Has the ECJ just killed the Belgian judicial restructuring procedure by transfer under judicial supervision?

The Belgian judicial restructuring procedure by transfer under judicial supervision (“PRJ 3 / WCO 3”) regulates the transfer of all or part of the debtor’s undertaking under the supervision of a judicial trustee.

One of the main added-values of this Belgian procedure is the “right of option”, which allows the transferee to choose which transferor’s employees it wishes to keep on after the transfer, provided that this choice is dictated by economic, technical or organisational reasons entailing changes in the workforce (article XX.86 §3 of the Economic Code; former article 61 § 3 of the Business Continuity Act).

On 14 August 2017, the Antwerp Labour Court of Appeal referred a preliminary question to the ECJ on the compatibility of the Belgian provision with articles 3 and 4 of Directive 2001/23 relating to the safeguarding of employees’ rights in the event of transfer of (parts of) undertakings (also called “TUPE Regulation”). This question has been raised in proceedings launched by an employee (Mrs Christa Plessers), who has been dismissed further to the transfer of her employer’s company under judicial supervision and is asking for her reinstatement in the transferee’s company.

Condemnation of the Belgian procedure by the ECJ

In order to answer this question, the ECJ had to determine whether:

  • the “right of option” granted to the transferee falls under the exception laid down in article 5 §1 of Directive 2001/23, which requires that the transferor (1) is subject to a bankruptcy proceeding or any analogous insolvency proceeding that has been instituted in view of the liquidation of the transferor’s assets, and (2) is under the supervision of a competent public authority;

and if not,

  • whether articles 3 and 4 of Directive 2001/23 preclude the Belgian “right of option”.

The ECJ decided on 16 May 2019 that the choice granted to the transferee by the Belgian law does not meet the cumulative conditions laid down in Article 5(1) of Directive 2001/23 and that, consequently, transfers carried out in such circumstances must comply with articles 3 and 4 of Directive 2001/23.

The ECJ emphasised that “dismissals which occur in the context of the transfer of an undertaking must be justified by economic, technical or organisational reasons relating to employment which do not intrinsically relate to that transfer”.

Yet, article XX.86§3 of the Economic Code does not impose upon the transferee to justify its choice with regard to the transferor’s employees who are made redundant.

As a result, according to the Court, the application of current article XX.86§3 of the Economic Code could seriously threaten the principal objective of Directive 2001/23, i.e. to protect employees against unjustified dismissals in the event of a transfer of undertaking.

Therefore, the ECJ decided that Directive 2001/23 has to be interpreted as prohibiting the transferee to choose the employees it wishes to keep on after the transfer.

What is the impact of this decision under Belgian law?

Given the ruling of the ECJ, it becomes complicated for the Belgian courts to interpret article 86 §3 of the Economic Code consistently with Directive 2001/23.

However, and as the ECJ pointed out itself, in accordance with EU law, the Belgian courts will not have to discard their own national provisions. As a result, as long as article 86 §3 of the Belgian Economic Code is not amended, it seems that the sole possibility for employees who have been dismissed in the framework of a transfer under judicial supervision will be to sue the Belgian State to claim compensation because (i) it did not correctly implement Directive 2001/23, or (ii) the national courts did not correctly interpret article 86 §3. However, in that second case, the dismissed employees will also have to prove that they suffered damages due to this wrongful behaviour. In other words, they will have to prove that they were not dismissed for economic, technical or organisational reasons, which might be a difficult task.

Conclusion: is it the end of the PRJ3/WCO 3?

By considering that current article 86§3 of the Belgian economic Code does not comply with Directive 2001/23, the ECJ might have sounded the death knell of the PRJ3/WCO3.

As mentioned before, the main advantage of such a proceeding is precisely to allow the transferee not to keep all the transferor’s employees but only the chosen ones. In addition, under this proceeding, the transferee can also modify the working conditions of the transferred employees. Even if this second principle of the Belgian legislation was not referred to the ECJ, one can expect a similar ruling, which would make the PRJ3/WCO3 completely useless.

In any case, the Belgian legislator will have no choice but to modify the Title V of the Economic Code to make it consistent with Directive 2001/23. This modification might be included in the coming (and more significant) reform of the Belgian insolvency law to implement the Directive on preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures, whose final text has just been approved (15 May 2019) by the Parliament and the Council.

To be continued with our next government…

***

Fanny Laune & Pierre Van Achter

Le droit du procès civil – Colloque et parution du Volume 2

Le colloque « Le droit du procès civil – Etat actuel et analyse des réformes à venir » a attiré plus de 300 participants ce lundi 28 janvier à l’ULB.

Fanny Laune et Marc Baetens-Spetchinscky – Le droit du Procès civil

 

Les interventions de Fanny Laune et de Marc Baetens-Spetschinsky sont disponibles ici :

pdfLa déformalisation de l’acte juridictionnel et le régime des nullités par Fanny Laune
pdfIncertitude concernant les conditions de recevabilité de l’appel incident et actualités en matière de délai d’appel par Marc Baetens-Spetschinsky

Ce colloque s’est tenu à l’occasion de la parution du volume 2 du Précis « Droit du Procès civil » (Anthémis), un outil résolument orienté sur la pratique essentiel pour tout praticien de la procédure, auquel Fanny Laune et Marc Baetens-Spetschinsky ont contribué.

