You have watched the numbers deteriorate for several months. Cash flow is tightening, certain deadlines are becoming difficult to meet, and you are wondering whether to keep waiting or start looking for a solution.
In this type of situation, one simple rule is worth remembering: the earlier you address financial difficulties, the more options remain available.
A company facing financial difficulties is not necessarily destined to disappear. Depending on when the situation is analysed, various options may still be available: finding an investor, selling the company, selling a business line or certain assets, reaching an agreement with creditors, or resorting to a reorganisation procedure.
These possibilities, however, narrow progressively as the financial situation deteriorates.
Financial difficulties and bankruptcy: two very different stages
A company can face significant difficulties without being legally bankrupt.
As long as the conditions for bankruptcy are not met, its directors generally retain significant room for manoeuvre to look for a solution and organise the transfer of all or part of the business. This period can in particular be used to:
- look for a buyer for the company's shares;
- sell a business line or certain assets;
- bring in an investor;
- look for new financing;
- negotiate with certain creditors;
- or, where circumstances justify it, resort to a judicial reorganisation procedure.
The situation changes fundamentally once bankruptcy is declared. From the date of the judgment, the company is divested of control over its assets, and a court-appointed insolvency practitioner (curateur in Belgium) takes over their administration and realisation in the interests of creditors as a whole.
The director therefore no longer controls the sale process.
The earlier you act, the more options remain
Not all companies in difficulty are at the same stage.
| Situation | Options to consider |
|---|---|
| Difficulties still manageable | Sale of the company, sale of a business line, bringing in an investor, refinancing |
| Significant pressure on cash flow or creditors | Sale, recapitalisation, negotiation with creditors, amicable settlement |
| Business continuity at risk | Public or confidential judicial reorganisation, depending on the circumstances |
| Conditions for bankruptcy met | Urgent review of legal obligations and, where applicable, the PPF procedure |
| Bankruptcy declared | Transfer of all or part of the assets or business under the insolvency practitioner's control |
The choice is therefore not simply between "carrying on" and "going bankrupt".
Between the first signs of difficulty and the company's possible disappearance, various mechanisms can help restructure the business, raise new capital, or preserve some or all of the value that has been created.
Why start the sale process early?
A sale prepared in advance offers several advantages.
Preserving confidentiality
A search for acquirers can be organised confidentially. Candidates can be approached progressively and required to sign a non-disclosure agreement before gaining access to the company's sensitive information.
This limits the risk of prematurely unsettling customers, suppliers, employees or partners.
Confidentiality is not reserved for purely amicable transactions, however: certain Belgian judicial mechanisms also allow a restructuring to be organised, or a transfer to be prepared, on a confidential basis.
Gaining more time
A sale carried out under time pressure often reduces the number of candidates likely to seriously review the opportunity. Planning ahead, by contrast, makes it possible to:
- prepare the necessary information;
- identify several categories of acquirers;
- organise a competitive process;
- allow candidates to review the business;
- and structure comparable offers.
A few extra weeks can have a significant impact on the number of interested acquirers and on the quality of the offers received.
Preserving economic value
The value of a company in difficulty does not depend solely on its balance sheet. A loyal customer base, a skilled team, recurring contracts, a recognised brand, a location, a technology, or production facilities can all retain significant value.
But this value can deteriorate quickly once operations begin to suffer.
Customers leaving, key employees resigning, suppliers shortening payment terms, or contracts coming to an end: time can quickly erode what an acquirer would still have been willing to buy only a few months earlier.
Preserving room for manoeuvre for the director
Acting early enough also allows the director to better manage the consequences of the difficulties: reviewing existing commitments, identifying any personal guarantees, and examining the various options before the situation becomes irreversible.
This kind of forward planning is obviously not an automatic protection against potential liability. It does, however, make it possible to document the steps taken to look for solutions, preserve the company's value, and prevent the situation from deteriorating further.
There is also an important difference depending on how the transaction is structured.
When shareholders sell their shares, the sale price goes directly to them. A sale organised early enough can therefore, in certain situations, help preserve value for the shareholders.
By contrast, when a company itself sells its assets or its business undertaking (fonds de commerce), the proceeds of the sale belong to the company, form part of its estate and remain available to meet its liabilities. They do not go directly to its shareholders or directors.
What can be sold?
Depending on the situation, two main types of transaction can be considered.
Selling the company's shares
In a share deal, the acquirer takes over the company's shares. The company continues to exist as the same legal entity, with its assets and contracts, but also with its liabilities and its history.
