Sole trader vs company bankruptcy in Belgium: what changes for you?

In Belgium, whether you run your business as a sole trader or through a company largely determines what bankruptcy means for you personally. In a sole trader bankruptcy, your private assets are at stake; in a company bankruptcy, they in principle remain out of reach. Reality, however, is more nuanced than the classic contrast between “losing everything” and “being fully protected”. This article sets out the consequences side by side, so that you know where your personal risks lie.

Sole trader bankruptcy: a single estate

As a sole trader (eenmanszaak / entreprise individuelle), there is no legal distinction between the assets of your business and your private assets. If you are declared bankrupt, in principle all of your assets fall into the bankruptcy, including your private property, and your private creditors also take part in it. Since the 2018 reform of insolvency law, this applies to every natural person who carries on a professional activity on a self-employed basis, including in a liberal profession.

If you are married under a community property regime, business debts can in principle also be recovered from the joint estate. Your spouse’s own separate property, on the other hand, in principle remains out of reach, as in a marriage with separation of property, unless your spouse co-signed. A change of matrimonial property regime shortly before a bankruptcy can be challenged by creditors if it prejudices them; such a change should therefore be made in good time and after careful thought.

There is, however, an important advantage. As a natural person, you are eligible for a discharge of your residual debts (kwijtschelding / effacement), meaning the debts that remain once the bankruptcy has been wound up. For bankruptcies opened since 1 September 2023, you no longer need to apply for it: it is in principle granted automatically, unless the court refuses it in whole or in part, for example because of manifestly gross faults that contributed to the bankruptcy. Certain debts, such as maintenance payments, nevertheless remain due.

Moreover, assets and income you acquire after the bankruptcy judgment in principle fall outside the bankruptcy estate. You can therefore start working again straight away. Read also how to make a fresh start after bankruptcy.

Company bankruptcy: separate estates

If your private limited company (BV / SRL), public limited company (NV / SA) or cooperative company (CV / SC) goes bankrupt, your private assets in principle remain outside the bankruptcy. The position is different for the partners of a general partnership (VOF / SNC) and the general partners of a limited partnership (CommV / SComm): they are jointly, severally and personally liable, without limit, for the company’s debts. The company itself ceases to exist when the bankruptcy is closed; a discharge does not apply to it. Do, however, watch out for the exceptions:

• personal guarantees: banks and landlords often require them; the creditor can then pursue you personally, outside the bankruptcy;
• directors’ liability: in the event of a manifestly gross fault that contributed to the bankruptcy, or where you continued the business although you knew or should have known that there was no longer any reasonable prospect of avoiding bankruptcy;
• tax and social security debts: specific rules can, under certain conditions, make directors liable for unpaid payroll withholding tax, VAT and social security contributions (RSZ / ONSS);
• founders’ liability: if a private limited company goes bankrupt within three years of its incorporation and its initial equity was manifestly insufficient for the normal conduct of the planned activity for at least two years, the founders may, under certain conditions, be held personally liable.

A company therefore protects you only as well as your management and your signatures allow. Read more in our article on directors’ liability in bankruptcy.

The private limited company: no minimum capital, but obligations

Since the 2019 Code of Companies and Associations (WVV / CSA), a private limited company no longer has a minimum capital requirement. The founders must, however, provide it with initial equity that, taking into account other sources of financing, is sufficient for the planned activity. Before incorporation, they must also hand a financial plan to the notary.

That plan is not a formality. If the company goes bankrupt within three years of incorporation, it plays an important role in assessing whether the initial equity was manifestly insufficient. Have it drawn up carefully, using realistic figures. You can find more in our step-by-step guide to setting up a private limited company.

The free-of-charge guarantor and your partner

A consumer who stood surety free of charge for the bankrupt, for example a family member who derived no benefit from it, can ask the court to release them in whole or in part if their commitment is manifestly disproportionate to their income and assets. A spouse or legal cohabitant who is personally co-liable for a debt of the bankrupt, incurred during the marriage or cohabitation, is likewise released from that debt as a result of the discharge, unless it is a debt arising from a contract that the spouse or cohabitant concluded, alone or together with the bankrupt, and that is unrelated to the bankrupt’s professional activity. These mechanisms are often overlooked.

Your home in bankruptcy

As a sole trader, your home in principle falls into the bankruptcy. A self-employed person who previously made a declaration of unseizability (verklaring van onbeslagbaarheid / déclaration d’insaisissabilité) before a notary can, however, under certain conditions, protect their main residence against creditors of business debts that arose after that declaration. Older business debts and private debts are not covered by that protection, so the declaration is mainly worthwhile if it is made in good time. With a company, the director’s private home in principle remains out of reach, unless the director is pursued personally, for example as a guarantor.

Your social security status after bankruptcy

As a self-employed person, including as a self-employed manager or director of a company, you may, under certain conditions, be entitled to the bridging right (overbruggingsrecht / droit passerelle) when you are forced to cease your activity, for instance after a bankruptcy. It provides a temporary benefit and preserves certain social security rights. You apply for it with your social insurance fund, no later than the end of the second quarter following the quarter in which the bankruptcy judgment was given; so do not wait too long.

Acting in time when payment difficulties arise

For both business forms, the same rule applies: anyone who has persistently stopped paying and whose credit is impaired must file for bankruptcy with the enterprise court (ondernemingsrechtbank / tribunal de l’entreprise) within one month. Waiting rarely improves the situation and, for a company, can increase the directors’ liability. Read how a bankruptcy filing works.

If the business is still viable, a judicial reorganisation can offer breathing space. A collective debt settlement, by contrast, is not available as long as you are an enterprise: anyone who ceases their self-employed activity without bankruptcy must wait six months before they can apply for it.

Sole trader or company at a glance

Sole trader or company: which form is more advantageous?

That depends on your activity, your risks, the guarantees you signed and your tax situation. A company offers a separation of assets, but requires proper management, accounts kept in accordance with the rules and sufficient initial equity. A sole trader business is simpler, but exposes all your assets. If difficulties loom, we work out both scenarios for you, taking into account your guarantees, your matrimonial property regime and your debt structure.

Frequently asked questions

Can I set up a new company after a bankruptcy?

In principle yes, unless a court has imposed a professional ban on you. Do not take over any assets of the bankrupt business without the agreement of the trustee in bankruptcy (curator / curateur).

I am a sole trader and am considering setting up a company. Does that protect me against my old debts?

No. Debts you incurred as a sole trader remain your personal debts. Setting up a company to escape creditors can, moreover, be challenged.

As a director, am I personally liable for the debts of my bankrupt private limited company?

In principle, no. You can only be pursued personally if you stood surety, if you committed a manifestly gross fault that contributed to the bankruptcy, or in the other exceptional cases described above.

Does my spouse have to pay the debts of my sole trader business?

Not with their own separate property, unless your spouse co-signed or stood surety. If you are married under a community property regime, creditors can, however, recover business debts from the joint estate.

Can I still quickly put my home or other assets in my spouse’s name?

That is not advisable. Transactions shortly before a bankruptcy, such as gifts or sales at too low a price, can be challenged by the trustee and may also justify a refusal of the discharge. Seek advice in good time on what is permitted.

Novex Advocaten can assist you

We analyse your personal risks, advise on the choice of business structure and assist you in a bankruptcy or a reorganisation. Read also our article on the discharge of debts after bankruptcy.

Call 0484 99 22 72 or email asfour@novexadvocaten.be.