A new way to make a pre-pack?

A case brought up at the Commercial Court of Charleroi (Belgium)

However, there is a case we have just plead in court that allows us to make a particular comment.

In this case, the corporate group was composed of an Italian services company, two Tunisian production plants and a Belgian company providing designs and materials for production. Thus, the Belgian company bought the materials in the international market and handed them over to the Tunisian plants for manufacturing the products. It was the Italian company who was in charge of the distribution and wholesale marketing of the finished products.

Due to several difficulties inherent in the concerned sector and to political circumstances, both Tunisian companies were in serious financial difficulties. This prevented them from paying off large sums of money they owed to the Belgian company and, as a consequence, the Belgian company could neither meet payments to its suppliers.

The group decided to propose pre-pack procedures for the Belgian, the two Tunisian and the Italian companies, using initially the Belgian judicial reorganization procedure par accord amiable.
 

The localization of the COMI 

In this case the determination of centre of main interests (COMI) was not easy : the shareholders and the directors of the Belgian company were Italian. However, for the activities that the Belgian company had conducted independently, all management acts had been executed from Belgium.

If the creditors could easily verify that the agreements were made in Belgium, they should also know that this management acts aimed to make production acts in Tunisia and that the distribution of finished products was performed on the Italian market.

It was claimed to the Belgian Commercial Court, to which it had been asked to open the judicial reorganization procedure par accord amiable for the Belgian company, that the COMI was really located in Belgium. Indeed, the management acts were executed in Belgium and third parties could easily verify that. The administrator –mandataire de justice- and the accountant agreed with this statement.

For several other reasons, the creditors could have tried to say that the COMI was in Tunisia or in Italy, being this last country the place where the managers had their residence and where the products were sold.

Likewise, one could argue that the COMI of the Tunisian companies was in Belgium, because they executed decisions that were taken in Belgium, or in Italy, because that’s where the products were sold.

A pre-pack in the scope of the réorganisation judiciaire par accord amiable 

Considering that difficulty, the board of directors preferred a pre-pack formula : the Belgian company had only some big suppliers with which they could or should reach an agreement.

So the company chose to resort to the judicial reorganisation par accord amiable procedure stated in the Belgian law¹ . This procedure allows individual negotiations with each creditor and requires the achievement of an agreement with, at least, two of them. In this type of procedures, there is no obstacle for making different propositions to each creditor and so making it possible to break with the rigid structure of the collective agreement –accord collectif- procedures (eg majority vote in number and volume, limiting the duration of the refund to 5 years).
 

The procedure par accord amiable is not covered by the Regulation 1346/2000

The difficulty of this issue is that the Belgian reorganization procedure figures in the Annexes of Regulation 1346/2000² , regarding the procedures that provide a collective agreement -accord collectif- or a transfer of the management under court’s control –transfert sous autorité de justice- (please note that currently the Liege prosecutor questioned the judicial reorganization par accord collectif procedure is within the scope of the Regulation). Instead, naturally, the judicial reorganization procedure par accord amiable is not listed in the Annexes. Therefore, there is a risk that an Italian creditor demands the opening of a collective procedure to an Italian judge or even a creditor that could request the opening of a Tunisian procedure. It is true that many different arguments could be invoked to oppose to such a process : first, the Belgian procedure envisages a system of automatic transformation of a procedure par accord amiable on a procedure par accord collectif at the debtor’s request and on the other hand, it still would have to be determined whether the COMI of this company is located in Italy or Tunisia.

New request in order to make the Belgian procedure enter in the scope of Regulation 1346/2000

However, to avoid risks we have requested the designation of an administrator -mandataire de justice- from Article 27 of the law on judicial reorganisation.

A priori he’s presence, as a support for the debtor, does not change the procedure’s situation. In a later request it has been asked to the judge to extend the powers of this administrator, stating the debtor’s divestment.

Could it be considered that the decision that declares the divestment of the company, replacing their board for an administrator –mandataire de justice- (in the scope of the procedure par accord amiable and/or par accord collectif), is the first opening decision (within the meaning of the ruling Parmalat³ ) being thus able to challenge a future opening decision from an Italian judge ?

If the answer to this question is yes, it definitely will be possible to use this technique in the accord amiable and, therefore, allowing pre-pack in the Belgian procedures.
 

The court’s decision

The Commercial Court rejected the request for extension of powers to the administrator. In fact, the court held that the terms of Article 27 allows a debtor being divested as an aid, which would exclude depriving a company of powers to manage its heritage.

There has been filed an appeal 

The company has filed an appeal against this decision, arguing that the debtor could request being assisted by declaring its partial or total divestment if this made it possible to achieve negotiated solution –accord amiable- that, due to the Regulation, would become enforceable in another European State.

What is at stake 

There is much at stake. In the "out of the court" phase, the company that negotiates a pre-pack can be unprotected, among others, against a request for the opening of a collective proceeding in another country.

If the Court accepts the appeal, it would be possible in Belgium to negotiate "out of the court" the agreements –accords amiables- and, in consequence, they would be protected against unfounded and annoying claims of creditors from other European countries. This protection would start from the moment that a judicial reorganization procedure par accord amiable is opened and formalizes these agreements under judicial supervision.
 

American Pre-pack 

Our article on pre-pack shows how, in the United States, this "out of the court" negotiation makes it possible to save companies through "Chapter 11", whose difficulties had not been given enough publication and ended in a liquidation.

British Pre-pack 

Our article reflects also how the assignment of a company can be done "out of court" to save that company within the English pre-pack procedures. We will come back to this issue in the next newsletter where we will analyze another affair.