Is the Judicial Reorganization Procedure useful to protect against bankruptcy?

The shadow of bankruptcy is looming for entrepreneurs who have benefited from a moratorium from the authorities to support them in the adversity caused by the pandemic. A surge in citations before courts over the last two months of last year suggests that the number of bankruptcies will rise again this year.

Judicial Reorganization Procedure - Raphael GEVERS - DALDEWOLF

While Belgium recorded its lowest number of bankruptcies since 2000 in 2021, bankruptcy citations have resumed at the request of the National Social Security Agency (ONSS). The tax authorities will soon do the same.

Not a fatality

However, bankruptcy is not inevitable. There is a general protection mechanism to protect a company that is experiencing significant payment difficulties and to help it recover. This is the judicial reorganization procedure (JRP for short). It can be a lifesaver for companies when traditional suppliers, the landlord, the ONSS, the VAT, the tax authorities, etc. become impatient and aggressive because of non-payment.

A protective bubble

In concrete terms, when the company applies for and obtains the benefit of the JRP, it is placed in a protective bubble for a maximum period of 6 months, during which its creditors will not be able to demand payment of past invoices or carry out seizures.
This is an important advantage that the company benefits from immediately. Moreover, as long as the JRP lasts, the company may not be declared bankrupt.

Remain the boss

In case of a JRP, the general manager remains the “boss” of his/her company. All decisions continue to be made by him/her alone. In order to obtain the JRP, the directors will have filed a petition, accompanied by about ten legal and accounting annexes (it is therefore necessary to make sure that the accounting is up to date).
There are three types of JRP, but the most common is the JRP by collective agreement, which consists of negotiating a payment plan with all creditors.

The proposals that will be contained in this plan may consist of :

  • payment periods: the company may propose to its creditors to be paid over a period of 5 years maximum (or 2 years maximum depending on the category of creditors),
  • debt reduction: the company may propose to its creditors to waive part of their claim (the law provides that creditors must receive at least 20% of their claim).

These payment proposals are then submitted to a vote of the creditors.

Thinking about tomorrow, and the recovery

The PRJ by collective agreement is a tool provided for by the law whose usefulness is undeniable but whose effectiveness will only be real if it is requested “in time”. The success of a JRP depends largely on the fact that it is not requested too late.
It is therefore important to know the mechanisms before it is too late, and to integrate the deadlines into one’s schedule.
For the sake of completeness, it should be remembered that the Law of 21 March 2021 also introduced the possibility of drawing up a pre-pack agreement (of a confidential nature) which can then be finalised by an accelerated JRP procedure. It would be a shame to miss the opportunities of the post-pandemic recovery by not being prepared for the impatience of ruthless creditors.

This article is also available in French on Trends Tendances website.

For more information on Judicial Reorganization Procedure, please contact Raphaël GEVERS