Bankruptcy: What is left for the creditors? A Belgian exploratory study
| Date | 01 June 2019 |
| Published date | 01 June 2019 |
| DOI | http://doi.org/10.1002/iir.1342 |
| Author | Joke Rachel Baeck |
RESEARCH ARTICLE
Bankruptcy: What is left for the creditors? A
Belgian exploratory study
Joke Rachel Baeck
Center for the Law of Obligations and
Property of the University of Ghent, Ghent,
Belgium
Correspondence
Joke Rachel Baeck, University of Ghent,
Ghent, Belgium.
Email: joke.baeck@ugent.be
Abstract
It is sometimes alleged that in cases of bankruptcy, there is
often not much left for the creditors, especially for the
ordinary unsecured creditors. This article examines, in an
exploratory way, what the different classes of creditors,
depending on their priority position, recover in cases of
bankruptcy in Belgium, by investigating a sample of 286
bankruptcy files from the Commercial Court of Ghent
(Belgium's second largest city). This article also explores
what impact some existing proposals to improve the posi-
tion of ordinary unsecured creditors in the event of bank-
ruptcy would have had on the bankruptcy cases studied.
1|INTRODUCTION
As in many other jurisdictions,
1
the main purpose of a bankruptcy under Belgian law is the liquida-
tion of the estate of the debtor and the distribution of the proceeds among the creditors.
2
However, it
is sometimes alleged that creditors, especially ordinary unsecured creditors, often receive hardly any
payment (or at least a very low percentage of their claim) out of the bankruptcy.
3
This is said to be
due to the following:
i the large number of statutory preferences under Belgian law; and
ii the existence of security rights (such as mortgages and pledges) granted by the debtor to certain
creditors (especially banks).
4
1
William McBryde and Axel Flessner, “Principles of European Insolvency Lawand General Commentary”in William
McBryde, Axel Flessner and Sebastian Kortmann (eds), Principles of European Insolvency Law (Kluwer, 2003), 16.
2
Eric Dirix and Ivan Verougstraete, “National Report forBelgium”in McBr yde etal. (eds), above note 1, 100.
3
Roel Fransis, “National Report for Belgium”in Dennis Faber et al. (eds), Ranking and Priority of Creditors (Oxford
University Press, 2016), 97. Cf. Ivan Verougstraete, “Algemeen concept”in Herman Braeckmans, Eric Dirix and Eddy
Wymeersch (eds), Faillissementen gerechtelijk akkoord: het nieuwe recht (Kluwer, 1998), 10–11.
4
Fransis, above note 3, 97.
Received: 1 September 2018 Revised: 12 January 2019 Accepted: 5 April 2019
DOI: 10.1002/iir.1342
© 2019 INSOL International and John Wiley & Sons, Ltd
140 Int Insolv Rev. 2019;28:140–162.wileyonlinelibrary.com/journal/iir
In the past, various proposals have been made to improve the position of the ordinary unsecured cred-
itors in the event of bankruptcy.
5
Most of these proposals aim to reduce the number of statutor y pref-
erences, especially the statutory preferences of tax authorities. To date, however, no major reform of
the Belgian rules on statutory preferences has taken place.
In other jurisdictions, too, it is sometimes alleged there is often very little—or nothing—left for
the ordinary unsecured creditors if their debtor goes bankrupt.
6
However, we find in the literature
only a few empirical studies on the actual level of recovery for the (ordinary unsecured) creditors in
cases of bankruptcy. This might be due to the practical obstacles to collecting reliable data.
7
Never-
theless, we observe a growing interest in empirical research on this subject over the last decade,
which confirms that indeed there is often very little left for the ordinary unsecured creditors.
For instance, a study by Blazy et al. revealed that, in France, the mean recovery rate for the
“junior creditors”(i.e., mainly creditors with unsecured or subordinated claims) is 5.0% in (liquida-
tion-based) bankruptcy proceedings, whereas in the United Kingdom, the mean recovery rate for the
“junior creditors”is 7.4% (sample of bankruptcy files initiated between 1998 and 2005).
8
For the
Netherlands, a recent study by Van Hees showed that ordinary unsecured trade creditors usually
recover between 1.6% and 5.3% of their claim in bankruptcy proceedings (empirical study of bank-
ruptcy files of 2004, 2006, 2008, 2010, and 2015).
9
Further, a study by Bris et al. has pointed out
that, in the United States, ordinary unsecured creditors receive nothing in 95% of the bankruptcy
cases (under Chapter 7). Their mean recovery rate is 1.1% (which, however, was all driven by one
case in the sample of 61 Chapter 7 cases from Arizona and New York between 1995 and 2001).
10
Just as in Belgium, proposals are also (being) made in many other jurisdictions for improving the
position of ordinary unsecured creditors, for example, by imposing a carve-out rule, pursuant to
which a prescribed part of the proceeds available for the secured creditors is set aside for distribution
to the unsecured creditors. In the United States, for example, there has been intense debate on the
introduction of such a rule. However, so far, this has not led to the actual introduction of a carve-out
rule,
11
inter alia because of lack of empirical evidence on the impact of the introduction of such a
5
See, e.g., Draft Act to abolish the statutory preferences and mortgages of the tax authorities, Parl.Doc.Chamber of
Representatives 2008–09, 52–1521/1, 3, availableat:
Preliminary Draft Act to amend the Civil Code with regard to security rights on movables, 2011, available at:
belgium.be/sites/default/files/downloads/loi_suretes.pdf>, 12; Eric Dirix, “Actueletrends in de zakelijke zekerheidsrechten”in
Eric Dirix, Hélène Casman and Rogier De Corte (eds), Het zakenrecht. Absoluut niet een rustig bezit. XVIIIe Postuniversitaire
cyclus Willy Delva 1991–1992 (Kluwer, 1992), 3; Eric Dirix and Rogier De Corte, Zekerheidsrechten in Beginselen van
Belgisch Privaatrecht (Kluwer,2006), paragraph 224; François t'Kint and Werner Derijcke, “En nu de algemene voorrechten”
[2000] Tijdschrift voor Belgisch Handelsrecht276; Ir ma Moreau-Margrève,“Faut-il réviser les dispositions du Code civil en
matière de sûretés et dans l'affirmative, quelles seraient les grandes orientations d'une révision?”in Johan Erauw et al. (eds),
Liber Memorialis François Laurent (Story-Scientia, 1989), 601.
6
Cf. Andrew Keay, André Boraine and DavidBurdette, “Preferential Debts in CorporateInsolvency: A Comparative Study”
(2001) 10 International Insolvency Review 167. See, for example, (for the UK): Roy Goode, Principles of Corporate
Insolvency Law (4th edn) (Sweet & Maxwell, 2011), 239; (for the US): LynnLoPucki, “A General Theory of the Dynamics of
the State Remedies/Bankruptcy System”(1982) Wisconsin Law Review 311.
7
Cf. Régis Blazy, Joel Petey and Laurent Weill,“Serving the Creditors after Insolvency Filings: From Value Creation to Value
Distribution”(2018) European Journal of Law and Economics 331, 332.
8
Régis Blazy, Bertrand Chopard and Nirjhar Nigam, “Building Legal Indexesto explain Recovery Rates: An Analysis of the
French and English Bankruptcy Codes”(2013) Journal of Banking and Finance 1943; Blazy et al., above note 7, 348.
9
Jako Van Hees, “Het faillissementals achterhaald concept”in Steven Bartels et al. (eds), Vertrouwen in het burgerlijkerecht.
Liber amicorum prof. mr. S.C.J.J. Kortmann (Kluwer, 2017).
10
Arturo Bris, Ivo Welch and Ning Zhu, “The Costs of Bankruptcy: Chapter 7 Liquidation versus Chapter 11 Reorganization”
(2006) 61 Journal of Finance 1253.
