Reform of the insolvency law - Part 1 - To an extended application

As we already stated in our previous contributions about the reform of the insolvency law, this law modifies and regroups the Bankruptcy law and the Law of 31 January 2009 on the Continuity of Enterprises.

1. The notion "Enterprise" replaces the notion "Merchant"

One of the most important changes is, without a doubt, the extension of the scope of the law ratione personae. Whereas up to now the focus was on the notion "merchant", who is described as the person who trades (makes acts of commerce) and makes his principal or additional profession of such trading, the focus and starting point is now shifted to a broader notion, namely the "enterprise".

Whereas up to now the focus was on the notion "merchant", the focus and starting point is now shifted to a broader notion, namely the "enterprise"

On the one hand current law provides an exhaustive list of "acts of commerce", but, on the other hand, these "acts of commerce" are often interpreted by the courts and legal doctrine extensively. Moreover, there exists a broad consensus that the list of "acts of commerce" is out dated and hardly rational. Therefore, the notion of "merchant" is no longer suitable as the starting point for specific regulations. With the new and broader notion of the enterprise, the legislator has now joined the economic and juridical evolution of the past years.

The new and modern notion of the "enterprise" covers not only all merchants, but also covers other economic activities and sectors such as liberal professions, the agricultural industry and the mining industry.

The new definition of "enterprise" aims to be a unique building block for the application of specific regulations, which are specifically provided for enterprises by the Code of Economic Law, the Judicial Code and the Civil Code.

The new definition is intended to be used instead of the concept "trader", "merchant", "commercial company" and all other related concepts.

The material criterion, i.e. "to strive for an economic goal", will no longer be used and therefore will be as much as possible replaced by pure formal criteria, that offer more legal certainty and that have a larger reach.

2. According to the new definition the notion "enterprise" covers:

- (i) Every individual who independently exercises a professional activity:

According to the legislator, the choice for the notions "independent" and "professional activity" will eliminate all disputes  regarding the notion "durable economic activity". The notion "independent" is the opposite of "subordinate (employment)" while "durability" is considered to be inherent to a "professional activity".

By way of example, the notion "enterprise" will include individuals who are merchants, craft men or liberal professionals. The notion will also cover durable activities related to shared economy (Uber, Airbnb,…). The nature of activities is not important.

Nevertheless, not every activity of an individual does fall within the scope of the notion "enterprise". An activity within the framework of a normal management of personal assets of an individual will not fall within this notion of "enterprise". In that sense, a simple subscription to or the acquisition of or the holding of shares, securities or interests in a company by an individual are presumed to be part of a normal management of personal assets.

- (ii) Every legal entity, public entities excepted:

The activity, wether based on the by-laws or on a factual situation is not relevant for the notion "enterprise".

From now on any private entity, including non-profit associations and foundations (trusts) are qualified as "enterprise", even if no economic goal is pursued. This option is justified by the fact that these kind of organisations, regardless their activities, but because of their legal personality, are a structure, that sometimes results in far-reaching consequences for third parties (e.g. employees, creditors, etc.).

Public legal entities (e.g. the Federal State, municipalities, Social Welfare Departments, etc….) are not qualified as "enterprise" and are excluded from the scope of the insolvency law. The assets and undertakings of public legal entities cannot be involved  in insolvency proceedings.

- (iii) Every other organisation without legal personality:

The new definition of the notion "enterprise" includes also any organisation without legal personality, such as the de facto company or a partnership.

The "for profit" character justifies the professionalization that protects third parties by virtue of the economic law. Therefore, the control of courts and insolvency officers is extended to all legal entities.

Also foreign organisations without legal personality which have own obligations and rights and which can participate in Belgian legal transactions, fall under the scope of the insolvency law. For example a trust or a business with separate assets and/or limited liability but without legal personality, will fall under this law, on the condition that the centre of its main interests is situated in Belgium.

Every non-profit organisation without legal personality that does not make any payments to its members or to individuals who have decision making powers regarding the management of the organisation, does not fall within the scope of the law.

Also de facto associations are excluded from the scope of the insolvency law as long as they have a "non-profit" character. The "non-profit" character is determinant.

The opening of an insolvency procedure against enterprises in which the partners are unlimited liable, will not imply automatically the opening of an insolvency procedure against the unlimited liable partners. 

In case an organisation without legal personality or a legal entity, with unlimited liable partners, is summoned in bankruptcy or files for bankruptcy, the unlimited liable partners need to be involved in the proceedings as well. However, the law has offered a possibility to those partners who were not informed of the filing for bankruptcy, to oppose against the bankruptcy, within a period of 6 months after the publication in the Belgian Official Gazette and within 15 days after the notification of the decision of the court.

- (iv) Liberal professionals:

The law also targets liberal professionals (lawyers, doctors, accountants, etc.). The new law describes a liberal professional as "every undertaking of which the activities mainly exist in – independently and under own responsibility - performing intellectual services which require special and permanent training, and which are submitted to certain ethics, controlled and enforced by disciplinary bodies established by the law."

Consequently, the liberal professionals will be subjected to the control of insolvency courts and insolvency officers.

- (v) Exceptions: the financial institutions:

The rules regarding the detection of enterprises facing financial difficulties, the temporary measures, the mediator, the amicable agreement, and the judicial reorganisation, stipulated by the law, do not apply on credit institutions, insurance companies, investment companies, management companies for collective investments, settlement liquidation institutions and equivalent institutions, reinsurance companies, financial holdings and mixed financial holdings.

More articles to come ...

The next article of our series on the reform of the insolvency law deals with the changes of the law on the continuity of enterprises (LCE) under the following title:

Reform of the insolvency law - Part 2 - procedure for judicial organisation is becoming stricter