Chapter 4 BELGIUM. In Belgium, three sets of rules can apply to the recognition and enforcement of foreign insolvency proceedings.

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1 CROSS-BORDER INSOLVENCY Chapter 4 BELGIUM 1. Under general law In Belgium, three sets of rules can apply to the recognition and enforcement of foreign insolvency proceedings. First, on European level, the new European Council Regulation (EC) No 1346/2000 of 29 May 2000 on Insolvency Proceedings, which entered into force on 31 May 2002, will apply for bankruptcy decisions throughout the European Union, except for the Danish Courts. (See introductory article for details of the EC Regulation). In principle, those decisions will be recognised in Belgium automatically and immediately. Secondly, and of significantly less importance due to the EC Regulation, Belgium is a party to a number of bi - or multilateral treaties, which deal specifically with insolvency proceedings or which contain, among other things, relevant regulations for the recognition or enforcement of those proceedings. Most of the following treaties have also opted for the automatic and immediate recognition of treaty members insolvency decisions. Multilateral treaties: European Convention on Certain International Aspects of Bankruptcy, of the Council of Europe, (referred to as the Istanbul Convention) of 5 June 1990, at present signed by Belgium, Cyprus, France, Germany, Greece, Italy, Luxembourg and Turkey. 63

2 BELGIUM This Convention regulates the effects of international insolvency procedures. The Convention applies to an insolvency procedure started in the Member State of the debtor s centre of main interest (principal insolvency procedure) and allows the trustee of this insolvency to act in the other Member States or for a secondary insolvency procedure to be started. In Belgium, the Convention would not have any effect on the voluntary arrangements procedure ( Gerechtelijk Akkoord Concordat Judiciaire ). The Istanbul Convention will only enter into force if three states ratify the Convention. At present, only Cyprus has ratified the Convention. However, the EC Regulation specifically replaces this Convention as between the Member States of the European Union (except for Denmark); and many of the other Member States of the Council of Europe, which will become Member States of the European Union in the future. The Convention is therefore unlikely to be of practical effect. European Treaty relating to Insolvency Proceedings, Brussels, 23 November 1995, to be signed by the Member States of the European Union. This Treaty deals with the international jurisdiction and conflict of law rules for international insolvency procedures within the European Union. This Treaty is a nonstarter as well, since the United Kingdom never signed it, and the Treaty will only enter into force after signature by all Member States. The EC Regulation, based on Article 65 of the EU Treaty, was introduced to escape the impasse created by this non-functioning Treaty. Bilateral treaties: Convention between Belgium and France on Jurisdiction and the Validity and Enforcement of Judgments, Arbitration Awards and Authentic Instruments, signed at Paris on 8 July 1899; Convention between Belgium and the Netherlands on Territorial Jurisdiction, Bankruptcy and Enforcement of Judgments, Arbitration Awards and Authentic Instruments, with Additional Protocol, signed at Brussels on 28 March 1925; Convention between Belgium and the United Kingdom providing for the Reciprocal Enforcement of Judgments in Civil and Commercial Matters, with Protocol, signed at Brussels on 2 May 1934; applies by extension to New Zealand and Hong Kong (the application of this Convention to insolvency decisions was uncertain, but the EC Regulation specifically replaced this Convention as regards insolvency, so this became an academic discussion); Convention between Belgium and Austria on Bankruptcy, Winding-Up, Arrangements, Compositions and Suspension of Payments, with Additional Protocol of 13 June 1973, signed at Brussels on 16 July These conventions have lost most of their relevance due to other recognition and enforcement treaties and due to the entry into force of the EC Regulation. If none of the above rules applies, the general rule of the Belgian Procedural Code permits recognition to happen automatically, since Belgium adopted the principle of universality, meaning one insolvency procedure with universal effect cross-border, which is normally domiciled in the debtor s usual place of domicile or at its registered seat. 64