11
Lynn LoPucki, Elizabeth Warren and Robert Lawless,Secured Transactions: A Systems Approach (Kluwer, 2016), 681–684.
BAECK 141
rule.
12
By contrast, a carve-out rule was eventually introduced in the United Kingdom in 2002 (see
Section 5).
For Belgium, there has not yet been any empirical study on the recovery rate for the (ordinary
unsecured) creditors in the event of a bankruptcy. This article aims to fill this gap by examining, in
an exploratory way, what the different classes of creditors (depending on their priority position)
recover in the event of a bankruptcy in Belgium (Section 4). For this purpose, bankruptcy files of the
Commercial Court of Ghent from 2006 were studied (Section 3).
This article also examines what impact some proposals to improve the position of ordinary
unsecured creditors in the event of bankruptcy would have had in the bankruptcy cases that were
studied (Section 5). Hence, this article goes beyond the existing empirical studies on the recovery
rates of (ordinary unsecured) creditors in the event of bankruptcy, because such an analysis is not
included in those studies. For a good understanding of the Belgian legal framework, this article starts
with a brief overview of the different classes of creditors and their position in case of bankruptcy
(Section 2). Conclusions are presented at the end of the article (Section 6).
2|POSITION OF CREDITORS IN CASE OF BANKRUPTCY
As in many other jurisdictions, Belgian law makes a distinction between insolvency proceedings
aimed at liquidation of the debtor's assets and proceedings aimed at reorganisation of the debtor's
liabilities.
13
This article only focuses on the position of creditors in the former type of proceedings,
called bankruptcy.
Since May 1, 2018, the statutory rules on bankruptcy have been laid down in the new Book XX
of the Economic Law Code. Prior to that, the statutory rules on bankruptcy were found in the Bank-
ruptcy Act of August 8, 1997. However, the integration of the statutory rules on bankruptcy into the
Economic Law Code involved only a few substantial changes. The most important change was the
extension of the scope of application of the rules of bankruptcy. Under the former legislation, bank-
ruptcy proceedings were only open to debtors involved in commercial activities,
14
whereas under the
new Book XX of the Economic Law Code, bankr uptcy proceedings are open to all debtors qualifying
as an “enterprise”within the meaning of this book (including, as a rule, any individual who indepen-
dently exercises a professional activity, any legal entity and any organisation without legal personal-
ity; Article 1 of Book XX Economic Law Code).
The new Article 98 of Book XX of the Economic Law Code explicitly defines the main purpose
of a bankruptcy as the liquidation of the estate of the debtor and the distribution of the proceeds
among the creditors. The declaration of bankruptcy by the court is seen as a collective seizure of the
debtor's assets on behalf of all creditors.
15
As of that moment, the position of the creditors is fixed, in
the sense that the creditors can no longer alter their position to the detriment of other creditors (the
fixation principle).
In order to participate in the distribution of the proceeds of the liquidation of the debtor's estate,
the creditors have to submit their claim(s) into the bankruptcy proceedings, after which the bank-
ruptcy administrator has to admit these claims. As to the distribution of the proceeds, the pari passu
rule (also referred to as the principle of equality of creditors), as laid down in Article 8 of the
12
Teemu Juutilainen, Secured Credit in Europe:From Conflicts to Compatibility (Hart, 2018), 143.
13
Eric Dirix and Roel Fransis, “National Report for Belgium”in Dennis Faber et al. (eds), Commencement of Insolvency
Proceedings (Oxford University Press, 2012), 46–47.
14
ibid., 46.
15
Dirix and Verougstraete, abovenote 2, 106.
142 BAECK
Mortgage Act, applies. This principle means that, as a rule, the proceeds of the debtor's estate have to
be distributed in proportion to the amount of the admitted claims.
16
Nonetheless, the principle of equality of creditors is subject to numerous exceptions under Belgian
law.
17
First of all, priority of a creditor can result from a secur ity interest granted by the debtor. Such
security interest may be granted in movable (pledge) or immovable assets (mortgage). In this article,
creditors benefitting from a security interest granted by the debtor will be referred to as “secured
creditors,”and their claims will be referred to as “secured claims.”A secured creditor will receive pri-
ority payment out of the proceeds of the secured asset. In bankruptcy proceedings, secured creditors
are considered as “separatists.”This means that they have the option to remain outside the bank-
ruptcy proceedings
18
and to enforce the secured asset themselves
19
(without the intervention of the
bankruptcy administrator).
Next, Belgian law protects numerous creditors by giving them a statutory preference over the
debtor's assets. Such creditors will be called “preferential creditors”in this article; their claims will
be referred to as “preferential claims.”A statutory preference can be given on one or more specific
movable or immovable assets of the debtor (usually because there is a link between these assets and
the creditor's claim). Such a so-called “specific statutor y preference”exists, for example, for claims
for the unpaid purchase price of a movable
20
or immovable
21
asset of the debtor, claims for expenses
incurred in preserving a movable asset of the debtor,
22
claims for unpaid rent for an immovable prop-
erty
23
and claims of subcontractors.
24
Just like secured creditors, creditors benefitting from a specific
statutory preference are considered as “separatists”in the bankruptcy proceedings.
Besides the numerous specific statutory preferences, there is also a long list of the so-called “gen-
eral statutory preferences”which grant the creditor priority on the proceeds of all the (movable)
assets of the debtor. Such general statutory preferences are granted, for example, to tax authorities,
employees, and social security agencies. In additi on, Belgian law grants certain creditors (especially
tax authorities) a statutory mortgage on the immovable assets of the debtor.
There is a complex hierarchy encompassing the numerous statutory preferences and security
rights. Conflicts are to be resolved by applying priority rules, fixed by statute and case law, determin-
ing the order in which competing creditors may satisfy their claims from the debtor's assets. As a
result, the above-mentioned pari passu rule only applies to the nonpreferential unsecured claims and,
sometimes, within a class of claims benefitting from a security right or statutory preference with the
same ranking.
In this article, nonpreferential unsecured claims are referred to as “ordinary unsecured claims”;
creditors with such claims are called “ordinary unsecured creditors.”
The pari passu rule further implies that set-off is, as a rule, no longer possible once the bank-
ruptcy proceedings are opened, because this would allow a creditor to receive payment of its claim
ahead of other creditors. However, there are statutory exceptions to this rule (e.g., in favour of tax
16
Fransis, above note 3, 97.
17
Dirix and Verougstraete, abovenote 2, 119.
18
Although separatists—like the other concurrent creditors—also have to submit their claim(s) in the bankruptcy proceedings.
19
Although there is a limited stay of their rights of enforcement.
20
Article 20, 5Belgian Mortgage Act of 16 December 1851.
21
ibid., Article 27, 1.
22
ibid., Article 20, 4.
23
ibid., Article 20, 1.
24
ibid., Article 20, 12.
BAECK 143
authorities). Furthermore, set-off remains possible for the so-called “connected”claims (e.g., claims
arising from the same contract).
25
Finally, the above-mentioned claims (secured claims, preferential claims, and ordinary unsecured
claims) are always so-called “insolvency claims,”i.e., claims which exist at the moment of the open-
ing of the bankruptcy proceedings.
26
This article does not deal with so-called “administration
claims,”i.e., claims which arise after the opening of the bankruptcy proceedings as a result of the
management of the bankruptcy estate by the administrator and which are to be satisfied prior to insol-
vency claims.
3|METHODOLOGY
The data for the research conducted were manually collected between November 2016 and January
2017 at the Commercial Court of Ghent, Belgium's second largest city (based on the number of
inhabitants).
