PricewaterhouseCoopers' European Restructuring and Insolvency Guide 2005/2006 lists three procedures available to insolvent companies in Belgium: judicial composition, bankruptcy, and judicial or voluntary winding-up. The purpose of winding-up and bankruptcy is to liquidate bankrupt enterprises that have no chance for recovery, whereas a judicial composition helps recover assets of companies that still have potential and a chance to be economically viable. The country's insolvency framework is governed by two acts: the Judicial Composition Law of July 17, 1997 and the Bankruptcy Law of October 8, 1997. Belgium has no specialized bankruptcy courts, and bankruptcy and judicial composition cases are supervised by the commercial court. In 2003, the European Commission's Expert Group reported that of the 41 Principles and Guidelines for Effective Insolvency and Creditor Rights Systems set forth by the World Bank, Belgium has fully adopted 8, almost fully adopted 20, partially adopted 9, and not adopted 4.

General Overview

In 2003, the European Commission's Expert Group reported that, of the 41 Principles and Guidelines for Effective Insolvency and Creditor Rights Systems set forth by the World Bank, Belgium has fully adopted 8, almost fully adopted 20, partially adopted 9, and not adopted 4. According to PricewaterhouseCoopers' (PWC) European Restructuring and Insolvency Guide 2005/2006, Belgium's insolvency law regime saw reform when the Judicial Composition Law of 1997 and the Bankruptcy Law of 1997 came into force on January 1, 1998. Both laws apply to individuals and corporate entities. With the reformed laws, the emphasis is now more on the rehabilitation of companies in financial distress as opposed to liquidation. Per Laga and Philippe (2002), insolvency proceedings in Belgium differ for traders (companies) and non-traders (individuals/consumers). Under the Bankruptcy Law of 1997, traders can be declared bankrupt by the court. In the case of insolvent non-traders a new "procedure of collective settlement of debts" was added in the Belgian law on July 5, 1998. This settlement allows for a debtor, subject to the creditors approval, to make a schedule of payments that becomes binding.

Three procedures are available to an insolvent trader, according to the PWC report: judicial composition, bankruptcy, and judicial or voluntary winding-up. The judicial composition procedures used to be governed by the 1946 Law, which, according to Laga and Philippe, "was almost never used." (p. 5). In 1997, the Judicial Composition Law was adopted which provided a clear distinction between the judicial composition and bankruptcy. In judicial composition proceedings, the commercial court grants a halt on all payments made to creditors while a recovery plan of the financial state is being drafted and submitted to the creditors and the court. This option is meant to avoid bankruptcy when companies are confronted with temporary financial difficulties but an economic recovery still remains a reality. The commercial court appoints someone to administer the procedure; however, the administrator does not assume the management of the company and the directors retain their powers. Laga and Philippe noted in 2002 that the objectives of the legislative overhaul were not achieved, as the judicial composition was still rarely used and the number of bankruptcies had not decreased. The authors offered the following reasons to explain the failure: (1) lack of knowledge about the procedure; (2) "negative publicity" as the announcements about the initiation of the procedure are to be published in the Official Gazette; (3) failure to apply for the procedure immediately; (4) unwillingness of companies to acknowledge that they are experiencing fincial difficulties; and (5) the high cost, especially for small and medium-size enterprises.

A bankruptcy, as described by Laga and Philippe in 2002, is a "formal insolvency procedure whereby a receiver is appointed for the purpose of collecting in and realizing the assets of a trader [or entity] and distributing the realizations to satisfy, in so far as possible, its liabilities" (p. 3). According to the PWC report, section 9 of the Bankruptcy Law requires that a company in financial distress file a bankruptcy petition within one month of the date payments cease. If all conditions for bankruptcy are met, the commercial court then appoints one or more trustees-in-bankruptcy as administrators of the debtor's assets and liabilities, and a bankruptcy judge is installed as supervisor. Various sources, including Laga and Philippe, note that there are no specialized bankruptcy courts in Belgium. Instead, bankruptcy and judicial composition cases fall under the supervision of the commercial court. Belgium's commercial courts consist of three judges, one professional and two non-professionals but with management expertise. The introduction of the Bankruptcy and Judicial Composition Laws in 1997 also led to the creation of chambers for trade research. In an effort to limit or mitigate the financial distress of companies, the chambers for trade research try to flag difficulties and warn the entities in question so that proper measures can be taken. Although the chambers do not possess powers to impose their findings on a company, they can offer the company a remedial action plan. In the case of a bankruptcy or judicial composition, the information obtained by the chambers will be made available to the trustee-in-bankruptcy or the commissioner.

The PWC report notes that the two types of winding up - judicial and voluntary - are not governed by a statute law. However, Court of Cassation jurisprudence allows the liquidation regime governing bankruptcy to be applied to winding-up. One crucial difference between the two liquidation options is that in a bankruptcy case the debtor loses control (it is transferred to the creditors), whereas with a winding up creditors have no influence over procedures or the liquidator's appointment. The same report notes that out of court restructuring arrangements are not regulated by law in Belgium, although when an agreement is reached between creditors and debtors, it becomes binding. Laga and Philippe note that Belgian legislation requires the publication of a court's decision in both bankruptcy and judicial composition cases. The granting of a judicial composition option by the court must be published in the Belgian Official Gazette and in two newspapers, as required by article 17 of the Law on Judicial Composition. Similarly, when a company is declared bankrupt by the commercial court, Article 38 of the Bankruptcy Law requires that the decision be published in the Belgian Official Gazette and in at least two daily newspapers or periodicals circulated regionally. The publication of a bankruptcy judgment in the Belgian Official Gazette is the court's clerk's responsibility, while the liquidator ensures the publication in the newspapers or periodicals.

The World Bank's 2008 Doing Business in Belgium snapshot of closing a business evaluates the effectiveness of the insolvency regime in Belgium along three dimensions: the average time (in years) to complete a bankruptcy proceeding, the average cost of such proceedings (as a percentage of the estate), and the recovery rate to creditors (expressed in cents on the dollar. For Belgium, the time averages 0.9 year, and the cost is, on average, 4% of the estate. Creditors recover, on average, 85.5 cents on the dollar. By comparison, member states of the Organization for Economic Co-operation and Development average 1.3 years, 7.5% of the estate in costs, and a recovery rate of 74.1 cents on the dollar.