3 2. Assisting legislation BELGIUM Belgian Insolvency Law adopted the principle of universality. Consequently, foreign insolvency decisions are recognised in Belgium de plano, without a procedure but on condition of compliance with the five criteria of Procedural Code Article 570. However, this compliance will only be checked when the foreign trustee wishes to enforce a decision or when his mandate is questioned and the trustee needs formal Court recognition. A recognised insolvency decision will have the same consequences and grants the same powers in Belgium as it would have in its own judicial territory. For the enforcement of a foreign insolvency decision, which will only be necessary for so-called acts of forced execution, the full procedure of Procedural Code Article 570 needs to be followed. This involves a request for exequatur, by writ of summons before the Court of First Instance, which will hear all the parties and which will investigate the compliance with the five criteria of Article 570. In addition to the examination of the five criteria, the Court will also review the merits of the case. However, this will be a negative review, meaning that it will be presumed that the foreign court or judge was correct in its decision until proof to the contrary. The five criteria that will have to be fulfilled according to Article 570 are as follows: The foreign decision must not violate Belgian Public Order. Case law interprets Belgian Public Order in the context of Article 570 as Belgian International Public Order, which contains only those specific Public Order rules that might have international relevance (for examples, cfr. infra). The foreign proceedings must have honoured the basic rights of defence. The foreign court or judge must not have been competent for the sole reason of the claimant s nationality. The foreign decision has to be a final ruling, i.e. enforceable according to its own national law. The foreign decision, in its form as presented for recognition, must comply with the formality rules for authenticity of its own national law, i.e. an authentic copy ( uitgifte expédition ). Belgian insolvency law is based on the principles of universality and unity of proceedings (or the idea of one person, one bankruptcy ) originally created by jurisprudence of Belgium s Highest Court, the Cour de Cassation, some 150 years ago. Belgium applies these principles purely and not combined with the principle of territoriality, unlike other jurisdictions. However, in practice, unity has a limited scope as only those countries who apply the same principles will accept and automatically recognise a Belgian insolvency decision, and vice versa. Because of this principle of universality, the laws of other jurisdictions might apply in insolvency proceedings as opposed to Belgian law (lex concursus). For example, in dealing with retention of title claims, the Belgian courts will apply the law of the place where the goods are located (lex rei sitae) or the law that governs the contract that contains the security (lex contractus) or Belgian law, when the creditor, the goods and the contract are in Belgium, whichever is the most strict. 65

4 BELGIUM Insolvency in Belgium is regulated by the Federal Insolvency Act of 8 August In order to declare someone bankrupt, two criteria must be fulfilled: (1) the persistent suspension of payments and (2) the unstable credit of the debtor. According to Belgian Conflict of Law Rule, as with the EC Regulation, the applicable law on insolvency proceedings is the law of the judge or court that declares the bankruptcy. A debtor can commence a Voluntary Arrangement with Creditors under the Federal Act of 17 July The Voluntary Arrangement will be granted when (1) the debtor is temporarily unable to pay his debts or the continuity of the debtor s activity is threatened with problems that might lead to the suspension of payment in the short term; and (2) there is a reasonable chance of straightening out the debtor s finances and achieving an economic recovery of the debtor s activity. Belgian International Public Order might intervene in different ways. Although Belgian law does not demand that foreign insolvency decisions are based on exactly the same criteria, some principles are regarded as non-negotiable including the criteria for bankruptcy or voluntary arrangement. Therefore, for example, an American Chapter 11 will not always be recognised and enforced in Belgium. Only when the debtor in Chapter 11 proceeding fulfils the two criteria of the Belgian Federal Act of 17 July 1997 on voluntary arrangement will that proceeding be recognised and enforceable in Belgium. This has become easier due to the broad criteria of the Federal Act of 17 July 1997 on Voluntary Arrangement. In Belgium, only an individual tradesman (as determined by the performance of acts of trade, and not (only) by inclusion in the Commercial Register) or a commercial company can be declared bankrupt. A simple non-trading individual cannot be made bankrupt and a foreign insolvency decision involving a non-commercial individual will not be recognisable or enforceable. Belgian International Public Order demands the equality of creditors, regardless of their nationality, but having regard for the priority and securities rights. A Belgian judge confronted with an insolvency decision of a foreign court will also verify the latter s judicial competence. A foreign bankruptcy of an individual tradesman with domicile in Belgium or a company with its registered seat in Belgium is unlikely to be recognised. With the entry into force of the EC Regulation, the possibility of a territorial insolvency procedure against a debtor who has his centre of main interest in another Member State of the European Union, i.e. secondary bankruptcy, entered into force as well. This procedure will be subject to the EC Regulation. At the other hand, the recognition and enforcement of an insolvency procedure concerning a debtor who has not his centre of main interest in one of the EU Member States, will in Belgium be subject to the Belgian Procedural Code Article