This structure can still be considered when the difficulties remain sufficiently under control and the acquirer is able to assess and address the risks associated with the liabilities.
Selling all or part of the business
It is also possible not to sell the company itself, but certain assets needed to operate the business. This can include, in particular:
- the business undertaking;
- equipment;
- machinery;
- stock;
- a brand;
- intellectual property rights;
- a customer portfolio;
- certain contracts;
- or an entire business line.
This structure allows the transaction to focus on the elements that hold economic value for the acquirer.
The choice between a share sale and an asset sale depends in particular on the company's financial situation, its liabilities, the nature of the assets involved, and the acquirer's objectives.
A word of caution: selling before bankruptcy does not mean selling on just any terms
As long as bankruptcy has not been declared, directors in principle retain control of the company. This does not mean, however, that a company approaching insolvency can dispose of its assets without appropriate safeguards.
The more the company's financial position deteriorates, the more important it becomes to demonstrate that the transaction was entered into on commercially reasonable terms and in the company's interests.
Particular attention should be paid to:
- the valuation of the assets;
- the price offered;
- the payment terms;
- the identity and independence of the acquirer;
- any competitive process among candidates;
- and the documentation of the sale process.
Certain transactions carried out shortly before bankruptcy may subsequently be scrutinised by the insolvency practitioner and, in certain circumstances, challenged.
Planning a sale ahead of time therefore does not mean rushing the transfer of assets. On the contrary: the closer a company gets to insolvency, the more structured, objective and well documented the process needs to be.
Can a judicial reorganisation still be considered?
An amicable sale is not the only option. When business continuity is at risk, a judicial reorganisation procedure can, depending on the circumstances, make it possible to look for a solution within a protective framework.
Belgian law provides for several mechanisms that allow, among other things, negotiation with some or all creditors and, in certain configurations, for the procedure to be organised on a confidential basis.
The existence of these mechanisms shows that a company does not necessarily move directly from its first difficulties to bankruptcy. Depending on the situation, financial restructuring, bringing in an investor, a sale, or a combination of several solutions may still be considered.
What if the conditions for bankruptcy are already met?
Belgian law also provides for a specific mechanism that allows, in certain circumstances, a transfer to be prepared before bankruptcy is formally declared: the Belgian procedure for the private preparation of bankruptcy (préparation privée de faillite, or PPF).
This procedure is available to a company that considers itself to be in a state of bankruptcy and allows it to ask the court to have the transfer of all or part of its assets and activities prepared before the bankruptcy judgment is issued.
The procedure takes place behind closed doors and is not publicised. A prospective insolvency practitioner and a prospective supervisory judge (juge-commissaire) are appointed to oversee the preparation of the bankruptcy and the intended transfer.
This mechanism requires, among other things, that the preparation facilitate the liquidation, maximise recoveries for creditors as a whole and preserve employment as far as possible.
It is therefore not a way of artificially delaying bankruptcy, but a tool that, when its conditions are met, allows the sale of the business or the realisation of its assets to be prepared in a more orderly manner and on a confidential basis.
But you cannot wait indefinitely
Planning ahead does not mean postponing bankruptcy at all costs.
Under Belgian law, a company is in a state of bankruptcy when it has persistently ceased making payments and its creditworthiness has been undermined.
When these conditions are met, the debtor is in principle required to file for bankruptcy within one month of ceasing payments. This obligation is subject to certain exceptions or suspensions, particularly in the context of certain judicial reorganisation procedures.
The challenge, then, is to act early enough to examine the available solutions before legal urgency replaces economic freedom of choice.
In practice, the question is not only: "Can my business still be saved?" It can also be: "What part of the value that has been created can still be preserved, and in what form?"
A business can sometimes continue under new ownership. A business line can find an acquirer. A team, a customer base, a brand, a technology or production facilities can retain value even when the financial structure around them has become unsustainable.
How Caldeo helps
Caldeo supports companies facing financial difficulties or an accelerated sale process by organising a structured process to identify and approach potential acquirers. Depending on the transaction, this support can include:
- defining the assets or business activities that may be sold;
- preparing the information for candidates;
- identifying potential acquirers;
- approaching candidates on a confidential basis;
- organising non-disclosure agreements and the data room;
- coordinating discussions and site visits;
- and collecting structured offers.
The objective is twofold: to widen the pool of acquirers likely to be interested in the opportunity, and to organise a process that preserves as much of the business's value as possible.
Beyond the company itself, what is at stake is what it has built: the jobs, the customers, the know-how, the contracts and the assets that make up the real value of the business.