Debt Collection in Belgium

• In Belgium, payment terms are 35 days on average, while DSO could be strengthened, as it is not as demanding as the regulations from other EU countries.  

• On the other hand, court proceedings are efficient, however, the enforcement of judgements can be costly and time-consuming, meaning that pre-legal action is more advisable as an option for debt recovery.

• Even if domestic national  legislation aims to save companies in order to increase their chances of debt recovery, it does not place any limits on how much debt can be written off in settlement negotiations. In fact, recuperating from insolvent debtors is uncommon for unsecured creditors.

1. Summary

1.1. General financial information

1.1.1. Visibility of company records is relatively good and relevant financial information on domestic companies can be accessed by Official Registers as posting annual financial statements is obligatory for most Belgian businesses.

1.2. Key legal structures

Corporate debt responsibility is defined by legal structures, listed as follows:

• Sole proprietorship is generally depended on for small-scale businesses because it is focused on the qualifications of the sole proprietor who controls the business assets directly. The proprietor is therefore fully liable for the activities and debts of the enterprise.

• General alliances (collective-name partnerships/vennootschap onder firm) allow partners to conduct business together but offer different criteria for liability. Unless a Limited Partnership (sociétés en commandite simple/gewone commanditaire vennootschap) is formed, the responsibility of the partners is indeed mutual and indefinite, even if one party creates business debts without the knowledge or consent of the other partners. In a formal' partnership agreement' the parties determine mutual obligations and responsibilities but do not create a separate legal entity. Additionally, SCRI Cooperative Companies (sociétés coopératives à responsabilité illimitée / coöperatieve vennootschap per onbeperkte aansprakelijkheid) comprise of multiple partners whose investments -differ given their unlimited liability.

• Limited liability Companies (societies privées à responsabilité limitée SPRL / besloten vennootschap with beperkte aansprakelijkheid BVBA) shall have at least two members (if one partner: SPRLU / EBVBA) whose responsibility is limited to their commitment. As a general rule, executives operate on the company's behalf but can not be held personally responsible for their expenses, except in the event of gross misconduct or theft.

• Public Limited Companies (Societies anonymes SA / naamloze vennootschap NV) may consist of at least two shareholders, usually creating a controlling body. A total capital amounting to EUR 61,500 must be fully invested while the business is formed.

1.3. Regulatory framework

1.3.1. The Belgian procedures are governed (as amended) by the October 1967 Judicial Code. The courts are not constrained by a set of case law but nevertheless precedents are an essential source of authority. Tribunal of first instance (Tribunal de premièreinstance/ rechtbank van eerste aanleg) and courts of trade (Tribunal du Trade / rechtbank van koophandel) are available through a network of 27 district courts, while 187 judges of peace (Juges de Paix / vrederechter) deal with small claims not reaching EUR 1.860. The first-instance judgments may be placed before five Courts of Appeal (Cour d'Appel / Hof van beroep) which deal with all civil, commercial and criminal cases.

1.3.2. The Supreme Court (Cour de Cassation / Hof van cassatie) meets at the highest level with the Administrative Court (Conseil d'Etat / Raad van Staat) and the Arbitration Court, whose term is ambiguous insofar as it has exclusive authority over constitutional matters (Cour Constitutionnelle / Grondwettelijk Hof).    

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2. Receiving payments

2.1. DSO - Days Sales Outstanding

2.1.1. Transactions take place in Belgium on average within 55 days, whereas the payment terms are on average 35 days. The DSO is slightly higher for listed companies, at 77 days.

2.2. Late interests

2.2.1. According to the legislation of 2 August 2002 (Loi sur la Lutte contre les Retards de Paiement), which transposed Directive 2000/35/EC into Belgian law, late payment interest may be extended for 30 days after the date of issue of the invoice. In fact, late payment interest varying from 12 percent to 15 per cent is mostly regulated by general terms and conditions, although these can also be determined by using as a reference the interest rate of the refinancing rate of the European Central Bank (reviewed twice a year by the Ministry of Finance and reported in the Official Belgian Journal) raised by at least 7 percentage points when the portion is increased by 7 percentage points.