In the Commercial Court of Ghent, bankruptcy files are classified according to the year in which
the bankruptcy proceedings were opened. Due to the large number of bankruptcy proceedings that
are opened each year (for example, for Ghent: more than 300 bankruptcies per year (at least since
2005)
27
) and given the limited time and resources available for conducting the research, the research
was limited to files of bankruptcy proceedings that were opened in one specific year. For the
research conducted, only files of closed bankruptcy proceedings were useful, because only these
files provide insight into the distribution of the proceeds of the bankruptcy estate among the insol-
vency creditors. As the president of the Commercial Court of Ghent estimated that most bankruptcy
proceedings are closed within 10 years, we decided to focus our research on the files of bankruptcy
proceedings that were opened in 2006 and were closed before January 1, 2017. Thus, the aim was
to find a balance between a sufficient number of closed cases and at the same time cases that were
not too old. Further, we are aware that bankruptcy proceedings that were opened in 2006 were
governed by the Bankruptcy Act of 8 August 1997, whereas, since May 1, 2018, the statutory
rules on bankruptcy have been laid down in Book XX of the Eco nomic Law Code. However, as
mentioned before, the integration of the statutory rules on bankruptcy into the Economic Law
Code only involved some minor substantive changes. Therefore, the research conducted remains
relevant.
This selection resulted in 288 bankruptcy files (out of the 331
28
bankruptcy files that were opened
at the Commercial Court of Ghent in 2006). Of these files, two files were left out because they did
not provide a clear overview of the claims of the insolvency creditors and were therefore not useful
for the present research. Thus, in total, 286 bankruptcy files were involved in the analysis.
The data collected from these 286 bankruptcy files were entered into two datasets. In the first
dataset, characteristics (variables) of the bankruptcy itself were entered, such as the legal form and
the enterprise number of the debtor, the total amount of the proceeds of the bankruptcy estate, and
the number of claims of the creditors. On the basis of the data collected, a few more additional vari-
ables were added, such as the economic activity (according to the NACE code) of the debtor, which
was searched manually in the databases of the Crossroads Bank for Enterprises and the National
Bank of Belgium.
25
Dirix and Verougstraete, abovenote 2, 137.
26
Dirix and Fransis, above note 13, 64.
27
For more detailed bankruptcy statistics for Belgium, see:.
28
See: ten>.
144 BAECK
In the second dataset, characteristics were included of the (in total) 5,924 claims submitted by
the creditors in the bankruptcy cases investigated. This included data about the legal form of the
creditor for the claim, the amount of the claim, the dividend received, whether or not the claim was
secured by a security right, whether or not the claim was secured by a statutory preference, and so
forth. Here again, based on the collected data, some additional data were included, such as the
economic activity of the creditor (according to the NACE code). Due to the limitation of our
research to the bankruptcy files that were opened in 2006 by the Commercial Court of Ghent and
closed before January 1, 2017, the findings of our research cannot simply be generalised. However,
some important data from the bankruptcy cases studied turned out to be quite comparable with the
data for all Belgian bankruptcies, which are collected and published by the Belgian statistical office
(STATBEL).
29
Table 1 shows that the data on the legal form of the debtor in the Ghent bankruptcies of
2006 are comparable with the data that STATBEL has published for all Belgian bankruptcies for
the period 2000–2017. Thus, we see that the limited liability company, the sole proprietorship,
and the public limited liability company—in that order—are the most common legal forms of
the debtor (in both situations accounting for just over 90% of the bankruptcies). However, the
relative share of these legal forms in the total number of bankruptcies is slightly different: In
the Ghent bankruptcies of 2006, there were 9.9% fewer limited liability companies involved
than in the total group of bankruptcies for the period 2000–2017, whereas there were 8.5% more
sole proprietors.
Further, Table 2 shows that the data on the economic activity of the debtor are also quite compara-
ble for the Ghent bankruptcies of 2006 and all Belgian bankruptcies for the period 2000–2017. In
both cases, most bankruptcies occur in the trade sector, followed by the accommodation and food
service activities sector and the construction sector. In the Ghent files of 2006, we see 8.1% more
bankruptcies in accommodation and food service activities, compared with 4% fewer bankruptcies in
construction.
The STATBEL website does not contain information about other characteristics of the
Belgian bankruptcies of 2000–2017 (such as the amount of the proceeds of the bankruptcy estate
or the number of creditors). Therefore, it was not possible to compare the Ghent bankruptcies
of 2006 on other points with the total group of Belgian bankruptcies for the period from 2000
to 2017.
29
Idem.
TABLE 1 Legal form of the debtor
Legal form of the debtor Ghent bankruptcies (2006) All Belgian bankruptcies (2000–2017)
Number Percentage Number Percentage
Sole proprietorship 80 28.0% 31,089 19.5%
Public limited liability company 36 12.6% 18,604 11.7%
Private limited liability company 143 50.0% 95,532 59.9%
Other 27 9.4% 14,251 8.9%
Total 286 100.0% 159,476 100.0%
BAECK 145
4|RESULTS OF THE ANALYSIS OF THE BANKRUPTCY
FILES
In the first stage, it will be determined how much was left (4.1) for the (different classes of?) insol-
vency creditors (4.2) in the bankruptcy cases analysed. Subsequently, the recovery rate for the differ-
ent classes of creditors will be calculated (4.3).
TABLE 2 Economic activity (NACE code) of the debtor
Economic activity (NACE) of the debtor
Ghent bankruptcies
(2006)
All Belgian
bankruptcies
(2000–2017)
Number Percentage Number Percentage
A. Agriculture, forestry and fishing 11 3.8% 1,497 0.9%
B. Mining and quarrying 0 0.0% 37 0.0%
C. Manufacturing 19 6.6% 9,072 5.7%
D. Electricity, gas, steam and air conditioning supply 0 0.0% 60 0.0%
E. Water supply, sewerage,waste management and
remediation activities
1 0.3% 285 0.0%
F. Construction 34 11.9% 25,343 15.9%
G. Wholesale and retail trade, repair of motor vehicles and
motorcycles
79 27.6% 45,148 28.3%
H. Transportation and storage 20 7.0% 8,151 5.1%
I. Accommodation and food service activities 77 26.9% 29,928 18.8%
J. Information and communication 8 2.8% 5,371 3.4%
K. Financial and insurance activities 2 0.7% 2,079 1.3%
L. Real estate activities 9 3.1% 3,410 2.1%
M. Professional, scientific and technical activities 12 4.2% 10,135 6.4%
N. Administrative and support service activities 7 2.4% 8,360 5.2%
O. Public administration and Defence; compulsory social
security
0 0.0% 8 0.0%
P. Education 1 0.3% 429 0.3%
Q. Human health and social work activities 1 0.3% 866 0.5%
R. Arts, entertainment and recreation 2 0.7% 2,116 1.3%
S. Other service activities 3 0.3% 4,249 2.7%
T. Activities of households as employers, undifferentiated
goods and services producing activities of households for
own use
0 0.0% 11 0.0%
U. Activities of extraterritorial Organisations and bodies 0 0.0% 1 0.0%
Unknown 2,920 1.8%
Total 286 100.0% 159,476 100.0%
146 BAECK
4.1 |Proceeds of the bankruptcy estate
In the bankruptcy files analysed, the mean amount of the proceeds of the bankruptcy estate was EUR
62,544.70.
30
However, this mean was strongly influenced by two cases in which the proceeds were—
at least in relative terms—very high (EUR 2,961,990.75
31
and EUR 4,658,596.33
32
respectively).
33
On the other hand, in 18.2% (N= 52) of the bankruptcies analysed, there were no assets at all. In
54.2% (N= 155), the proceeds were lower than EUR 5,000, whereas in 92.3% (N= 264), the
proceeds were lower than EUR 100,000.