A step towards a harmonised EU insolvency framework

On 19 December 2018, the Council of the EU and the Parliament reached an agreement on the proposal for a directive on “preventive restructuring frameworks, second chance and measures to increase the efficiency of restructuring, insolvency and discharge procedures”. The main objective of the directive is to enhance the rescue culture across the EU. To do so, each Member State will be required to introduce into its substantive law effective preventive restructuring frameworks in order to help debtors experiencing financial difficulties to restructure at an early stage, with the objective to avoid insolvency and to improve the return for the creditors. 

Moratorium

Debtors who negotiate a restructuring plan with their creditors will benefit from a stay of individual enforcement actions. National laws may organise a full moratorium suspending all enforcement actions against the debtors by all its creditors or a moratorium limited to one or more individual creditors, for a period of up to four months, which can be extended to up to 12 months by a judicial or administrative court’s decision provided certain conditions are met. Judicial or administrative authorities will have the right to lift the stay if it becomes apparent that the majority creditors do not support the continuation of the negotiations or at the request of the debtor or the restructuring practitioner.

During the moratorium period, the debtor’s obligation to file for insolvency will be suspended, and the creditors shall equally be prevented to file for the opening of insolvency procedures against the debtor. In addition, the creditors will be prevented to refuse to perform, terminate, accelerate or amend in any other way the contractual agreement to the detriment of the debtor.

Restructuring plans and cram-down mechanisms

A majority of creditors in all creditor classes must vote in favour of the plan in order for the plan to be adopted and to bind dissenting creditors (cram-down). Member States may determine the majority voting requirements for the adoption of a restructuring plan, which may not be higher than 75 per cent in the amount of claims or interests in each class.

If the necessary majority is not reached in all classes of creditors, the plan may still be adopted by a judicial or administrative authority if certain conditions are met. The plan must be supported by at least one affected class of creditors, and the dissenting classes must not be unfairly prejudiced under the plan (cross-class cram-down). In particular, the plan must comply with the so-called “absolute priority rule”, i.e. the requirement that a dissenting class of creditors is paid in full before a more junior class to a subordinate class receiving anything under the plan.

Workers’ rights may not be affected by the preventive restructuring procedure.

Restructuring privilege and super senior financing

The directive offers strong protection to new and interim financing. These financings may not be declared null and void in a subsequent insolvency proceeding, except in case of fraud and their grantors will be immune from any civil, administrative and criminal liability in the context of subsequent insolvency. Also, the Member States may grant a priority right of payment to the grantors of new or interim financing that will rank at least senior to ordinary unsecured claims (super senior financing).

Court order and appointment of a restructuring practitioner

It will not be necessary to have a court order to open the restructuring process which may remain informal as long as the rights of third parties are not affected. The directive tends to limit the involvement of judicial or administrative authorities where it is necessary and proportionate. Also, the appointment of a restructuring practitioner will not be mandatory in all cases, but only in limited situations determined by national law such as situations where the debtor benefits from a general stay of individual enforcement actions and where the restructuring plan needs to be confirmed by a judicial or administrative authority by means of a cross-class cram down (see below).

As long as no restructuring practitioner is appointed, the debtor will remain in control of its assets, at least partially, and of the day-to-day operation of the business.

Duties of companies’ directors

Member States will be required to implement rules on duties of directors in insolvency proceedings that will be taken into account to assess their potential liability. It concerns the requirement to take immediate steps to minimise the loss for creditors, workers, shareholders and other stakeholders, to have due regards to the interests of creditors and stakeholders, to take reasonable steps to avoid insolvency and to avoid deliberate or grossly negligent conduct that threatens the viability of the business.

Second chance

The directive contains measures that promote a second chance for entrepreneurs acting in good faith, including the right to be fully discharged of their debts. In the Member States where full discharge is conditional upon a partial repayment of debt, such repayment obligation will need to be based on the individual situation of the entrepreneur and proportionate to his or her disposable income over the discharge period which shall not be longer than three years.

Entry into force and impact on current Belgian insolvency law

The directive will be formally adopted after the pending linguistic review and published in the Official Journal. It will enter into force on the 20th day following its publication on the Official Journal. The Member States will have two years to implement the directive from the date of its entry into force.

The directive will be of minimum harmonisation. The Member States will have extensive flexibility to adapt the new framework to their domestic insolvency regulation which may go further than the new EU rules.

It is interesting to note that in the draft bill of 20 July 2017 (which became the law of 11 August 2017 which added a new book XX in the Belgian Economic Code), the Belgian legislator had intended to implement a “pre-pack bankruptcy”, which was supposed to give the debtor the opportunity to “prepare” its bankruptcy out of court, with discretion and no publicity. The objective was to allow him to find better alternatives to the bankruptcy (notably via the transfer of his activities with the assistance of a “pre-trustee”). However, this part of the reform has eventually been abandoned.

