the law of EU Member States, Regulation No 1346/2000 envisages two different types of insolvency proceedings within the European Union. The jurisdiction of the main proceedings is the jurisdiction where the company has the centre of its main interests. The centre of the main interests of a legal entity is presumed to be the place of the registered office. This presumption nevertheless can be rebutted.
In addition, the principles of universality and unity which are central to Regulation No 1346/2000 are undermined by other provisions. Indeed, the Regulation also sets out the possibility of bringing local proceedings, known as secondary or ancillary proceedings that concerns only the assets in the EU Member State where the secondary proceedings are brought.
(b) Do the courts attempt to exercise jurisdiction over the assets of the company filing domestically no matter where located (for example, overseas), or do they limit their jurisdiction to only those assets located in your country?
Where all members of a corporate group are incorporated under the law of EU Member States, since the legal effects of the main proceedings in one EU Member State must be recognised in all other EU Member States, the court of the EU Member State where the main proceedings were commenced can exercise jurisdiction over the company’s assets located in another EU Member State. However, any restriction of the creditors’ rights must only affect assets situated within the territory of another EU Member State where creditors have given their consent (Art 17 of Regulation No 1346/2000). With regard to the effects of secondary proceedings, these are restricted to the assets of the debtor situated within the territory of the EU Member State where the secondary proceedings are brought (Art 27 Regulation No 1346/2000).
When the assets of a company which is filing for bankruptcy domestically are located in the territory of a non-EU Member State, Belgian courts will exercise jurisdiction over these assets. Indeed, Belgian law takes into consideration all the assets of a company, wherever they are located. However, it is sometimes difficult to exercise such jurisdiction effectively when assets are located abroad because it depends on the foreign country’s domestic law recognising the jurisdiction of the Belgian courts.
(c) Would your courts enforce a court order from a foreign country that attempted to exercise jurisdiction over assets located in your country but owned by the company that is subject to the foreign insolvency proceedings?
Where all members of a corporate group are incorporated under the law of EU Member States, Articles 16 to 26 of Regulation No 1346/2000 provide the rules for the recognition of insolvency proceedings between EU Member States. Accordingly, any judgment in insolvency proceedings given by a court in an EU Member State must be recognised by all other EU Member States with no further formalities.
Moreover, the legal effects of the main proceedings must also be recognised in all other EU Member States, except for Denmark which is not a party to Regulation No 1346/2000. This rule also applies where insolvency proceedings cannot be brought against the debtor in other EU Member States. Such judgments must be enforced in accordance with EC Council Regulation No 44/2001 of 22 December 2000 on Jurisdiction and the Recognition and
Enforcement of Judgments in Civil and Commercial Matters. Furthermore, the legal effects of the main proceedings cannot be challenged in other EU Member States.
However, any EU Member State may refuse to recognise insolvency proceedings brought in another EU Member States or to enforce a judgment handed down in the context of such proceedings where the effects of such recognition or enforcement would be manifestly contrary to that State’s public policy, in particular its fundamental principles or the constitutional rights and liberties of the individual.
Where some of the members of the corporate group are located in non-EU Member States, Belgian law recognises the legal effects of a foreign bankruptcy proceeding in Belgian territory.
(d) Has your country adopted any procedures (such as the Model Law on Cross-Border Insolvency) to address the various issues that arise in dealing with cases of cross-border insolvency?
As detailed in question 1 above, at an international level, Belgium has signed the UNCITRAL Model Legal Provisions on Cross-Border Insolvency. However, Belgium has not yet ratified it, which means that its provisions are not yet in force in Belgium.
At a European level, with regard the members of a corporate group located within the European Union, EU Council Regulation No 1346/2000 of 29 May 2000 on Insolvency Proceedings provides a framework for handling cross-border insolvency proceedings within the European Union.