After payment of the administration costs and the fees of the bankruptcy administrator, the mean
amount of the available balance of the proceeds of the bankruptcy estate was EUR 50,794.54
34
(again, strongly influenced by the two aforementioned bankruptcies with very high proceeds). In
46.2% (N= 132) of the bankruptcies analysed, none of the insolvency creditors received any
payment.
4.2 |Creditors and their claims
4.2.1 |Total amount of the creditors' claims
In the bankruptcy files analysed, the mean total amount of the claims of the insolvency creditors was
EUR 235,243.69.
35
The mean total amount of the secured and preferential claims was EUR
123,930.83,
36
whereas the mean total amount of the ordinary unsecured claims was EUR
108,381.21.
37
4.2.2 |Number of creditors' claims
In the bankruptcies analysed, the mean number of insolvency claims was 21. Table 3 gives an over-
view of the mean number of insolvency claims per bankruptcy as well as of the number of bankrupt-
cies in which each type of insolvency claim was found. This overview shows that ordinary unsecured
claims (with a mean of 14 per bankruptcy and found in 281 bankruptcies) and general preferential
claims (with a mean of 6 per bankruptcy and found in 281 bankruptcies) are by far the most common
in the bankruptcies analysed.
30
Minimum: EUR 0.00; maximum: EUR 4,325,596.33; standard deviation: EUR 341,044.30
31
File no. 98/06.
32
File no. 354/06.
33
When these two cases are left out of the analysis, the mean amount of the proceeds of the bankruptcy estate is EUR
36,152.10 (minimum: EUR 0.00; maximum EUR 1,074,217.60; standard deviation: EUR 109,937.21). In these cases, the
recovery rate for (all) the creditors is 100%. However,this was also the case in five other files (nos. 09/06, 28/06, 156/06,
265/96 and 274/06), in which the amount of the proceeds was much lower (ranging from EUR 38,642.97 (file no. 09/06) to
EUR 183.660,49 (file no. 156/06). Therefore, the two mentioned cases inwhich the amount of the proceeds was relatively high
were included in the further descriptive analysis in this article.
34
Minimum: EUR 0.00; maximum: EUR 3,910,107.61; standard deviation: EUR 297,370.73.
35
Minimum: EUR 0.00; maximum: EUR 4,354,973.59; standard deviation: EUR 499,749.28.
36
Minimum: EUR 0.00; maximum: EUR 3,775,869.55; standard deviation: EUR 344,176.06.
37
Minimum: EUR 0.00; maximum: EUR 3,063,686.94; standard deviation: EUR 269,076.64.
BAECK 147
4.2.3 |Separatists
As mentioned before, secured creditors and creditors benefitting from a security right or a specif ic
statutory preference may act as “separatists”in the event of bankruptcy, which means that, under cer-
tain conditions, they can enforce their collateral without the intervention of the bankruptcy adminis-
trator. Only in four of the analysed bankruptcy files
38
did one of the creditors actually act as a
separatist. In all four files, this was a bank with a claim secured by a mortgage and thus benefitting
from a separatist position. Hence, it seems to be rather rare for creditors to make use of their separat-
ist position in the event of bankruptcy.
39
The claims of the creditors who acted as separatist s were not included in the overview in Table 3
because they remained outside the bankruptcy proceedings. However, their claims will be included in
38
Files nos. 89/06, 250/06, 284/06 and 342/06.
39
See also Dirix and Verougstraete, abovenote 2, 122: “although secured creditors are considered to be so called ‘separatists’
who remain outside of the proceedings, it is in practice very often the administrator who will realise the assets subject to
security rights.”
TABLE 3 Mean number of claims per bankruptcy
Type of claim
Number of bankruptcies
in which this type of
claim was found
Minimum
per
bankruptcy
Maximum
per
bankruptcy
Mean
number per
bankruptcy
Standard
deviation
Claim paid by set-off 15 0 2 0.06 0.28
Preferential claim
(general statutory
preference)
281 0 44 5.51 5.10
Preferential claim
(specific statutory
preference)
83 0 7 0.45 0.923
Secured claim
(mortgage)
19 0 5 0.09 0.43
Secured claim
(pledge)
45 0 2 0.17 0.41
Nonspecified
preferential or
secured claim
a
51 0 26 0.38 1.70
Ordinary unsecured
claim
281 0 186 14.01 20.10
Nonspecified
preferential,
secured or
unsecured claim
b
8 0 7 0.10 0.68
Total 286 0 265 20.70 25.44
a
For these claims, it was clear that they were secured by a security right or statutory preference, but it remained unclear by which
security right or statutory preference.
b
For these claims, it was unclear whether they were secured, preferential or ordinary unsecured.
148 BAECK
the further analysis, because they complete the overview of the existing insolvency claims at the
moment of the opening of the bankruptcy proceedings.
4.2.4 |Classes of claims (according to their priority status)
As explained before, a total of 5,924 claims was included in our analysis. In the Appendix, some
characteristics of these claims with regard to the legal form and the economic activity of the creditor
are described. In this section, the priority status of these claims will be analysed.
As Table 4 shows, ordinary unsecured claims represent more than 2/3 of the total number of
claims analysed (67.7% (N= 4,012)). One of these claims was paid through set-off. Further, 26.6%
(N= 1,579) of the total number of claims are secured by a general statutor y preference, whereas
only 2.2% (N= 131) are secured by a specific statutory preference. Sixteen claims secured by a
general statutory preference were paid through set-off. Mortgages and pledges each occur in less
than 1% of the claims analysed. Fourteen of the claims analysed were secured by a combination of
security rights.
TABLE 4 Priority position of the claims
Type of claim
Number
of
claims
Percentage of
the Total
number of
claims
Number of bankruptcies
in which this type of
claim is found
Percentage of the Total
number of
bankruptcies (N= 286)
Ordinary unsecured
claim
4,012 67.7% 282 98.6%
Preferential claim
(general statutory
preference)
1,579 26.7% 279 97.6%
Preferential claim
(specific statutory
preference)
131 2.2% 87 30.4%
Secured claim
(mortgage)
25 0.4% 19 6.6%
Secured claim
(pledge)
39 0.7% 36 12.6%
Secured claim
(combination of
security rights)
14 0.2% 13 4.5%
Nonspecified
preferential or
secured claim
a
96 1.6% 43 15.0%
Nonspecified
preferential,
secured or
unsecured claim
b
28 0.5% 7 2.4%
Total 5,924 100.0% N/A N/A
a
For these claims, it was clear that they were secured by a security right or statutory preference, but the specific type of security right
or statutory preference remained unclear.
b
For these claims, it was unclear whether they were secured, preferential or ordinary unsecured.
BAECK 149
When we take a closer look at the general statutory preferences (see Table 5), we see that general
statutory preferences of tax authorities represent 43.7% (N= 690) of the total number of the general
statutory preferences invoked. They were invoked in 93.7% of the bankruptcies analysed (or in
94.4% of the bankr uptcies in which there were actually insolvency claims [N= 284]). General statu-
tory preferences of social security agencies or employees represent 51.3% (N= 810) of the total num-
ber of invoked general statutory preferences. They were invoked in 98.6% of the bankruptcies
analysed (or in 99.3% of the bankr uptcies in which there were actually insolvency claims [N= 284]).
4.3 |Recovery rate
Now that we have gained insight into both the proceeds of the assets of the bankruptcy estate and the
claims of the creditors, the mean recovery rate for the different classes of creditors (according to their
priority position) can be calculated. The recovery rate for a creditor reflects the percentage of its
claim that has been paid; this is calculated by dividing the nominal amount of the dividend received
by the total nominal amount of the claim.
