Collective Plan Reorganisations: The New Voting System for Large Companies

From 1 September 2023, the Belgian reorganisation procedure by way of a collective plan will be radically changed for large companies. It introduces the obligation to group creditors (and shareholders) into “classes” for the purpose of voting on a restructuring plan.

The Belgian Act of 7 June 2023 transposing EU Restructuring Directive (2019/1023) introduces new rules specifically aimed at large companies filing for a judicial reorganisation through a collective plan (similar to the US Chapter 11 or UK Restructuring Plan procedure).

As a reminder, a judicial reorganisation through a collective plan entails a debtor drawing up a plan including restructuring measures (eg haircuts, payment deferrals, interest waivers) and submitting it to its creditors for approval. If a majority approves the plan, it becomes binding on all creditors. There was no requirement to group creditors in separate classes for the purpose of voting on the plan (meaning all creditors voted altogether in one “class”).

What is a ‘large company’?

The new rules apply to large companies which, for two consecutive financial years, exceed one or more of the following criteria:

• an annual average of 250 employees;
• a turnover excluding VAT of EUR40 million;
• a balance sheet total of more than EUR20 million.

Companies that do not exceed these thresholds (SMEs) are not obliged to follow these new rules, but may nonetheless choose to opt-in.

What’s new?

• Voting classes: creditors must be grouped into separate “classes” for the purpose of voting on a restructuring plan, based on their rights in the event of a liquidation or what they receive under the proposed plan. There must be at least two separate classes for ordinary creditors and secured creditors.
  
  
• Shareholder involvement: whereas under the old regime – which still applies by default to SMEs – restructuring measures affecting shareholders’ rights (eg debt-for-equity swaps) were already possible but not often resorted to in practice due to the need for the existing shareholders’ consent, shareholders can now be included as a separate “class” in the plan, vote on the plan when it affects their rights and thus be crammed down.
  This new feature becomes particularly interesting, knowing that the company’s creditors may seek to appoint a restructuring expert to draw up a plan (See The restructuring expert: The new kid on the block)
  
  
• Approval Majority: a restructuring plan is approved when a majority is achieved within each class, meaning that creditors (or shareholders) representing at least 50% in value of the creditors belonging to that class, vote in favour.¹ Note that a majority in number is no longer required.
  
  
• Cross-class Cramdown: exceptionally, a plan can still be confirmed by the court even if not all classes approved the plan, provided that certain conditions are met:
  Notably, the plan must be approved by the majority of classes,² with at least one secured or higher-ranked class having voted in favour.³ In addition, the dissenting class(es) may not be worse off under the plan than in bankruptcy or compulsory liquidation pursuant to their legal or contractual ranking, unless there are reasonable grounds for it and the creditors or shareholders concerned are not manifestly disadvantaged. Finally, no class receives or retains more than the full amount of its claims or interests, taking into account the value of the reorganisation (in going concern).
  
  
• Creditor protection: The new “best interests of creditors” test prevents dissenting creditors finding themselves in a manifestly less favourable situation as a result of the restructuring plan than they would be in under the normal ranking in bankruptcy.

How can we help?

Our Belgian Restructuring Team (Legal 500, Tier 1 Insolvency) has significant experience in restructuring and can support in both the drafting of a restructuring plan (valuation creditors’ rights, creation of classes) and during the judicial procedure to get a plan approved by the Belgian courts.

Do not hesitate to reach out to our team.