One can notice that Belgian insolvency procedures are currently characterised by a high level of intervention of the courts, which usually appoint judicial representatives to assist the debtor in the different stages of the procedure. Yet, one of the objectives of the directive is precisely to promote out of court solutions and to limit the involvement of judicial and administrative authorities.

Therefore, and even if the directive gives the Member States large flexibility for its implementation, the Belgian legislator will likely need to noticeably amend not only its insolvency regulation but also its general philosophy. One can thus expect another significant reform of the subject matter in the next two years. We will, of course, monitor this closely.

Finally, the directive will let an important part of substantive law untouched, including the ranking of claims. It is, therefore, only a first step towards a harmonised EU insolvency framework.


*     *     *

Vanessa Marquette and Fanny Laune

For any question, please contact the authors:
vanessa.marquette@simontbraun.eu – +32 2 533 17 41
fanny.laune@simontbraun.eu – +32 2 533 17 62

Another novelty in the Belgian judicial landscape: the future Brussels International Business Court (“BIBC”)

On 15 May 2018, the Belgian Government filed a draft law concerning the implementation of a new specialised English-speaking court in Brussels: the Brussels International Business Court (“BIBC”).

The Belgian Parliament is currently reviewing the draft law. The Government intends to ensure the entry into force of the law on 1st January 2020 at the latest.

The Government’s objective and motivation

The recent economic and politic evolutions both at the national and international levels, combined with the Brexit, will lead to an increase of international commercial disputes.

For Brussels to maintain its central position on the European and international business scene, the Government has considered necessary to set up a new English-speaking State Court, which will give the opportunity to business actors to bring their cross-border disputes in the capital of Europe.

In other words, inspired by similar initiatives in the Netherlands and other European countries, the Belgian Government is hoping to make Brussels the new hub for international commercial disputes.

Overview of the BIBC based on the draft law

1) Jurisdiction

The BIBC will have jurisdiction over disputes meeting the following cumulative conditions:

(i) International disputes, i.e.:

  • When parties have their usual residence or establishment in different States;
  • When the location where a substantial part of the commercial obligations or the location with which the dispute has the closest links is established in another State than the state of the principal residence/establishment of the parties;
  • When parties expressly agree on the international character of their dispute; or
  • When the dispute must be solved using foreign law;

(ii) between enterprises (i.e. any person who pursues an economic goal, including public enterprises) and concerning an economic act (performed in pursuing this economic goal);

(iii) and over which another court does not have exclusive jurisdiction;

(iv) provided that all parties have agreed on the BIBC’s jurisdiction, e. when the BIBC jurisdiction has been provided for in (a clause of) the agreement or when the case is referred to the BIBC by another court that acknowledged the parties’ agreement on its jurisdiction.

2) Composition

The BIBC will be composed of:

(i) One professional judge: the “President”, who will be elected amongst Belgian judges and;

(ii) Two non-professional judges: the “Judges in the BIBC”, who will be chosen by the President amongst Belgian and foreign experts in international business law.

3) Main characteristics of the proceedings

Language: exclusively in English.

Procedural rules sensu stricto: application mutatis mutandis of the UNCITRAL Model Law on International Commercial Arbitration[1].

Rules on the merits: either the law chosen by the parties or, in the absence of choice, the law that is applicable pursuant to the relevant conflict of law rules.

Interim measures? The BIBC can take interim measures.

Costs: Self-financing via substantial registration fees (to be determined by Royal Decree). Hence, the BIBC’s procedural costs will be much higher than before other Belgian courts.

Appeal? No appeal against a BIBC’s decision. The judgments can only be challenged through extraordinary appeals (e.g. third-party proceedings, appeal on points of law before the Court of Cassation…).

Conclusion

The Council of State pointed out some drawbacks of the BIBC and of its procedural rules, notably in light of the constitutional principles of equality and non-discrimination.

In this regard, they noted, in particular:

  • the use of a unique language which is not one of the three Belgian national languages,
  • the absence of a right to appeal,
  • the very high costs of the proceedings.

However, the Government seems determined to have this new English-speaking State Court enter into action in a very near future.

Needless to say, we will keep you posted.

For any question or assistance, please contact Fanny Laune, Rafaël Jafferali or Steven Callens

fanny.laune@simontbraun.eu
rafael.jafferali@simontbraun.eu
steven.callens@simontbraun.eu
+32 (0)2 543 70 80

[1] The Belgian code of civil procedure will not be applicable except when expressly provided.

Seminar on the upcoming reform of the Belgian Law of Obligations

Last week, Simont Braun was delighted to see such an interest in the upcoming reform of the Belgian law of obligations, which is currently being analysed by the Council of State.

On 22 and 24 May, we hosted two seminars on this subject, where Rafaël Jafferali, who is a member of the expert group in charge of the recast, Paul Alain Foriers, Fanny Laune, Thomas Derval and Sander Van Loock went through the main aspects of the reform, making sure to explain the expected changes with pragmatism.

Simont Braun’s presentation is available here: Simont Braun Workshop – The new Civil code

Do not hesitate to contact Rafaël Jafferali for any question or assistance on the subject.

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