COVID-19: General moratorium on enforcement measures

24/04/20

Royal Decree of 24 April 2020

Background

In response to the economic fall-out of the COVID-19 pandemia, the Belgian government has taken - or is in the process of taking - various measures to alleviate the adverse effects of the crisis on Belgian individuals and businesses:

It is however expected that these measures will not suffice for a number of businesses. Such undertakings could in principle seek temporary protection against creditors by applying for a judicial reorganisation in order to work out an arrangement with creditors (either an amicable agreement with two or more creditors, a collective reorganisation plan or a forced transfer of - parts of - the assets of the business under court supervision).

A widespread use of judicial reorganisation schemes by many undertakings at the same time may however result in an overburdening of the Belgian judicial system. Furthermore, the existing judicial reorganisation schemes may also not be fully adapted to the needs of undertakings that are at this stage affected by the COVID-19 crisis. These schemes only provide protection for enforcement measures on existing debts payable at the time of the opening of the procedure, but not for debts that might be incurred in the coming weeks/months while undertakings seek to weather the crisis.

General moratorium on enforcement measures

Against this background, the government has enacted a general temporary moratorium on enforcement measures for the benefit of all businesses the continuity of which is affected by the COVID-19 crisis and its consequences and that were not already in a situation of “cessation of payments” (staking van betaling / sursis de paiement) on 18 March 2020 (i.e. the first day of the lock down measures).

The general moratorium enters into force on the date of publication of the decree deciding upon the moratorium in the Belgian Official Gazette (i.e. 24 April 2020) and applies initially until 17 May 2020. It can be extended by the government in a royal decree agreed upon in the council of ministers.  

Update 12 May 2020: the council of ministers have decided to extend the general moratorium for a month until 17 June 2020.

The moratorium has the following effects for such businesses:

  • no conservatory or executory attachment can be made on, and no enforcement measures can be initiated or continued against, assets of the business to recover debts (both “old” debts existing at the time of announcement of the moratorium and “new” debts incurred thereafter), including debts included in a reorganisation plan that was validated by the enterprise court. An exception is foreseen for attachments on immovable assets (given that these proceedings typically do not have an impact on the continuity of the business) and shipping vessels;
  • the business can no longer be declared bankrupt or judicially dissolved unless at the initiative of the public prosecutor, a temporary administrator previously appointed by the enterprise court in the context of a judicial reorganization procedure or the business itself;
  • the payments terms included in a court validated collective reorganisation plan are automatically extended for a term equal to the duration of this moratorium (even if this would result in a payment term in excess of the legal maximum of 5 years);
  • agreements entered into prior to the entry into force of the decree cannot be unilaterally or judicially terminated in case of payment default. This measure does not apply to employment contracts.

The moratorium does not affect the general obligation of businesses to pay debts that are due and payable (opeisbaar/exigible). The government encourages businesses to timely pay their debts. In order to avoid that businesses would unduly benefit from the moratorium, each interested party (creditor) may by writ of summons apply  with the president of the enterprise court to lift the moratorium. These proceedings will be as for interim measures and must be decided with priority over other pending cases.The president will, inter alia, consider whether the turnover of the business was significantly affected, the business makes use of temporary unemployment or is subject to a forced closure. The president may also take into account the interests of the creditor-petitioner.

The moratorium does not affect the enforcement rights in relation to financial collateral arrangements under the Belgian financial collateral law. This is in particular important for a range of finance transactions, including derivative contracts and repo’s.

Furthermore, for the duration of the moratorium the managers of the business are not not under the general obligation of article XX.102 of the Code of Economic Law to file for bankruptcy within one month after they are aware that the business has ceased making its principal payments (cessation of payments). The government has however not specified whether or not management could still risk to incur liability under article XX.227 of the Code of Economic Law for “wrongful trading”. Such personal liability for the net deficit of the business may occur where a company continues trading in circumstances management knew or should have known that there was no reasonable prospect to maintain the business and avoid bankruptcy. It is not because a filing is not mandatory that in view of the particular circumstances it is not the appropriate action to take.

Finally, the government wants businesses to continue to have the possibility to obtain new credit during the moratorium period. To achieve that new credits and securities are protected from  typical bankruptcy “claw back” rules if the business would still be declared bankrupt later. Here the Decree also seeks to shelter new lenders against lender liability claims.

Contact us

Ivan Peeters

Ivan Peeters

Partner, PwC Legal BV/SRL

Tel: +32 476 96 32 68

Philip Van Steenwinkel

Philip Van Steenwinkel

Advocaat vennoot / Avocat Associé, PwC Legal BV/SRL

Tel: +32 486 37 04 64

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