Judicial reorganisation: saving a business in difficulty

Judicial reorganisation in brief

A business in difficulty does not have to go bankrupt. Judicial reorganisation gives it temporary protection from its creditors. It keeps trading while it negotiates or prepares a plan. Book XX of the Code of Economic Law governs this procedure. The FPS Economy also publishes useful information for businesses in difficulty.

The goal differs from bankruptcy. Here, the aim is to save all or part of the business. Bankruptcy, by contrast, mainly organises the liquidation of assets.

Who can apply for judicial reorganisation?

Any enterprise within the meaning of the Code of Economic Law can file the application. The main condition: the continuity of the business faces a threat, in the short or longer term. The law does not require a cessation of payments. On the contrary, it pays to act early, while cash still leaves some room.

These are the most common warning signs.

• Mounting debts to the social security office, for VAT or for payroll withholding tax.
• Equity melting away under losses.
• A major client lost, or a key supplier demanding cash on delivery.
• A bank refusing to renew a credit line.

The enterprise court also monitors such signals through its chamber for businesses in difficulty.

Filing the petition

The file has to convince from the very first review.

What the file contains

The business files a petition with the registry of the competent enterprise court. It attaches, among other things:

• A statement of the events that threaten continuity.
• The annual accounts for the last two financial years.
• A recent accounting statement, no more than three months old.
• A budget of income and expenses for the length of the stay requested.
• The list of creditors, with the amount of each claim.
• The measures planned to restore the business.

The opening judgment

The court appoints a delegated judge who follows the case. It then hears the business in chambers. If it finds the application admissible, it opens the judicial reorganisation and grants a stay. The court sets the length of that stay and can extend it within legal limits.

The stay: what changes for creditors

During judicial reorganisation, the stay freezes creditor pressure.

• Creditors covered by the stay cannot seize the business's assets.
• The court cannot declare the business bankrupt during the stay.
• Ongoing contracts continue.
• The business normally keeps managing its own affairs.

Note that the stay does not erase debts. It only buys time. You must also pay debts that arise during the procedure as usual.

The three routes of judicial reorganisation

The right route depends on the situation of the business.

1. The amicable agreement

The business negotiates with several creditors. The parties freely set the terms: rescheduling, reduction or conversion of debts. The court then records the agreement, which binds only the signatories. This remains the most discreet route.

2. The collective agreement

The business puts a reorganisation plan to all creditors covered by the stay. The plan can spread payments and reduce certain claims. It cannot last longer than five years. Creditors then vote under the majorities set by the Code, in principle counted by number and by amount. Once the court approves it, the plan binds all creditors covered by the stay, including those who voted against.

3. The court-supervised transfer

The court appoints a court officer. That officer organises the sale of all or part of the activity to a buyer. Collective Agreement No. 102 protects the employees taken over. The proceeds then go to the creditors, according to their ranking. This route of judicial reorganisation saves the activity, not always the company itself.

Judicial reorganisation or bankruptcy?

It all depends on whether the activity can survive.

• Profitable activity, but past debts too heavy: often a collective agreement.
• A few major creditors willing to negotiate: an amicable agreement may suffice.
• Viable activity, but an over-indebted company: the transfer saves jobs.
• No prospect of profitability: bankruptcy proceedings or a voluntary liquidation become more realistic.

Mistakes that sink a judicial reorganisation

These are the traps we see most often.

• Waiting for the last seizure before asking for a stay.
• Filing a petition with an unrealistic budget.
• Forgetting to pay debts that arise during the procedure.
• Neglecting communication with employees and key suppliers.
• Carrying on without advice while director liability may come into play.

Building a credible plan with Juristelo

The court and the creditors judge your numbers first. A reorganisation plan must show where the money for repayments will come from. With Juristelo, you build a month-by-month cash flow plan covering the stay. You also test several repayment scenarios before proposing them. A well-costed judicial reorganisation inspires more confidence.