40
Table 6 gives an overview of the mean recovery rate for the different classes of creditors,
according to their priority position in the event of bankruptcy. First, the mean recovery rate for the
different classes of creditors was calculated for each bankruptcy. Subsequently, the mean of these
recovery rates was calculated (for all bankruptcies together). In addition, the mean recovery rate for
the different classes of creditors was also calculated on the total number of claims (for example, the
mean recovery rate for all creditors included in the second dataset benefitting from a general statutory
TABLE 5 General statutory preferences of tax authorities, social security agencies, and employees
Type of
general
statutory
preference
Number
of
claims
Percentage
of the Total
number of
claims
(N= 5,924)
Percentage of the
Total number of
claims guaranteed by
a general statutory
preference
(N= 1,579)
Number of
bankruptcies in
which the
mentioned general
statutory
preference is
invoked
Percentage of
the Total
number of
bankruptcies
(N= 286)
General
statutory
preference
of social
security
agencies
a
and
employees
810 13.7% 51.3% 282 98.6%
General
statutory
preferences
of tax
authorities
690 11.6% 43.7% 268 93.7%
Total 1,500 25.3% 95.0% 284 99.3%
a
Including payroll administration agencies.
40
Cf. Karen Luttikhuis, Corporate recovery. De weg naar effectief insolventierecht (2007), 34, available at
portal/en/publications/corporate-recovery(175c2c7c-e8bb-4634-ba49-7e1415cae43e).html>.
150 BAECK
preference). Further, Table 6 also indicates the total amount paid out (over all bankruptcies) to the
different classes of creditors.
The mean recovery rate (per bankruptcy) of all creditors together (regardless of their priority posi-
tion) is 10.89%. As shown in Table 6, there are remarkable differences in recovery rate between th e
different classes of creditors. The mean recovery rate for secured creditors is the highest: the mean
recovery rate for claims secured by a mortgage is 78.97%; for claims secured by a combination of
security rights, the mean recovery rate is 56.74%; for claims secured by a pledge, the mean recovery
rate is 41.57%. Further, the mean recovery rate for creditors benefitting from a general statutory pref-
erence is 22.30%, whereas the mean recovery rate for creditors benefitting from a specific statutory
preference is 39.51%. The recovery rate for ordinary unsecured creditors is pitifully low: only 4.77%.
When we take a closer look at the dividends paid to the creditors, Figure 1 shows that more
than half of the proceeds that were distributed in all the analysed bankruptcies together (includ-
ing the amounts received by the four creditors who made use of their separatist position) was
paid to creditors with a security right—either a mortgage or a right of pledge or a combination
of security rights (together accounting for [only] 78 of the 5,924 claims). The vast majority of
these secured creditors (i.e., 87.18%) were active in the financial and insurance sector. Slightly
less than one third (i.e., 32.26%) of the proceeds that were distributed was paid to creditors
TABLE 6 Mean recovery rate
Type of claim
Mean
recovery
rate per
bankruptcy
Mean recovery rate,
calculated on the
Total number of
claims
Dividend (in
EUR)
Dividend (% of the Total amount
that was distributed (in all
bankruptcy files together = EUR
15,058,057.78)
All claims 10.89% 15.01% 15,058,057.78 100.00%
Preferential
claims
(general
statutory
preference)
22.30% 26.46% 4,858,413.81 32.26%
Preferential
claims
(specific
statutory
preference)
39.51% 46.40% 312,277.11 2.07%
Secured
claims
(mortgage)
78.98% 78.10% 4,340,343.66 28.82%
Secured
claims
(pledge)
41.57% 44.26% 1,284,257.69 8.53%
Secured
claims
(combination of
security rights)
56.74% 59.83%
2,232,783.91 14.83%
Ordinary
unsecured
claims
4.77% 9.11% 2,029,981.60 13.48%
BAECK 151
benefitting from a general statutory preference: EUR 3,441,034.87 (i.e., 22.85% of the proceeds)
was paid to social security institutions/insurers/employees benefitting from a general statutory
preference and EUR 1,400,314.59 (i.e., 9.30% of the proceeds) to tax authorities with a general
statutory preference. Only 13.48% was granted to ordinary unsecured creditors (representing
4,012 of the 5,924 claims).
This analysis shows that, in the event of bankruptcy, there is indeed little left for the ordinary
unsecured creditors. However, this is only partially due to the priority that is given to the
secured and preferential creditors. As explained above, in almost half of the bankruptcies, there
is nothing left to distribute among the creditors in any case. Obviously, this also has an impact
on the recovery rate for the ordinary unsecured creditors. Therefore, Table 7 shows the mean
FIGURE 1 Distribution of the proceeds
among the creditors (depending on their
priority position)
TABLE 7 Mean recovery rate after filtering out the bankruptcies in which there was no payment to any of the
insolvency creditors
Type of claim
Mean recovery rate per
bankruptcy (for all bankruptcies
analysed; N= 286)
Mean recovery rate per bankruptcy (filtering
out the bankruptcies in which no payment was
made to any of the insolvency creditors;
N= 154)
All claims
(together)
10.89% 20.11%
Preferential claims
(general statutory
preference)
22.30% 40.80%
Preferential claims
(specific statutory
preference)
39.51% 50.57%
Secured claims
(mortgage)
78.98% 78.98%
Secured claims
(pledge)
41.57% 51.27%
Secured claims
(combination of
security rights)
56.74% 67.06%
Ordinary unsecured
claims
4.77% 8.74%
152 BAECK
recovery rate for the different classes of creditors, after filtering out the bankruptcies in which
nothing was left for any of the insolvency creditors. We see that, in that case, the mean recovery
rate of the different classes of creditors increases. Only for claims secured by a mortgage does
the mean recovery rate remain the same. This means that in the bankruptcies in which no pro-
ceeds were left for the insolvency creditors, there were no claims secured by a mortgage. We
can also see that for ordinary unsecured claims, the increase in the mean recovery rate is much
smaller than for the other types of claims.
5|PROPOSALS TO IMPROVE THE POSITION OF ORDINARY
UNSECURED CREDITORS
In this section, we will briefly discuss the two most recent Belgian legislative proposals for improv-
ing the position of ordinary unsecured creditors by means of reducing the number of statutory prefer-
ences. We will also analyse what impact these proposals would have had in the bankruptcy cases
studied and whether they would have led to a significant improvement in the position of the ordinary
unsecured creditors (5.1).
Next, we will briefly point out (because this was not the focus of our research but may be relevant
for further research) that, in other legal systems, different proposals (other than the reduction of the
number of statutory preferences) are sometimes made for improving the position of ordinar y
unsecured creditors. For one of these proposals, we will also analyse what impact it would have if it
was applied in the bankruptcy cases studied (5.2).
However, before making this analysis, we must examine what the recovery rate for the ordi-
nary unsecured creditors would be in the scenario in which no security rights or statutory prefer-
ences would exist and in which, consequently, the pari passu rul e would fully apply. As Table 8
shows, the mean recovery rate of the ordinary unsecured creditors would almost be tripled:
TABLE 8 Most favourable scenario for the ordinary unsecured creditors
Scenario
Mean recovery rate for ordinary
unsecured claims per
bankruptcy (all bankruptcies;
N= 286)
Mean recovery rate for ordinary
unsecured claims per bankruptcy
(filtering out the bankruptcies
in which no payment was made
to any of the insolvency creditors;
N= 154)
Results of the analysis of the
bankruptcy files (IV)
4.77% 8.74%
Scenario 1: Abolition of all security
rights and statutory
preferences + Total abolition of
set-off after bankruptcy
12.47% 23.12%
Scenario 1b: Abolition of all security
rights and statutory preferences (+
no abolition of set-off after
bankruptcy)
12.38% 22.96%
BAECK 153
Whereas the mean recovery rate for ordinary unsecured claims was 4.77% in the bankruptcy cases
studied, this would be 12.38% if all security r ights and statutory preferences were abolished
(or 12.47% if set-off after bankruptcy were to be totally excluded). In our further analysis, we
must take into account that these are the highest possible recovery rates that creditors would be
able to achieve in the bankruptcy cases that were studied. After all, the fact that there is little left
for the ordinary unsecured creditors is not only due to the priority that is given to the secured
and preferential creditors but also to the fact that proceeds of the bankruptcy estate are often rela-
tively low (see 4.1).
