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What is bankruptcy?

Bankruptcy is a legal procedure applying to a trading company (individual or legal entity) which is no longer able to meet its financial obligations. In other words, the reason for the bankruptcy is "financial insolvency".
A person can only be declared bankrupt if, at the time of the bankruptcy:

  • they are a "trader";
  • they have "persistently failed to make their payments" and their "credit is shattered”.

Suspension of payments is, for example, breaking a credit agreement with the bank, failing to repay short-term debts due, non-payment of VAT, social security contributions, advance tax payments for over a quarter, late payment of net wages, bonuses, etc. A lack of credit opportunities also occurs due to a 'lack of confidence'. When suppliers are no longer willing to offer credit, you may be asked to pay in cash on arrival or before the delivery or, worse still, before the supplier orders the goods !
These two conditions must be met simultaneously.

The commercial court rules on bankruptcy. The court appoints a bankruptcy administrator to whom the management of the capital and debtor's debts is delegated.

In principle, the administrator's task is to realise the assets of the company filing for bankruptcy with any proceeds being distributed between the various creditors according to the regulations.

Declaration of bankruptcy

Bankruptcy can be declared with the commercial court in various ways:

a) Declaration by the bankrupt party themselves ("bankruptcy by admission")
The declaration of bankruptcy must be filed with the competent commercial court in the month following the suspension of payments. The court is not obliged to rule on the bankruptcy based solely on the declaration from the struggling entrepreneur. The court will proceed to analyse the declaration and will only rule on the bankruptcy if the conditions thereof are met. The declaration does not constitute an admission.

b) Declaration by one or more creditors
c) Declaration by the public ministry (royal prosecutor)
d) Declaration by the provisional administrator
e) Declaration by the administrator of the main proceedings (if the company is established in several countries)

In the case of a business operated by an individual, and when a company has not been formed, this person is liable, with his own assets, for the payment of his business' debts.

If this business is bankrupt, no differentiation is made between the business' assets and liabilities and the personal capital or assets or the person running it. In the case of a sole-trader business, the director becomes bankrupt at the same time as his business. In the case of a company, the situation is a little more complex. Although the company is still declared bankrupt, the consequences for the shareholders can be very different. In fact, there are company types which offer no protection for the shareholders' personal assets.

If the company does not offer protection, the bankruptcy administrator can use the personal income and assets of the shareholders to pay the company's debts. Otherwise, in principle, the shareholders only risk losing the capital they invested in the company. However, there are various exceptions.

Bankruptcy insurance

Remember that in certain cases, you also have the right to bankruptcy insurance.

With the exception of bankrupt self-employed workers or those subject to collective debt settlement, this insurance also covers:

  • Company directors, administrators and shareholders active in a bankrupt company
  • Non-merchants no longer able to cover their debts (such as farmers, people exercising a self-employed profession, etc.)

Specifically, this "bankruptcy insurance" offers protection under certain conditions:

  • Monthly compensation over a maximum period of 12 months
  • Preservation of your entitlement to family allowances and healthcare over a maximum period of 12 months

You may only use this protection once during your career. You can make a request  through your social security fund.

Updated 12/09/2018

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