2.2.2. The government proposed a bill to transpose the current Recast Directive 2011/7/EU on late payments in July 2013 (about three months after the official time-limit). Under the new EU regulations, failure to pay within a period of 60 days (for businesses, vs 30 days for public authorities) will cause late payment interest to be demanded on the day after the due date specified on the invoice, but at this point it is not clear whether the regulatory legislation would decrease the time requirement. Furthermore, the interest rate of the European Central Bank will be increased by at least 8 percentage points.

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2.3. Costs of debt collection

2.3.1. As of March 2014, enforcement fees can not be paid as such, but may be compensated by the fines negotiated under general terms and conditions or issued by a court. Interests and penalties can be reduced within an amicable negotiation to the effective cost of collecting. In comparison, since Directive 2011/07/EU is transposed into legislation, borrowers should be entitled to receive a fixed EUR 40 fee to cover their collection costs, thus demanding additional compensation for any other reasonable costs (legal fees, restitution agency fees, etc.) resulting from the late payment by the debtor.

2.4. Protecting ownership

2.4.1. Clauses for the preservation of names (RoT) are often used in Belgium. Originally designed in relation to bankruptcy law, they seek to challenge proprietary ownership rights of third parties during insolvency proceedings in the case of creditors ' rivalry. The implementation of the provisions were restricted insofar as the properties covered under the contract had to reside in the possession of the customer and had to be clearly identifiable. In other terms, all products used or radically changed immediately fall outside of the RoT's field of operation. Likewise, the rules did not provide cover in terms of products that the consumer had resold.

2.4.2. Previously, the 1997 Bankruptcy Code was repealed by the 11 July 2013 Act that created a new legal framework. RoT provisions will now be considered property law and incorporated into the Civil Code (Article 67; Law 84-84). A main feature of the new system will be the acceptance of the so-called' longer RoT' which seeks to maintain ownership I despite the manufacturing process of the purchaser (Articles 18-20 of the Civil Code) and (ii) despite the resale of the products. Therefore, where the products are mixed and can no longer be defined, the RoT could become a' Businesslike Subrogation' and would be applied to all receivables covering the goods paid (including reimbursement due to degradation, harm, loss of value).

2.4.3. Nevertheless, at this point, the new regulation refused legality of' all contractual terms' (enlarged RoT), which seeks to retain ownership of all products sold to the purchaser until the purchaser has paid all his outstanding debts with the lender.

2.4.4. The new law also grants investors special protection in regards to insolvency proceedings by granting a' Buy Money Right' over other creditors. While the insolvency issue is to obtain payment of a debt to secured creditors with a higher priority over' unsecured debts, the unpaid seller who has preserved his property through a RoT may be entitled to a' super priority' over other creditors. Simply behind this equation is the belief that vendors are not able to produce before they are compensated, without a clear privilege.

2.4.5. Progress in applying RoT is volatile since the process is very rigid and, in reality, it appears to be incompatible with all the circumstances. It would therefore be necessary to obtain professional legal advice on the matter.

2.5. Payments

2.5.1. The most common methods of payment are as follows: Swift bank transfers are among the most prominent means of payment, as they are quick, safe and supported internationally and domestically by an increasingly integrated banking network. Transfers are usually guaranteed for export transactions through an Export Credit Insurance policy which helps to minimize the risk of sudden or unforeseen insolvency of customers.

2.5.2. Furthermore, Standby Letters of Credit (a bank guarantees the credit worthiness and recovery capability of the debtor) often represent credible assurances that can be interpreted as a sign of good faith since they can be activated as a' payment of last resort' if the borrower fails to fulfill a contractual obligation.

