Debts waived in case of bankruptcy?

Bankruptcy

Although corona has been behind us for some time, many companies are only recently feeling its repercussions. For several companies, the restart after the pandemic did not go so smoothly, leaving them with no other way out than filing for bankruptcy. 

The question then arises: ‘Will I have to pay my debts when I file for bankruptcy or will they be discharged?’

When a company files the books, it cannot file a petition for remission with the company court. The trustee will use the company's assets to try to pay the creditors as much as possible and check whether there could be directors‘ and/or founders’ liability.

When a natural person fails, the situation is different. A natural person will automatically obtain the discharge of all residual debts at the closure of the bankruptcy. These are the debts that could not be paid with the (realised) assets. 

The question now is, can third parties oppose this discharge? The aim of the new bankruptcy law is to consider the failure as a fresh start for the bankrupt. The bankrupt should be given a second chance to build something new and not be punished for his previous entrepreneurship. Today, the waiver is, as it were, automatic at the closure of bankruptcy.

Article XX.173 of the Belgian Code of Economic Law confirms this as follows:

“If the bankrupt is a natural person, he will be released from residual debts in relation to creditors, without prejudice to collateral security provided by the debtor or a third party.”

In other words, the closure of bankruptcy releases the debtor from his residual debts. This discharge can only be refused if an interested party objects.

Since September 2023, the discharge takes place automatically at the closure of the bankruptcy

Previously, the discharge could only be granted if expressly requested by the bankrupt. This has not been the case since September 2023.

At the closure of the bankruptcy, the court must automatically grant the discharge, without requiring any active action by the bankrupt.

Any interested party can oppose the discharge

Any interested party, such as, for example, the bankruptcy trustee, the public prosecutor or a creditor may oppose the partial or total discharge of residual debts. This opposition can be made by petition from the announcement of the bankruptcy judgment.

If the discharge was already granted when the bankruptcy was closed, any interested party may file this opposition by way of third-party opposition for three months after the announcement of the closure.

The claim for refusal of the discharge expires in principle after four years from the declaration of bankruptcy.

The discharge can only be denied if the bankrupt committed manifestly gross errors that contributed to the bankruptcy

A manifestly gross error in this context is considered to be a flagrant mistake that a reasonably prudent and careful person would not have committed, and which violates the essential rules of corporate life. Discharge may also be denied if the bankrupt provided false information during the resolution of the bankruptcy.

Essentially, a manifestly gross error is an unquestionably manifest error that any reasonable person knew or should have known would cause harm. 

It is true that this manifestly gross error is derived from a set of facts and conduct which, because of their connection, can be considered manifestly gross. The assessment of whether or not there has been a manifestly gross error must therefore be made on a case-by-case basis.

Even if there could be a manifestly gross error, that error must also have contributed to the bankruptcy. However, just because a manifestly gross error was committed does not mean that it was at the root of the company's bankruptcy.

However, certain case law says that no causal link must be shown between the manifestly gross error and the bankruptcy. At a minimum, this mistake must have contributed to the bankruptcy, even if it was not the sole cause. Thus, the manifestly gross error must have clearly contributed to the bankruptcy, without this error having to be the cause (exclusive or otherwise).