The Private Bankruptcy Preparation: Pre-Packing to preserve Enterprise Value

From 1 September 2023, Belgian insolvency law will provide a new discrete preparatory procedure before bankruptcy. It’s aimed at facilitating a value-maximising transfer of assets or activities as a going concern in the interest of creditors and employees.

This new procedure is prompted by the idea of avoiding the negative publicity that results from a (public) bankruptcy, which has a detrimental impact on a debtor’s enterprise value. By giving debtors the option to prepare their bankruptcy discretely (yet court-supervised), they could organise a transfer of assets or activities as a going concern at market value, rather than having a bankruptcy receiver sell their business at a significantly lower value, or worse, through a piecemeal liquidation. (See Private Reorganisation Proceedings: Avoiding Negative Publicity.)

It's equally motivated by the legislator’s concern to protect creditors and employees against bankrupt debtors (wrongfully) trying to leave their business within the same corporate group. Under the old regime, such transfers could be prepared in all quietness, free from any scrutiny by the courts. Once declared bankrupt, an affiliated party (or NewCo) would make a (convenient) price offer to the appointed bankruptcy receiver, being the only candidate sufficiently informed to make an offer. These practices were considered equally detrimental to both the creditors and the employees.

What’s new?

The Belgian Act of 7 June 2023 transposing EU Restructuring Directive (2019/1023) introduces the possibility for virtually bankrupt companies to prepare their bankruptcy, or rather the partial or total transfer of their assets or activities, in a discrete but supervised manner through a private preparatory procedure (Title V/III of Book XX of the Code of Economic Law).

Who is it for?

This preparatory procedure is open to debtors that meet the legal conditions for bankruptcy (ie cessation of payment and loss of creditworthiness). The debtor must demonstrate that the preparation of the total or partial sale of activities or assets before bankruptcy will facilitate the smooth liquidation of the (bankruptcy) estate and is in the interest of both creditors and employees.

This procedure is particularly intended for companies in a competitive market where customers will, even if there is only a short interruption of services, leave the bankrupt debtor for another supplier.

How does the procedure work?

Once the court has declared this private preparatory procedure opened, it will appoint a “future bankruptcy receiver” (beoogd curator), which will, save in exceptional circumstances, be the bankruptcy receiver in the subsequent bankruptcy proceedings.

The future bankruptcy receiver will have a supervisory role and will assess the feasibility of the purported transfer of assets or activities. Without prejudice to the debtor’s continued control over the business (debtor in possession), the future bankruptcy receiver will also participate in the bankruptcy preparation, representing the interests of creditors during negotiations with any candidate-acquirer.

This preparatory procedure in principle lasts at most 30 days (with the possibility of renewal for another 30 days). This duration is considered sufficient by the legislator to find a suitable acquirer that ensures appropriate economic and social safeguards. Unlike during judicial reorganisation proceedings, this preparatory procedure does not protect the debtor against bankruptcy filings by creditors.

As this procedure is solely preparatory for the actual bankruptcy, the prepared transfer of assets or activities will only be effected after the debtor is officially (and publicly) declared bankrupt. The transfer will equally be subject to court scrutiny as is the case for standard public bankruptcy proceedings.

If within this preparatory period of (max.) 60 days no agreement regarding the transfer of assets or activities has been reached, the court will convene the debtor and either declare it bankrupt anyway or allow it to initiate a judicial reorganisation procedure.

How can we help?

Our Belgian Restructuring Team (Legal 500, Tier 1 Insolvency) has significant experience in restructuring and includes certified insolvency practitioners that are regularly appointed by the Belgian courts as provisional administrators, liquidators, bankruptcy receivers, corporate mediators and soon as future bankruptcy receivers. As one of Belgium’s few leading firms with trustee experience, we can help you in these private bankruptcy preparation proceedings and support you throughout the entire process.

Do not hesitate to reach out to our team.