2.5.3. Exchange bills are also widely used in Belgium and provide intriguing means of exerting indelicate debtor leverage because they represent debt identification names. Checks are no longer considered debt identification names, and would therefore no longer give access to fast-track payment request procedures. Down payments are often depended on and encouraged.

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3. Collecting payments

3.1. Amicable action

3.1.1. Although Belgian courts are efficient and reliable, friendly settlement opportunities should always be seen as a powerful alternative to formal litigation proceedings. Furthermore, before starting legal proceedings against a debtor, asset assessment is important since it allows verification as to whether the company is still active and whether the chances of recovery are good. Therefore, it is important to be mindful of the solvency condition of the debtor: once insolvency proceedings have been launched, the execution of a loan (see below) is indeed unlikely.

3.2. Legal proceedings

3.2.1. Ordinary proceedings. Different options occur when the argument is certain and unchallenged. Next, outstanding exchange bills may be taken to the National Bank for formal recognition (prôtet) and declaration of inability of the debtor to pay in a list (Journal des Protêts). A fast-track process performed by the Justice of the Peace allows reimbursement requests to be issued on cases below EUR 1.860 (Procédure Sommaire d'Injonction de Payer), but is hardly used in action as it is considered to be overly restrictive. Recently, a constitutional initiative has been sent to the Parliament with the intention of abolishing the EUR 1.860 requirement thus allowing commercial courts authority. In addition, a European Transaction Order mechanism enabling the restitution of undisputed debts (under Regulation EC No 1896/2006) may be initiated before the Justices of the Peace, the Court of First Instance or the Commercial Court where a delinquent corporation has properties in other EU Member States. In this situation, the complaining party can order a domestic court to issue an Order to Pay which will then be enforceable without exequatur proceedings in all European Union countries (except Denmark).

3.2.2. If the amicable process fails, or if the debtor challenges the argument, there is the right to begin legal proceedings. Formal legal proceedings may begin after a voluntary action by the parties (vrijwillige / vrijwijning appearance) or after a Writ of Summons has been served on the defendant and the claim has been registered with the court. Consequently, legal action takes the form of a full lawsuit before the Commerce Tribunal, but it tends to be short, effective and fairly cheap. If the applicant refuses to appeal the argument, the courts usually make a default judgment within a month, granting the amount stated in the Writ (Article 770 of the Judicial Code). Nevertheless, if the allegation is contested, the parties may be forced to provide briefs while the court works out a legal framework for the case. The court then provides a decision that only acquires res judicata interest (autorité de la décision jugée / gezag van het rechterlijk gewijsde) once it has been considered definitive (i.e. when all the sites of appeal have been exhausted)., Usually, courts may grant compensation in the form of interest, actual results or any sort of declaratory relief but are not entitled to punitive damages.

3.2.3. As a general rule, the theory of discovery in civil proceedings does not occur which means that the parties will bear the burden of defending their argument. Proceedings shall be held solely in Wallonia in French and in Flanders in Dutch. According to the circumstances of the case, all languages are appropriate in Brussels and German (instead of French) may be used as the language of prosecutions in the tiny German-speaking region. It is worth stressing that, as a general rule, the qualified court is selected according to the general terms and conditions of the contract rather than based on the language of the debtor.

3.2.4. Required documents. For the start of substantive legal proceedings, numerous records must be in hand, including the general terms and conditions relevant to the argument at question, copies of invoices and payment reports, an income record and a summary of the first official dunning text. Although optional, evidence regarding the ordering and delivery of the exchanged goods and correspondence with the debtor would also be considered essential.

3.2.5. Time limitations. Under Article 2262 of the Civil Code, commercial claims must be brought before the court within ten years (three years in specific circumstances; five years for claims of torture) starting from the date on which the cause of action arose. There will be no legal action beyond this since time limitations are considered a matter of substantive rather than procedural law. Having said that, the treatment duration may be disrupted by certain conditions (such as taking legal action or publicly recognizing debts). Public authorities owed loans must be taken in within five years.

