Cease fire on troubled companies! Royal Decree temporarily suspends enforcement

Last week (Friday, 24th April 2020) the Belgian State Gazette published a royal decree in favour of enterprises. This was Royal Decree No. 15 on the temporary suspension of enforcement measures and other measures during the COVID-19 crisis¹, which created a temporary moratorium whereby any debtor-company is in principle protected against protective and enforcement measures and against being declared bankrupt. Insolvency and litigation specialists Paul Van Der Putten and Pieter Wouters give you an overview of the measures that have been put in place by this Royal Decree.

1. Temporal and personal scope of application

The Royal Decree came into force on the day of its publication (24th April 2020) and suspends various enforcement measures and other measures automatically until 17th May 2020. This suspension aims to benefit enterprises whose continuity has been threatened by the COVID-19 health crisis.

This legislative instrument applies automatically to all enterprises that are defined in Book XX of the Belgian Code of Economic Law, i.e., traditional companies, sole proprietorships, liberal professions, socio-cultural associations, foundations, non-profit organisations, etc.

It does not apply to entities trading in Belgium that are not established in Belgium. These types of entities do not benefit from this temporary suspension.

The capacity of the creditor does not play a role (i.e. also not a privately incorporated entity, such as public authorities, public-law-governed legal entities offering services or goods, including their assignees, factoring companies, etc.).

2. Material scope
 

A. What this suspension means

• No precautionary or conservatory attachment of movable property and no means of enforcement can be used or continued on the debtor-company's assets as a way to secure the debt of that company, including those assets that are covered by an (existing or future) approved reorganisation plan;
• The debtor-company cannot be declared bankrupt from a writ seeking a bankruptcy declaration or cannot be considered wound up (unless this is pursued on the initiative of the public prosecutor or a provisional administrator appointed by the court). Voluntary declaration of bankruptcy (aangifte/aveu) by yourself remains possible. Judicial reorganisation with a view to having a forced transfer take place under judicial authority is prohibited during the suspension period.
• Payment terms that have been or will be included in an approved reorganisation plan will be extended by the same duration as the suspension period set by this Royal Decree (i.e., 28 days);
• Any contract that was entered into before 24 April 2020 (when Royal Decree entered into effect) will not be dissolved unilaterally or by judicial order if a party fails to fulfill its payment obligation under that contract. According to the report submitted to the King for the purpose of adopting this Royal Decree, this provision also affects conventional dissolution mechanisms.

The purpose of putting this protective system in place now is to prevent companies that have been affected by the COVID-19 crisis—and only these companies—from resorting en masse to one of the judicial reorganisation procedures provided for in Book XX of the Code of Economic Law. If they do so all together, this could overburden the Enterprise Courts and jeopardise the timely processing of applications. 

It is also important to mention that this Royal Decree automatically suspends not only debts that have been incurred before 24 April 2020 but also new debts that have been or will be incurred during the suspension period (i.e., provisionally up to and including 17 May 2020).

The provisions under this Royal Decree is not intended to be a waiver of any payment obligations, however. Any obligation to pay must be fulfilled. This Decree protects only those companies that have been seriously affected financially or economically by the health crisis. A debtor who has already ceased fulfilling its payment obligations before the pandemic (i.e., 18 March 2020) is emphatically not considered worthy of protection.

That is why the Royal Decree also allows creditors to seek the lifting of such protection. Such request must be applied for by writ of summons seeking the debtor to appear before the President of the Enterprise Court having jurisdiction and presiding over emergency proceedings seeking interim measures. The Royal Decree lays down the criteria that the President must take into account when assessing the case. If the President orders the entire or partial lifting of the protection, the Court can declare the debtor bankrupt or order attachment of its assets or permit the continuation of the business.

B.  Exclusions

The Royal Decree still allows for provisional and conservatory attachments on immovable property as well as provisional attachments on seagoing and inland vessels.

C.  Rights not affected by the Royal Decree

• The creditor's right to invoke exceptio non adimpleti contractus exception/defense, the right to seek legal or conventional compensation, as well as the right of retention of title, despite the temporary protection under the Decree;
• The rights under the Financial Securities Act of 15 December 2004²;
• Rights of employees, i.e., employers must continue to fulfil their obligations towards their staff. By the way, the Royal Decree does not apply to employment contracts.

Note that the spouse of entrepreneurs and/or security guarantors do not benefit from protection under this Decree.

3. Other provisions

1. The obligation under law for directors/business managers and other entrepreneurs/natural persons to report a bankrupt state of the company within one month after the conditions for bankruptcy (lasting cessation of payment and inability to obtain credit) are fulfilled because of the COVID- 19 crisis is suspended under the Decree for the duration of the suspension period.
2. In order to encourage the granting of new credit to companies that are undergoing difficulty, whether or not accompanied by the requirement to provide new securities, the Royal Decree temporarily waives the application of certain legal provisions that normally punish such "suspicious" acts (non-opposability to the estate/claw back) and alleviates the liability of such lenders.

If you have any questions or concerns regarding the above, we would be more than happy to help you.

4. More about the coronavirus

You can read more publications on the impact of the coronavirus on our website. Here you will also find a list of contacts within our office who can advise you with questions about the implications of the coronavirus for your company.

Footnotes:

[1] In Dutch: Koninklijk besluit n° 15 betreffende de tijdelijke opschorting ten voordele van ondernemingen van uitvoeringsmaatregelen en andere maatregelen gedurende de COVID-19 crisis; in French: Arrêté royal n° 15 relatif au sursis temporaire en faveur des entreprises des mesures d'execution et autres mesures pendant la durée de la crise du COVID-19.

[2] Although the Royal Decree does not stipulate anything about this, it can be deduced from its wording that realisations of pledges in accordance with the Financial Securities Act remain possible throughout the period of suspension.

This article provides some general insights on different legal questions. These insights do not constitute legal advice and may not be relied upon as if they were legal advice. The outcome of any legal analysis will strongly depend both on the specific facts and circumstances of each case and on the particularities of the sector and legal relationship involved. Our legal experts in the various domains concerned are available to assist you with the analysis of your questions and provide specific advice tailored to your case and circumstances.

This article was co-written by Paul van der Putten in his capacity as Partner at Stibbe.