Luxembourg has been trying to reform its bankruptcy law for almost 20 years in order to increase prevention and facilitate a new start for entrepreneurs who have gone bankrupt in spite of themselves Shutterstock

Luxembourg has been trying to reform its bankruptcy law for almost 20 years in order to increase prevention and facilitate a new start for entrepreneurs who have gone bankrupt in spite of themselves Shutterstock

Only the constitutional review beats the reform of the bankruptcy law in terms of longevity in Luxembourg’s Chamber of Deputies. In May 2003, a first bill was tabled, which was supposed to concretise the work of a working group led by the justice in the late 1990s. Seventeen years later, the reform has still not taken place.

However, the basic principles have not changed: prevention (by detecting vulnerable enterprises through the economic committee and an evaluation unit for enterprises in difficulty), reparation (the idea of a possible “second chance” for the failed entrepreneur), suppression (of the entrepreneur causing a fraudulent bankruptcy) and protection (of employees).

“It is really necessary to evolve and move forward in this philosophy of second chance, in a spirit of entrepreneurship,” pleaded François Biltgen (CSV) in 2013. Guy Arendt (DP), president of the sub-commission dedicated to the reform since February 2020, does not disagree. He distinguishes between measures dedicated to “giving a second chance” and those aimed at “shady entrepreneurs”. It is also a question of freeing the state from the costs of liquidating phantom companies with no assets left, by introducing the possibility of dissolving them without liquidation.

François Biltgen, justice minister from 2009 to 2013, had already tried to reactivate the somewhat dormant work under the supervision of his predecessor Luc Frieden (CSV). It must be said that the professional chambers had made it clear their disapproval of the increase in the minimum share capital required to set up a company and of the commitment of the personal liability of the director in the event of insufficient initial capital.

The reworked bill was tabled in early 2013 by Biltgen, a few months before the watch affair took the attention of then prime minister Jean-Claude Juncker (CSV) and his party. Entrusted to Franz Fayot (LSAP), newly elected to the chamber, it suffered a few setbacks, notably before the Council of State. Faced with the scale and complexity of the task, the legal commission decided to create a sub-commission entitled “Preservation of companies and modernisation of bankruptcy law”, composed of five MPs (raised to six in 2020), frequently assisted by representatives of the ministries of justice and the economy.

The subcommittee met 21 times in 2016, 13 times in 2017 and three more in 2018 before delivering its 148 proposed amendments. Fayot was still hoping to bring the bill to a vote before the end of the legislature. But by the time the Chambers gave their additional opinion and the Council of State made its decision, 2019 had come to an end.

Above all, many stumbling blocks remain. The Chamber of Commerce criticises a preventive aspect that is not sufficiently developed and pleads for close support for companies in difficulty rather than simply detecting their weaknesses. The same goes for the Chamber of Trades, which is concerned about the prospect of a 20-year ban on practising for an entrepreneur who has not committed “serious and characterised fault”, but simply guilty of “repeated failure to meet legal obligations”.

“Such sanctions, which leave no second chance”, writes the Chamber of Trades, “should be pronounced exclusively, as today, against a manager who is really at fault, but not against a manager suffering from an unfavourable economic situation and whose only 'fault' is that he is no longer able to pay social debts to public creditors, or that he has tried to continue to operate despite a latent state of suspension of payments.”

Record bankruptcies in 2018 and 2019

For its part, the Council of State formulates no less than 14 formal objections in its supplementary opinion, although it also lifts some of them in relation to its 2015 opinion. It considers that its previous criticisms have not been taken into account, and that the amendments disregard the reform of the Belgian bankruptcy law from which the bill is largely inspired. Also, to be corrected: the draft law wants to apply to companies in the financial sector that are governed by a specific insolvency regime, as the Council of the Belgian Bar Association pointed out in its notice. Insurance companies, fund managers, collective investment schemes, securitisation funds and specialised investment funds should therefore be excluded.

Mr Arendt admits that a parliamentary vote before the end of 2020 seems unlikely. The health crisis has somewhat slowed down the work of the subcommittee and especially that of the justice ministry. The latter must present its amendments at the start of the new school year before a final round of additional opinions from the consultative bodies and especially the Council of State.

This is the irony of this law, which has never been as necessary as in times of crisis. Relaunched after the one in 2008, when bankruptcies exceeded a thousand in 2012 and 2013, the reform should have come into force before the next crisis. All the more so since the last few years have seen the rate of liquidations rise, with 1,336 bankruptcies in 2019 and 1,195 in 2018. Unfortunately, it will probably not help the companies hit by the health crisis and its consequences, while several brands have already closed down, such as Ladurée, À la Soupe or Brantano. Perhaps it will partially mitigate the effects in the coming years, and before the next crisis.

This article was originally published in French on Paperjam.lu