Many companies are facing a cash shortfall as a result of the COVID-19 crisis. How to protect their business’s continuity?
The judicial reorganisation procedure and the payment obligation suspension that it provides for (Book XX Code of Economic Law – CEL) is currently not regarded by the authorities to be an appropriate rescue measure because, firstly, it would overload the Companies Court during this period of crisis and, secondly, because the suspension applies only to ”old” debts that existed prior to the initiation of the procedure.
Consequently, the government has temporarily organised a moratorium, (or a ’ceasefire’) in order to protect any company in debt as a result of the Covid-19 crisis, which is in need of liquidity, against either precautionary or executory attachment proceedings, and against any bankruptcy or judicial settlement.
Royal Decree No 15 foresees four temporary suspension measures covering the period from 24 April 2020 to 17 May 2020 (subject to possible extension):
- Impossibility of initiating or pursuing enforcement measures as well as precautionary or executory attachment measures
EXCEPTION: precautionary and enforceable attachment of real property (as well as precautionary attachment of seagoing and inland waterway vessels) remain possible.
- No bankruptcy filing on summons or judicial resolution is possible
EXCEPTION: Possibility of filing a bankruptcy petition or an admission of bankruptcy on the claim by the Public Prosecutor’s Office or of a provisional administrator.
- Extension of payment terms within the framework of a previously approved reorganization plan
- Prohibition of unilateral or judicial termination of agreements concluded before 24 April 2020 for failure to pay a due and payable debt
EXCEPTION: employment contracts.
It is worth pointing out that such a system of legal suspension does not in any way affect the obligation as regards the payment of one’s debts, whether regarding principal, interest or indemnities. It is therefore in the interest of each company to respect the payments as far as possible, because following the moratorium, interest and damages can be claimed by the creditor.
To prevent certain companies from benefiting unduly from such protection, the creditor is given the possibility of summoning the debtor before the president of the Companies Court to request the withdrawal of this suspension. The President of the Companies Court, ruling as in summary proceedings, will assess whether the debtor has truly been affected by the Covid-19 crisis and subsequent measures, also taking into account the impact of the suspension with respect to the creditor’s interests so as to avoid a cascading (or ‘domino’) effect.
Furthermore, there is also a temporary suspension of the obligation to file a bankruptcy petition, if the conditions are met because of the COVID-19 pandemic and its consequences.
Lastly, the legislator intends to stimulate granting of credit, whether by a bank or by a supplier by, on the one hand, protecting new credits and, on the other hand, by lightening the potential liability of those who provide such credits. A renegotiated credit is not regarded as a new credit.