5.1 |Belgian proposals to improve the position of ordinary unsecured
creditors
In the past, proposals have been made to improve the position of the ordinary unsecured creditors
but without success so far. In 2008, a Draft Act was introduced in the Belgian Federal Parliament
to abolish a number of statutory preferences and mortgages of tax authorities. However, this pro-
posal was never adopted and did not lead to a change in the law (5.1.1). In 2011, the Preliminary
Draft Act on securities on movables proposed an even larger reduction in the number of statutory
preferences. But in the end, only a few, rather insignificant statutory preferences were abolished
(5.1.2).
5.1.1 |Draft Act of 2008
In 2008, a Draft Act was introduced in the Belgian Federal Parliament to abolish the most common
general statutory preferences and mortgages of tax authorities, in particu lar with regard to income
TABLE 9 Simulation—Abolition of the most important general statutory preferences and mortgages of tax
authorities (Draft Act of 2008)
Scenario
Mean recovery rate for
ordinary unsecured claims per
bankruptcy (all bankruptcies;
N= 286)
Mean recovery rate for ordinary
unsecured claims per bankruptcy
(filtering out the bankruptcies in
which no payment was made to any
of the insolvency creditors;
N= 154)
Results of the analysis of the
bankruptcy files (IV)
4.77% 8.74%
Scenario 1: Abolition of all security
rights and statutory
preferences + Total abolition of
set-off after bankruptcy
12.47% 23.12%
Scenario 2: Abolition of a Number
of Statutory Preferences and
Mortgages of Tax Authorities
(Draft Act 2008)
6.29% 11.51%
154 BAECK
tax, VAT, and customs duties.
41
However, this proposal was not adopted. Table 9 shows that, if the
proposal of the Draft Act of 2008 were to be applied in the bankruptcy cases studied, the mean
recovery rate for the ordinary unsecured creditors would increase from 4.77% to 6.29%. When fil-
tering out the bankruptcies in which no payment to any of the insolvency creditors was made, the
mean recovery rate for the ordinary unsecured creditors would increase from 8.74% to 11.51%.
5.1.2 |Preliminary Draft Act of 2011
In 2011, the Dirix Committee (named after its president, Professor Eric Dirix), appointed by the Bel-
gian Minister of Justice, presented a Preliminary Draft Act to amend the Civil Code with regard to
security rights on movables.
42
In this Preliminary Draft Act, the Dirix Committee also recommended
the abolition of the general statutory preference for income taxes and VAT. Furthermore, the commit-
tee recommended decreasing the number of specific statutory preferences and abolishing the specific
statutory preference for claims for unpaid rent for an immovable property, claims for the supply of
seeds, claims for expenses incurred in preserving a movable asset of the debtor, claims for the unpaid
purchase price of a movable asset of the debtor, claims of a pledgee, claims of a hotelkeeper, and
claims of a carrier.
43
However, the government did not follow the recommendation of the Dirix Committee to review
the number of statutory preferences. Consequently, the bill that was finally submitted to the Belgian
Federal Parliament only provided for the abolition of the specific statutory preference of pledgees
(which was, however, neutralised by the introduction of new rules on pledges, giving a pledgee prior-
ity on the encumbered assets), hotelkeepers, and suppliers of seeds. This approach was followed by
the Parliament. Therefore, the final Act of July 11, 2013, on Security Rights on Movables
44
did not
lead to the significant decrease in the number of statutory preferences as proposed by the Dirix
Committee.
When we apply the new rules of the Act of 11 July 2013 to the bankr uptcy files studied, we do
not see any change in the mean recovery rate for the ordinary unsecured creditors. In the bankruptcy
files studied, the general statutory preferences of a supplier of seeds or a hotelkeeper were never
invoked. However, the explanatory memorandum accompanying the bill that was introduced by the
government shows that the new act was expected to lead to an increase in the recovery rate for ordi-
nary unsecured creditors.
45
By contrast, if the recommendations of the Dirix Committee were applied to the bankruptcy cases
studied, this would lead to an improvement in the position of the ordinary unsecured creditors. It has
already been explained above to what extent the general statutor y preferences of tax authorities for
income tax and VAT were invoked in the bankruptcy files studied. As far as the specific statutory
preferences are concerned, only the privilege for unpaid rent for an immovable property (N= 66),
the privilege for the costs of preserving a movable asset (N= 40), and the privilege of the unpaid
seller (N= 14) were invoked.
41
Draft Act to abolish the statutory preferences and mortgages of the tax authorities, Parl.Doc.Chamber of Representatives
2008–09, 52–1521/1, 3, available at:
42
Preliminary Draft Act to amend the Civil Code with regard to security rights on movables, 2011, available at:
justice.belgium.be/sites/default/files/downloads/loi_suretes.pdf>.
43
ibid., 12.
44
For a commentary (in English), see Eric Dirix, “The New Belgian Act on Security Interests on Movables”(2014)
23 International Insolvency Review 171.
45
Parl. Doc., no. 53–2463/1, 13, availableat .
BAECK 155
Table 10 shows that, in the scenario envisaged by the Dirix Committee, the mean recovery rate
for the ordinary unsecured creditors would increase to 6.54%. If we filter out the bankruptcies in
which nothing was left for the insolvency creditors, the mean recovery rate of the ordinary unsecured
creditors would be 11.98%.
5.2 |Brief comparison with proposals to improve the position of ordinary
unsecured creditors in other legal systems
Although this did not strictly fall within the scope of our research (but may be relevant for further
research), it should be noted that other legal systems sometimes use other means (means other than
the reduction of the number of statutory preferences) to improve the position of ordinary unsecured
creditors. Thus, in some legal systems, a carve-out rule applies, pursuant to which a prescribed part
of the proceeds available for the secured creditors is set aside for distribution to the unsecured credi-
tors. English law represents a good example of this, because it prescribes that, where there is a float-
ing charge (i.e., a nonpossessory security right on all the assets, existing and future, of a company), a
“prescribed part”of the company's assets is reserved for the unsecured creditors. This prescribed part
constitutes 50% of the company's net property when that property does not exceed GBP 10,000. If
the company's net property exceeds GBP 10,000, the prescribed part is calculated as follows: 50% on
the first GBP 10,000 in value and 20% of that part of the company's net property which exceeds GBP
10,000, up to a maximum of GBP 600,000.
46
In the Netherlands—where the problem of empty bankruptcy estates seems to be even bigger than
in Belgium
47
—the Dutch Association of Insolvency Lawyers (INSOLAD) made a proposal in 2012
TABLE 10 Simulation—Abolition of some important tax privileges and a number of specific privileges
(recommendations of the Dirix committee 2011)
Scenario
Mean recovery rate for
ordinary unsecured claims per
bankruptcy (all bankruptcies;
N= 286)
Mean recovery rate for ordinary
unsecured claims per bankruptcy
(filtering out the bankruptcies in
which no payment was made to any
of the insolvency creditors;
N= 154)
Results of the analysis of the
bankruptcy files (IV)
4.77% 8.74%
Scenario 1: Abolition of all security
rights and statutory
preferences + Total abolition of
set-off after bankruptcy
12.47% 23.12%
Scenario 3: Abolition of the most
important General Statutory
Preferences of Tax Authorities
and of some Specific Statutory
Preferences (Dirix Committee
2011)
6.54% 11.98%
46
Article 3, Insolvency Act 1986 (Prescribed Part) Order 2003.
