E-zine: “Cease fire – temporary moratorium on bankruptcies and enforcement measures”

Both on the federal and regional level, the Belgian authorities introduced a large number of support measures to support Belgian companies while coping with the current Corona crisis. Unfortunately, despite these measures, it is plausible that many companies will still be unable to pay their debts in the short, medium or long term. Until recently, these companies could ‘only’ rely on the judicial reorganisation procedure for protection against (an imminent) bankruptcy. A power of attorney decree of 24 April 2020 n° 15 creates a legal moratorium. This will apply until 17 May 2020.

On 24 April 2020, a new Royal Decree was published in the Belgian Official Gazette, which provides additional protection for Belgian companies facing financial difficulties resulting from the Corona crisis. With this decree, the Federal Government wanted to offer an alternative to the judicial reorganisation procedure.

This regulation applies automatically. A company does not have to go to court to benefit from it.

1          We summarize the key aspects of the Royal Decree N°15  as follows:

No seizure or bankruptcy

• From 24 April 2020 to 17 May 2020 ("the statutory period of suspension"), each company will automatically benefit from a moratorium on enforcement measures by creditors and bankruptcy declarations or judicial dissolutions. This period can be extended by Royal Decree.
• A company can benefit from this protection if its financial difficulties are due to the COVID-19 pandemic/epidemic and its consequences. Therefore, companies that were already in suspension of payment on 18 March 2020 (i.e. the start date of the COVID-19 pandemic/epidemic) are excluded from the protection.
• During the statutory period of suspension, the company can benefit from a payment deferral for all debts, regardless of whether these debts date from before 24 April 2020 or originate or become due after that date. This is an important difference compared to the judicial reorganisation procedure, which only grants a moratorium for "old" debts, i.e. debts already existing before or resulting from the opening of the judicial reorganisation procedure.
• The payment deferral however does not alter the principle obligation to pay debts.
• During the statutory period of suspension, creditors cannot make use of preventive seizure or seizure for sale of movable goods. However, preventive seizure or seizure for sale of immovable goods and vessels remain possible. Moreover, preventive seizures of movable goods that are already in place retain their effect. The forced sale, which is started following a seizure, of movable goods cannot be continued.
• Furthermore, neither a creditor nor any other concerned party can request bankruptcy, judicial dissolution or reorganisation through a transfer of assets under judicial supervision of the debtor. However, these actions remain possible at the initiative of the Public Prosecutor or a provisional administrator. Also still possible is a voluntary declaration of bankruptcy by the company itself, but the company is not obliged to do so even if the bankruptcy conditions are met.
  • The management’s obligation to declare the bankruptcy of the company within one month after the fulfilment of the bankruptcy conditions is also suspended during the statutory period of suspension.
  • Companies for which a bankruptcy claim was already pending on 24 April 2020, are still entitled to the moratorium (if they were not in suspension of payment on 18 March 2020) and thus escape bankruptcy. However, the moratorium does not apply to companies which were already declared bankrupt before 24 April 2020.

Suspension of payment for ongoing reorganisations

• Companies that have already gone through a judicial reorganisation procedure and have a court approved reorganisation plan can benefit from an extension of the payment terms of this reorganisation plan for the duration of the statutory period of suspension.

Protection of existing contracts

• Unilateral or judicial dissolution of (already concluded) contracts is not possible during this period, insofar as this is based on the non-payment of a debt that has become due. Employment contracts do not fall within the scope of this rule.
• Debts remain payable as a matter of principle; however, the right of lien, the right of the other party to suspend its obligations in the event of non-payment (ENAC) and the right to offset claims continue to apply.
• The Act on Financial Securities remains applicable and is not suspended: the pledged creditor(s) are thus safeguarded.

Judicial control: prevent abuse and seek balance

• The President of the Commercial Court may lift the moratorium in whole or in part at the initiative of a concerned party if the financial difficulties of the company are not due to the COVID-19 pandemic/epidemic and its consequences. The President will take into account various elements, such as the impact of the Corona crisis on the company's turnover, whether the company has taken other measures (e.g. temporary unemployment or negotiation attempts with the creditor), the consequences of the moratorium on the creditor's financial situation (domino effect) and the company's chances of recovery.
• Payments or securities relating to new loans granted during the statutory period of suspension will be exempt from the rules regarding the suspicious period and will consequently be opposable in any subsequent bankruptcy. The liability of lenders has also been reduced.

2             The Royal Decree N°15 will undoubtedly give a breathing space to many companies. However, the question is whether the Royal Decree will succeed in its aim of relieving the courts on the one hand and, on the other hand, ensuring the survival of Belgian companies. Indeed, the temporary moratorium on bankruptcies and enforcement measures will automatically end on 17 May 2020 (unless this period is extended). It is not inconceivable that, at that point in time, a company will not immediately have an adequate and secure cash position to pay off or start paying off all its debts. The Royal Decree N°15 (evidently) does not (provide for debt reduction or rescheduling of debts in the longer term. In the above circumstance, the company will still have to request the opening of the judicial reorganisation procedure before the court. Moreover, the court will only grant such a request if the company can demonstrate that its cash position allows it to pay all new debts during the procedure. If the company does not deliver the necessary proof, bankruptcy could still be unavoidable.

Of course, you can always contact us with questions regarding this new Royal Decree and/or other options to protect the continuity of your company.