5 3. Insolvency practice BELGIUM The foreign trustee of a bankruptcy that extends to Belgian territory will have the same rights and options as a Belgian trustee would have in his position. The foreign insolvency decision appointing the foreign trustee will be recognised in Belgium de plano, because of a treaty or the EC Regulation or because of the general rule of Article 570 of the Procedural Code, in the latter case providing that the decision complies with the criteria and that it had universal effect according to its own national law. The foreign trustee does not need to have the foreign insolvency formally recognised unless his position as trustee of the bankruptcy is questioned, in which case he can request a formal recognition of the decision and his mandate. The foreign trustee can undertake all necessary actions including: Undertake the normal acts of administration; Take protective measures; Start proceedings against debtors of the bankrupt person or company; Sell the movables of the bankruptcy. However, if the foreign administrator needs to undertake acts of forced execution, including seizing assets, he will need to request the exequatur of that decision. A formal enforcement decision is also required for the sale of real estate. The relevant court to grant the exequatur will depend on the element for which the foreign administrator needs the enforcement. For example, for the sale of real estate, the competent court will be the one where the real estate is situated. 4. Examples Cassation 26 September 1991, Pas. 1992, I, 49; T.B.H. 1992, 360 The Belgian Highest Court ruled that a Belgian Court could not enforce a Danish insolvency decision, since the decision in question was territorially limited to Denmark by its own national law. Court of Appeal, Brussels, 26 January 1938, Rev. dr. comp. 1950, 138 A Dutch trustee of a bankruptcy declared in the Netherlands could not interfere in attachment proceedings regarding funds in Belgium belonging to the Dutch debtor, without having the Dutch insolvency decision enforced before the Court. The Convention of 28 March 1925 between Belgium and the Netherlands had not entered into force before the decision of the Court of Appeal. Court of Commerce, Brussels, 20 June 1975, J.T. 1975, 641 A German insolvency decision could not be enforced in Belgium because of violation of a principle of Belgian International Public Order. The decision in question implied a right of preference for German creditors, while in Belgium all creditors, regardless of their nationality, are in principle equal. Moreover, according to the German understanding of universality, the decision had effect in Germany and abroad, but 67

6 BELGIUM only for the German creditors, and this violated the Belgian rule of general universality for all creditors. Court of Commerce, Antwerp, 24 May 1934, R. Fail. 1934, 336 It is not necessary that an Italian insolvency decision has been previously enforced for the trustee of a bankruptcy declared in Italy to have the legal capacity to sue in Belgium with regard to the movables owned by the debtor in Belgium. More recently, there have been two major cross-border insolvency cases in Belgium - Lernout & Hauspie (bankruptcy in Belgium Chapter 11 in America) and Sabena/Swissair (bankruptcy in Belgium bankruptcy in Switzerland). At present, neither case has yet sought the recognition or enforcement of an insolvency decision of a foreign jurisdiction. 68