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Introduction of the pre-packaged agreement in insolvency law

As from March 26, 2021, following the example of the Anglo-Saxon countries,  the 'prepacked bankruptcy' has been introduced in the Belgian Economic Code. This procedure offers a debtor the possibility to conclude a (non-public) preliminary settlement with one or more of its creditors. The debtor can apply for this procedure at the company court, which will appoint a court mandator to supervise the entire procedure, without any publicity.

The settlement is considered to be "preliminary" because it is followed by the (standard) judicial reorganization procedure.

 

Tax exemption for creditors, but not for debtors

For the creditor who cooperates in the preliminary settlement, a tax advantage is provided similar to the one provided in an extrajudicial agreement or in case a reorganization plan has been approved or an amicable agreement has been acted by the court in a judicial reorganization: write-offs and provisions on claims for which a preliminary settlement has been reached qualify for tax exemption. This exemption applies during the taxable periods until the settlement, plan or amicable agreement has been  fully implemented or the procedure is closed.

 For debtors, however, only debt reductions following the approval of a reorganization plan or the establishment by the court of an amicable settlement in a judicial reorganization can be tax exempted.

 Companies in difficulty will therefore face the choice between the tax exemption of the debt reduction (the disadvantage being the publicity of the judicial reorganization procedure) and the discretion of the debt restructuring in a preliminary settlement (the disadvantage being a tax ‘cash-out’).

 

Any questions? Do not hesitate to contact our Corporate & Tax Team.

 

Pierre Willemart                                                             Veerle Brusseleers

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M&A - Corporate & Tax law