3.2.6. Precautionary measures. Pending a definitive and enforceable verdict, precautionary measures may be given to protect the rights of the borrower. In addition, the courts can require protective measures ex parte before or during the proceedings (without both parties being present). These can typically be sought through a summary process (action en référé / kortgeding) and will be approved in emergency cases in order to prevent imminent destruction or to preserve facts. Normally, the courts will require a notary to create an inventory of the debtor's belongings but seals can also be imposed. Measures serving as temporary disciplinary actions may also be required whereas the decision only has a conditional res judicata effect (i.e. as long as the judgment is still appealable and is not yet final).

3.2.7. These would involve taking the debtor's properties (i.e. the debtor retains the right to possess the goods, but is prohibited from selling them), because the liability is certain. Instead, sequestration will relieve the debtor of seized assets, especially when possession is disputed by the parties and the status quo must be retained. Precautionary and provisional directives are never final or irrevocable.

3.2.8. Appeal lodging. Debt-related claims above EUR 1,860 brought to the Commerce Tribunal may be brought before the Court of Appeal, which would have jurisdiction to consider both factual and legal questions. The Supreme Court may also challenge judgments made in the second instance on legal grounds (wrong reading of the statute, non-compliance with procedural conditions, inability to state purposes, etc.).

3.2.9. Enforcing court decisions. A judgment becomes enforceable once it is finalized (i.e. after all the places of appeal have been exhausted) and provided the defeated party is notified. If the opposing party fails to follow the ruling, the latter may still be applied by requiring a bailiff to bind the movable properties of the claimant, or by filing for bankruptcy. The direct action (action direct–rechtstreekse vordering) process often helps the borrower to receive debt payment through a third party (own customers) who owes the debtor money. Enforcement proceedings remain lengthy and relatively expensive, but judgments may be enforced within 10 years of the decision (strict limitation statutes apply).

3.2.10. The duration of a judicial action.

3.2.11. First-instance hearings can take three months in simple cases, but it may take longer to achieve a final decision when the argument is challenged (the appeal processes last on average two years). Therefore, compliance will usually take another year to complete.

3.2.12. There is no specific time or expense disparity between national and international statements in Belgium.

3.2.13. The costs of the procedure. As a general rule, Belgian legislation entitles the successful party to receive compensation from the losing party for its legal expenses(' Case Preparation Allowance' as governed by Royal Decree of 2007), to which fines and debt collection costs may be applied (for example, a bailiff may charge 8 percent of the debt value) along with the costs of granting the certificate (3 percent of the amount). Overall, the expense of unchallenged basic statements may exceed 10 to 15 percent of the value. There are no costs for the Court up front.

3.2.14. Conditional arrangements prohibiting attorneys from being paid up front but rather receiving a fixed sum upon success (no-win-no-pay). Nevertheless, third-party funding may be received by litigation-funding firms to be returned as a portion of the final payment.

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3.3. Alternatives to legal action

3.3.1. Alternative methods of dispute resolution are popular with conflicts pertaining to industry. In fact, arbitration (regulated under Articles 1676 to 1723 of the Judicial Code) is often perceived to be more effective than ordinary litigation, as it promises expeditious secret hearings along with a contractual damages award. To be followed, a court of first instance may accept arbitral rewards through an exequatur case.

3.3.2. Therefore, informal and judicial mediation processes (regulated in compliance with Articles 1724 to 1737 of the Judicial Code) are frequently being used as a means of helping the parties reach a compromise. Settlement settlements reached by negotiations would then be regarded not as prizes but as contracts. As such, they are enforceable if the parties refuse to uphold their obligations once the tribunal has accepted the arrangement. Ultimately, if the parties have agreed on an ADR in principle, the court must stay the litigation until the talks have had an opportunity to be successful.