47
Gijs van Dijck, Reinout Vriesendorp and Délon Vielvoye, “Lege boedels: code rood of vals alarm? Een verkennende
empirische studie naar Bredase ervaringen met lege boedels”[2008] Tijdschrift voor Insolventierecht 210.
156 BAECK
to introduce a carve-out rule into Dutch law. This INSOLAD proposal entailed that creditors with a
conventional security right (a pledge or a mortgage) which act as separatists would have to pay a part
of the net proceeds of their collateral to the bankruptcy estate (20% for movable assets, 15% for
immovable assets). However, this proposal was not adopted.
It was not possible to calculate what impact the application of the English carve-out rule or the
INSOLAD proposal would have had in the bankruptcy files studied, because the data collected did
not provide sufficient insight into the proceeds of the individual assets in the bankruptcies studied.
Besides, the introduction of a carve-out rule into Belgian law would not seem to have the necessary
TABLE 11 Overview of all the scenarios examined
Scenario
Mean recovery rate for
ordinary unsecured claims per
bankruptcy (all bankruptcies;
N= 286)
Mean recovery rate for ordinary
unsecured claims per bankruptcy
(filtering out the bankruptcies in
which no payment was made to any
of the insolvency creditors;
N= 154)
Results of the analysis of the
bankruptcy files (IV)
4.77% 8.74%
Scenario 1: Abolition of all security
rights and statutory
preferences + Total abolition of
set-off in case of bankruptcy
12.47% 23.12%
Scenario 1b: Abolition of all
security rights and statutory
preferences (+ no Total abolition
of set-off in case of bankruptcy)
12.38% 22.96%
Scenario 2: Abolition of certain
General Statutory Preferences of
Tax Authorities (Legislative
Proposal 2008)
6.29% 11.51%
Scenario 3: Abolition of the most
important General Statutory
Preferences of Tax Authorities
and of some Specific Statutory
Preferences (Dirix Committee
2011)
6.54% 11.98%
Scenario 4: Application of the 2:1
Rule (Kortmann Committee
2007—the
Netherlands) + Abolition of
Set-off in case of Bankruptcy
8.90% 16.33%
Scenario 4b: Application of the 2:1
Rule (Kortmann Committee
2007—the Netherlands) + No
Abolition of Set-off in case of
Bankruptcy
8.84% 16.23%
BAECK 157
support (at least, this was so at the time when the bankruptcy legislation was being modernised in
1997).
48
Another way to improve the position of ordinary unsecured creditors would be to introduce a new
system for distribution of the proceeds in case of bankruptcy. In the Netherlands, for example, the
Kortmann Committee (named after its president, Professor Bas Kortmann), when formulating its rec-
ommendation for a reform of the Dutch insolvency law in 2007, recommended that the proceeds
should be distributed between the secured/preferential and the ordinary unsecured creditors in a ratio
of 2:1. Hence, the proceeds would be distributed in such a way that creditors with a secured or prefer-
ential claim would receive twice as high a percentage of their claim as the ordinary unsecured credi-
tors. Table 11 shows that if this 2:1 rule recommended by the Kortmann Committee was applied to
the bankruptcy cases studied, the mean recovery rate for the ordinary unsecured creditors would
increase from 4.77% to 8.90%. Thus, this scenario would be more favourable for the ordinary
unsecured creditors than the above-mentioned Draft Act of 2008 (Scenario 2) and the recommenda-
tions of the Dirix Committee in 2011 (Scenario 3).
However, one should be aware that, when applying the 2:1 scheme, the dividends of the secured
creditors (especially banks) are affected, whereas this is not the case in the Draft Act of 2008 or the
2011 recommendations of the Dirix Committee. In Belgium, however, it seems that a weakening of
the strong position of banks in cases of bankruptcy is not to be expected in the near future, because
the explanatory memorandum accompanying the bill which led to the Act of 11 July 2013 on Secu-
rity Rights on Movables still emphasised the importance of security rights for lending.
49
6|CONCLUSIONS
The goal of our research was to investigate what is left for the different classes of insolvency creditors
in the event of bankruptcy. For this purpose, an empirical study was made of the bankruptcy files that
were opened in 2006 at the Commercial Court of Ghent and closed before January 1, 2017. Because
our research was limited to these files, our findings cannot simply be generalised. However, we have
pointed out that some important data from the Ghent bankruptcies of 2006 turned out to be quite
comparable with the data for all Belgian bankruptcies for the period 2000–2017 (specifically regard-
ing the legal form and the economic activity of the debtor). Therefore, it is to be expected that the
findings of our research may have a broader scope (although further research should be done to
confirm this).
First of all, our research has pointed out that, in the bankruptcies analysed, there was often not
much left to distribute among the insolvency creditors. In almost half (i.e., 46.2%) of the bankrupt-
cies, no payment was made to any of the insolvency creditors. But even when there was something
left for the creditors, the amount to be distributed was often (very) limited. When we look at all the
studied bankruptcies together, we find that more than half (i.e., 52.2%) of the proceeds to be distrib-
uted were paid to secured creditors. These creditors were usually banks or other companies in the
financial and insurance sector. Slightly more than one-third (i.e., 34.33%) of the proceeds were paid
to the preferential creditors, mainly consisting of social security agencies (including payroll adminis-
tration agencies) and employees (receiving 22.85% of the proceeds to be distributed) and tax authori-
ties (receiving 9.30% of the proceeds to be distributed). Approximately 1/7 (i.e., 13.48%) of the
proceeds was distributed to the ordinary unsecured creditors, even though their claims accounted for
48
Verougstraete, abovenote 3, 10.
49
Parl. Doc., Chamber of Representatives,no. 53–2463/1, 6, available at
53K2463001.pdf>.
158 BAECK
2/3 of the claims (4,012 of the 5,924 claims submitted were ordinary unsecured claims). This is, of
course, reflected in the recovery rate for the ordinary unsecured creditors: their mean recovery rate
was only 4.77%, whereas in a hypothetical situation without security rights, statutory preferences and
set-off after bankruptcy, their mean recovery rate would be 12.47%.
Various proposals have already been made to improve the position of ordinary unsecured credi-
tors, however without success in Belgium so far. The Belgian proposals often target the statutory
preferences of the tax authorities. However, our research has shown that, in the bankruptcies studied,
only 9.30% of the proceeds were paid out as dividends for claims of tax authorities secured by a gen-
eral statutory preference. Therefore, it was not surprising that, in general, abolition of (some) general
statutory preferences of tax authorities would lead to a rather limited increase in the mean recovery
rate for the ordinary unsecured creditors. Hence, if the legislator wants to improve the position of
ordinary unsecured creditors by reducing the number of statutory preferences, it would be better to
target not only the general statutory preferences of tax authorities but also the general statutory pref-
erences of social security agencies (and employees), as was already suggested in 2006 in an opinion
article in a Belgian business newspaper.
50
However, our research has shown that in the event of bankruptcy, the majority of the proceeds
does not go to the creditors with a statutory preference but to the secured creditors. If the legislator
really wants to improve the position of the ordinary unsecured creditors in the distribution of the pro-
ceeds, the position of the secured creditors (usually banks and other companies in the finance and
insurance sector) should be weakened. As mentioned in this article, such a weakening of the strong
position of banks is not to be expected in the near future in Belgium. The most important argument
against curtailing the strong position of banks is that this would reduce the availability of credit in
the economy, because banks would be lending less and on unfavourable terms, which would hurt all
businesses
51
(especially small businesses) and cause more bankruptcies.
