Careful, the Chamber for Companies in Difficulty is watching you!
Also the Belgian economy has been seriously impacted by the Covid-19 crisis. It is expected that in 2021 and 2022 even more companies will face financial difficulties. The commercial courts, in particular the special 'Chambers for Companies in Difficulty' (“CCID”) monitor the situation of such companies to ultimately ensure the rights of creditors. However, we often also see proceedings being launched against (subsidiary) companies that, although they are suffering losses, still enjoy bright future prospects and continue to have the support of the group to which they belong. The cause is usually an administrative omission that can nevertheless trigger a whole procedure (and possibly even bankruptcy). Therefore, everything starts with sound administrative management.
Chamber for Companies in Difficulty (CCID)
Each commercial court has one or more chambers for companies in difficulty (CCID) that monitor the situation of companies in difficulty in order to safeguard the continuity of their activities and ensure the protection of creditors' rights.
Based on the principle that "prevention is better than a cure", the legislator wants to use the CCID to timely detect difficulties and urge companies to take the appropriate remedy measures to avert discontinuity.
Opening of the investigation and ‘triggering events’
As soon as the court detects that your company is facing financial difficulties, an investigation will be launched. Naturally, there will almost always be a certain ‘trigger event’ in this respect. In our practice, we are often confronted with clients being investigated as a result of one or more of the following events:
- One or more annual accounts of the company were not (timely) filed.
- The company has failed to pay its social security contributions, VAT or withholding tax for the last two quarters.
- The company's assets were seized.
- The continuity of the enterprise is questioned in legal proceedings before a court (e.g. by the other party).
- The company auditor informs the president of the commercial court of important and corresponding facts which have come to his notice that could jeopardize the continuity of the economic activity of the company (but only after the auditor has first informed the company and without the latter taking appropriate remedy actions within one month from this notification).
The registry of the CCID will also track down companies in difficulty by means of judgments in absence (in absentia) or judgments relating to undisputed pecuniary debts. It is therefore important to monitor your payments carefully.
Course of investigation
The examination by the CCID is as follows:
1. CCID examines whether the continuity of the company is threatened
- As a first step, the CCID will check, on the basis of the available documents, whether the continuity of the company's economic activity is threatened or whether the company can be dissolved. Relevant elements may concern negative equity or a substantial debt to suppliers as shown in the most recent annual accounts or financial statements.
2. CCID requests the company to attend a meeting
- If the CCID considers that the continuity is indeed threatened, it will summon and hear the company in order to obtain all information on the company's situation and on possible reorganization measures.
- Often the CCID will also ask your company to submit certain data and information prior to the hearing (e.g. most recent financial statements if not yet filed, list of creditors, note on the financial situation and future prospects, etc.). It is very important to follow up on this request very carefully in order to obtain a favorable decision from the CCID.
- Prior to the meeting, you can review your company's case-file at the court registry. This provides an insight into the reason why the CCID is investigating your company (including the relevant trigger events) so that you can better address the court’s concerns.
3. CCID hears the company about its financial situation
- On the date communicated in advance, the CCID shall discuss the financial and economical situation of the company in general, and the trigger events in particular. In principle, this is an informal meeting at which the CCID will ask for further information about your company's financial situation and its future prospects. The company must appear in person (e.g. by its directors) and can be assisted by its lawyer and/or accountant.
- This meeting takes place behind closed doors, so that third parties in principle do not have access to the information exchanged with the CCID during the investigation.
- If you twice fail to respond to an invitation from the CCID, it will be able to transfer the case-file to the public prosecutor (to declare bankruptcy) or to the court (to dissolve).
Possible consequences of the investigation
After the examination, the CCID may take the following decisions (which are not subject to appeal or opposition):
- Closure of the investigation and provisional or final dismissal of your case;
- Requesting additional information to take its final decision;
- Referral of the case-file to the public prosecutor or directly to the court with a view to either (i) bankruptcy or (ii) judicial dissolution; or
- Proposal to opt for a judicial reorganization procedure in order to obtain a suspension of your creditors.
Tips and points of attention
In our practice, we find that solvent companies whose continuity is not threatened are nevertheless regularly being investigated by the CCID. This entails a high administrative burden (e.g. drawing up an interim statement, note on financial future, etc.) which can be avoided.
We point out the following points of attention:
- Take care of your administration so that notifications reach you correctly. For example, make good arrangements with the new owner or landlord when you move the registered office of your company to another location so that your mail (with invoices, notifications, etc.) is forwarded.
- Take care of your legal obligations, in particular the timely filing of the annual accounts.
- Take care of your creditor management and pay your debts in time, paying particular attention to fiscal and social debts. If this is financially impossible, you are well advised to agree on a payment plan with your creditors or opt for a judicial reorganization, for example.