3.3.3. Foreign forums. International hearings are rather unusual in Belgium for debt-related cases because domestic courts are effective in making prompt judgments. Nevertheless, Belgium is a signatory of the Rome I Regulation on the law applicable to contractual obligations, which specifies that the parties to a contract may, by mutual agreement, select the law applicable to the contract and select the court which will have jurisdiction over conflicts. Belgium thus usually accepts prohibitions on international sovereignty and foreign traders that decide to resolve their business disputes in a foreign venue (i.e. under foreign law or before a foreign tribunal). Nevertheless, usually domestic courts tend to retain sole authority in areas of law which might have an impact on public policy.

3.3.4. Therefore, it is important that the arrangement be distinguished by a foreign relation (for example, one party is chosen domicile in another country, or the place of execution is situated abroad), and that a provision of jurisdiction be drawn up expressly for this. It is advised that legal advice be always pursued.

3.3.5. Enforcement of international awards. As mentioned earlier, having foreign judges to extract enforceable rulings against domestic debtors is rather uncommon because domestic courts are effective, and because such trials which take time. However, international rulings made against foreign debtors holding properties in Belgium may be accepted and applied in Belgium, because different circumstances that occur, given that different criteria are fulfilled. On the one side, decisions made in an EU country will profit from the especially favorable requirements for compliance. Apart from EU enforcement judgments which are usually enforceable immediately in national courts, the two primary ways of imposing an EU judgment in Belgium include the use of a European Compliance Order (EEO, as provided for in Regulation EC No 805/2004) where the allegation is uncontested or the declaration of the judgment under the terms of Brussels I Regulation (44/2001).

3.3.6. If the judgment applies as an uncontested assertion, it can be freely implemented (i.e. without registration) through the use of an EEO given the debtor has established properties in the region. Similarly, a European Small Claims Process (as provided for in Regulation EC 861/2007) aimed at removing intermediate steps can be counted on while applying judgments of up to EUR 2000.

3.3.7. The process for filing an EU decision with domestic courts is relatively simple, if the argument is contested. To order for the judgment to be recognized, the judgment holder will appeal to the court involved and provide the court with, among other records, an approved copy of the judgment, a validated transcript and, if interest is asserted, a letter stating the amount and interest rate at the time of the application and forwards. Once the judgment has been published, it can be applied as if it were given by domestic courts (such an exequatur process is no longer required from January 2015, according to Recast Regulation EC 1215/2012).

3.3.8. On the other hand, judgments made in foreign countries outside the EU would also be recognized and enforced through exequatur proceedings, as planned under the terms of the treaty or in accordance with the International Private Law Code (Articles 22 through 25). Typically, the courts will consider whether the decision was issued in a country with which a recognition and enforcement reciprocity agreement (Austria, France, Germany, the Netherlands, and Switzerland) was signed with. The courts must guarantee that the ruling in the issuing country is definitive and enforceable, that both parties benefit from a due process of law before the issuing tribunal and that compliance is consistent with Belgian public policy.

3.3.9. Belgium is a signatory of the 1958 New York Convention on the Recognition and Conduct of International Arbitral Awards. Domestic courts should therefore therefore accept and execute rulings made in international arbitration proceedings.

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4. Managing insolvent debtors

4.1. Insolvency in Belgium

4.1.1. Under statute, it is called insolvent to be a debtor who is no longer able to pay his loans when they fall due and who is unable to receive more credit. The Belgian Parliament approved the 2009 Legislation on the Continuity of Companies (loi relative à la continuité des entreprises / wet betreffende de continuïteit van de ondernemingen), which seeks to support businesses from bankruptcy by promoting the rehabilitation of financially struggling firms. This law has replaced the 1997 law on judicial composition (wet betreffende gerechtelijk akkoord / loi relative au concordat judiciaire), and it increasingly relies on the mechanism it created.