52
How to cite this article: Baeck JR. Bankruptcy: What is left for the creditors? A Belgian
exploratory study. Int Insolv Rev. 2019;28:140–162. https://doi.org/10.1002/iir.1342
APPENDIX
In this Appendix, some characteristics with respect to the legal form and the economic activity of the
creditors the claims that were included in our research (see Section 4.2.4) are described.
In some of the bankruptcy files analysed, the legal form of the creditor of the claim was explic-
itly stated. If it was not stated, the legal form of the creditor was searched for at the Crossroads
Bank for Enterprises. Table A1 shows that for 30.8% (N= 1,825) of the claims, the creditor was a
public limited liability company. In 23.1% (N= 1370), the creditor was a public authority (broadly
defined and including federal public services [12.7%], other federal services [5.8%], Flemish public
services [1.8%], cities and municipalities [0.6%]). For 15.4% (N= 913) of the claims, the creditor
was a natural person, and for 12.5% (N= 793), a private limited liability company. For 10.0%
(N= 590) of the claims, the creditor was a nonprofit organisation (mostly social insurance funds or
payroll administration agencies).
50
Boudewijn Bouckaert and Rudi De Kerpel, “Schap voorrechten van RSZ en fiscus af”(De Tijd, 29 September 2006).
51
Cf. the discussion in the United States, as explained in LoPucki et al., abovenote 11, 683.
52
See Juutilainen, above note 12, 143.
BAECK 159
TABLE A1 Legal form of the creditor
Legal form of the creditor Number of claims Percentage
Natural person 913 15.4%
Private limited liability company 739 12.5%
Public limited liability company 1,825 30.8%
Cooperative company 116 2.0%
Other type of company 33 0.6%
Nonprofit organisation 590 10.0%
Public authority 1,370 23.1%
Foreign creditor 139 2.3%
Other legal form 194 3.3%
Missing 5 0.1%
Total 5,924 100.0%
TABLE A2 Economic activity of the creditor
Economic activity of the
creditor
Number
of
claims
Percentage of
the Total
number of
claims
Number of bankruptcies
in which a creditor with
the mentioned economic
activity is found
Percentage of
the Total
number of
bankruptcies
(N= 286)
A. Agriculture, forestry and
fishing
162 2.7% 11 3.8%
B. Mining and quarrying 3 0.1% 2 0.1%
C. Manufacturing 268 4.5% 99 34.6%
D. Electricity, gas, steam and
air conditioning supply
176 3.0% 142 49.6%
E. Water supply, sewerage,
waste management and
remediation activities
112 1.9% 86 30.1%
F. Construction 152 2.6% 53 18.5%
G. Wholesale and retail trade,
repair of motor vehicles and
motorcycles
798 13.5% 186 65.0%
H. Transportation and storage 107 1.8% 51 17.8%
I. Accommodation and food
service activities
62 1.0% 14 4.9%
J. Information and
communication
309 5.2% 160 55.9%
K. Financial and insurance
activities
371 6.3% 167 58.4%
L. Real estate activities 32 0.5% 22 7.7%
(Continues)
160 BAECK
The economic activity (according to the NACE code) of the creditors of the claims was searched
for in the Crossroads Bank for Enterprises. Most common in absolute numbers were creditors active
in the “Public Administration and Defence; Compulsory Social Security”sector (32.2%; N= 1908),
followed by creditors with an activity in the “Wholesale and Retail Trade; Repair of Cars and Motor-
cycles”sector (13.5%, N= 798; distributed as follows: wholesale: 9.3% [N= 552]; retail trade: 1.6%
[N= 97]; repair of cars and motorcycles: 2.5% [N= 149]) and natural persons not qualifying as an
enterprise (10.5%, N= 621), including a large number of employees ([at least] 7.4%, N= 437).
Table A2 not only shows the number of claims, classified according to the creditor's economic
activity, but also indicates in how many of the analysed bankruptcies such claims were found. Strik-
ingly, in 99.3% (N= 284) of the analysed bankruptcies, at least one creditor is active in the “Public
Administration and Defence; Compulsory Social Security”sector. In the two remaining bankruptcy
files, the bankruptcy trustee rejected all claims that were submitted, so that in all bankruptcies with
actual insolvency claims, at least one creditor was active in the “Public Administration and Defence;
TABLE A2 (Continued)
Economic activity of the
creditor
Number
of
claims
Percentage of
the Total
number of
claims
Number of bankruptcies
in which a creditor with
the mentioned economic
activity is found
Percentage of
the Total
number of
bankruptcies
(N= 286)
M. Professional, scientific and
technical activities
252 4.3% 141 46.3%
N. Administrative and support
service activities
260 4.4% 133 46.5%
O. Public administration and
defence; compulsory social
security
1,908 32.2% 284 99.3%
P. Education 6 0.1% 6 2.1%
Q. Human health and social
work activities
54 0.9% 49 17.1%
R. Arts, entertainment and
recreations
14 0.2% 13 4.5%
S. Other service activities 49 0.8% 34 11.9%
T. Activities of households as
employers, undifferentiated
goods and services
producing activities of
households for own use
1 Lessthan 0.1% 1 Less than 0.1%
Enterprise with unknown
economic activity
a
157 2.7% 30 10.5%
Natural person—Not an
enterprise
622 10.5% 126 44.1%
Unknown whether company or
not
49 0.8% 30 10.5%
Total 5,924 100.0% N/A N/A
a
Mostly foreign companies (N= 114), for which the NACE code could not be retrieved.
BAECK 161
Compulsory Social Security”sector (e.g., tax authorities, the national social security off ice, or social
security funds).
Table A3 provides a more detailed overview of some of the most common economic activities of
the creditors in the analysed bankruptcies. Tax authorities claiming payment of direct taxes (such as
income tax) had a claim in 83.2% (N= 238) of the analysed bankruptcies; tax authorities claiming
payment of VAT had a claim in 75.5% (N= 216) of the analysed bankruptcies. In 73.8% (N= 211)
of the bankruptcies, at least one claim was submitted by a social security fund or a payroll adminis-
tration agency. The same applies to creditors with an activity in the wholesale sector (73.8%
[N= 211] of the analysed bankruptcies). Further, it is striking that (only) in less than half (46.2%
[N= 132]) of the analysed bankruptcies did a bank submit a claim.
TABLE A3 A selection of the most common economic activities of the creditors
Activity of the
creditor
(selection)
Number
of
claims
Percentage of
the total
number of
claims
Number of bankruptcies in
which a creditor with the
mentioned economic activity is
found
Percentage of the
Total number of
bankruptcies
(N= 286)
Tax
authorities—
Direct taxes
371 6.3% 238 83.2%
Tax
authorities—
VAT
328 5.5% 216 75.5%
National Social
Security
Office
262 4.4% 139 48.6%
Social security
fund/payroll
administration
agency
470 7.9% 211 73.8%
Utilities 222 3.7% 151 52.8%
Telecom
a
187 3.2% 132 46.2%
Bank 216 3.6% 134 46.9%
Wholesale
b
552 9.3% 211 73.8%
Employee 437 7.4% 64 22.4%
Accountant
c
103 1.7% 88 30.7%
Garage
d
149 2.5% 69 24.1%
a
Companies in the “Telecommunications”sector (J61 NACE).
b
Companies in the “Wholesale trade, except for motor vehicles and motorcycles”sector (G46 NACE).
c
Companies in the “Accounting, bookkeeping and auditing activities; tax consultancy”sector (M69.2 NACE).
d
Companies in the “Wholesale and retail trade and repair of motor vehicles and motorcycles”sector (G45 NACE).
162 BAECK
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