4.2. Insolvency proceedings

4.2.1. Out-of-Court proceedings. In Belgium, insolvency law does not provide any out - of-court mechanism aimed at informally negotiating debt restructuring before formal restructuring proceedings begin.

4.2.2. Debt restructuring. Judicial structure (gerechtelijke reorganisatie/judicial reorganization) aims at reorganizing the loan with the creditors. This mechanism is equivalent to Chapter 11 procedures under U.S. law and can be granted by the court at the request of any debtor in the short or medium term facing financial difficulties threatening his continuing business.

4.2.3. The debtor creates a register considered indicative of the representations of the various shareholders, and continues in the management of the company throughout the proceedings. A suspension lasts for three months in all civil cases against the debtor (an extra 12-month period may be provided under Article 38 of the Law). While, the debtor can either negotiate an amicable settlement with chosen creditors (case-by-case procedure) or a more common reorganization agreement covering most creditors, including at least half of all debts. There is no loan write-off restriction and it becomes opposable to all investors once the deal is accepted by the judge. Nonetheless, inability to find a settlement resulted in the commencement of liquidation proceedings.

4.2.4. On 27 May 2013, a revised law was enacted to enhance the effect of this' second chance' process. The previous law's structure will remain intact but the 2013 law aims to increase the credibility of restructuring schemes while reducing the abuse scope (more severe entry formalities, greater role for specialized professionals, etc.).

4.2.5. Winding up proceedings. The applicant may file for bankruptcy (failure / failure) when it has failed to make payments on a permanent basis or when the shareholders ' confidence has been damaged (creditworthiness undermined), however creditors alone can not start the proceedings.

4.2.6. If the appeal is approved, the creditors must file their cases as reported in the Official Gazette within a period specified in the court's declaration of insolvency (one year maximum). Failure to register claims usually cancels existing privileges of a borrower and would exclude access of potential proceeds. Instead, as supreme director, the President of the Commercial Court appoints a trustee or legal receiver (curator / curator) in charge of checking the allegations and of formulating a judgment on the debt recoverability in the 7th and 13th month in comparison to the preceding six months.

4.2.7. The payment contract for the profits can then be requested by the trustee / receiver, an accountant, the notary or the company's director or manager. It should be noted that the law of 19 March 2012 (amending the Companies Code) and the law of 22 April 2012 (amending the Judicial Code) permitted the voluntary liquidation of all shareholders by unanimous vote, without the selection of a trustee / receiver.

4.2.8. Priority rules. As long as no insolvency proceedings have been opened, unsecured creditors can enforce their rights. Once insolvency proceedings begin, the assets of the debtors are divided among the creditors, giving priority to secured creditors and statutory creditors, respectively. Public creditors (tax, social security) are considered statutory creditors and would therefore have priority over unsecured debts which are unlikely to recover their due in practice. RoT investors would be regarded as secured creditors who would only have a claim on a particular good outside the pool of properties.

4.2.9. Cancelation of suspicious transactions. However, the trustee / receiver may cancel different types of transactions concluded during the last six months preceding the insolvency proceedings (suspect period). For example, any dishonest dealings aimed at benefiting one borrower over the other, reducing the valuation of the debtor's assets, or any unbalanced agreements (imperfect rates, unequal loans) will usually be invalid.

4.2.10. Duration of  insolvency process. How long reorganization litigation could last is impossible to say, as this would ultimately rely on clear arrangements between debtors and creditors. Payment suspension can last 18 months, although reorganization efforts are restricted to five years. Nevertheless, liquidation proceedings tend to be fairly quick (about one year) but may also be protracted (up to ten years) depending on the complexity of the situation.

4.2.11. Required documents Often needed in insolvency cases would be the records given in the process of ordinary proceedings. Nevertheless, demonstrating that the general terms and conditions have been put to the debtor's attention at the transfer would be necessary in the light of the RoT proceedings. A quick reference on the invoice to the RoT paragraph in the General Terms and Conditions at the rear might be appropriate in our experience.