Corona crisis and discontinuity of businesses

The authorities have taken several measures to support businesses and employment, under the pressure of the corona crisis. Measures in relation to tax and social security, temporary unemployment and state financial support were taken. An agreement with the financial sector to grant payment facilities was reached, as well.

The agreement with the financial sector aims to grant payment facilities to viable businesses and self-employed persons who are confronted with problems to pay off their debts as a consequence of the corona crisis. New loans will be given covered by the state guarantee.

How this agreement will be implemented is not clear yet.

The most important term is "viable", and how this will be used.

But, enterprises can call on the legal instruments of the insolvency legislation to safeguard their business, even if the banks have granted payment facilities, or should banks or creditors refuse to grant such payment facilities.

Hereafter we give a short overview of the most important alternatives the law offers.

1. Appointment of a business mediator

Businesses and entrepreneurs who face difficulties to pay their debts can request the president of the court to appoint a business mediator. The latter can assist with the reorganization, both within as outside the proceedings regarding the judicial reorganization.

2. Amicable arrangement

Businesses and entrepreneurs who face difficulties to pay their debts can offer to two or more, or all their creditors an amicable arrangement. This can be reached in concertation with the business mediator.

The parties are free to agree on the terms and conditions of their arrangement.

However, some conditions must be met to obtain the protection provided by the insolvency law:

  • The agreement must be in writing;
  • The usefulness of the arrangement in view of the reorganization must be explained and motivated;
  • An explicit confidentiality clause must be included; as well as
  • An explicit clause regarding severability.

The amicable agreement must be filed with a specific register.

3. Judicial reorganisation proceeding

If the continuity of a business (a company or a self-employed person) is threatened, whether immediately or further in the future, the proceedings regarding a judicial reorganisation can be started.

These proceedings allow the business to maintain the continuity of its activities, either partially or in total.

As from the moment that the proceedings are started with the court, and pending the decision of the court, the business cannot be declared bankrupt or dissolved by a court decision. The forced execution of court decisions or other deeds, such as a public sales are stopped.

The court decision to open the judicial reorganisation, allowing the suspension, has several consequences, that all aim to give the business the opportunity to continue its activities, without giving it a free pass. The business cannot just escape from its obligations; creditors and contracting parties keep certain of their rights.

Hereafter follow some of the most important consequences of the protection, but they are not unconditional and in certain cases the court has to be involved:

During the suspension period claims cannot be executed anymore and/or their (forced) execution cannot be continued; no seizures for debts that originated from prior to the proceedings are not allowed. The court must be involved for certain cases ;

  • The business cannot be sued in court in view of a bankruptcy;
  • The business can continue to pay certain creditors if such payment is required to maintain continuity; setting-off of claims is allowed subject to certain conditions;
  • Penalty clauses and clauses to increase the interest are suspended until the full execution of the reorganisation;
  • Employment agreements are not suspended;
  • Claims that originated from prior to the reorganisation proceedings are not taken into consideration in the framework of public tenders. Hence, the social security and tax authorities are not allowed to mention such claims in the certificates they have to issue in the framework of the public tender market.

But, on the other hand the suspension does not cause the termination of the agreements. They will remain in force and have to be executed in accordance with their terms and conditions. Agreements can be terminated by each party, if certain conditions are met. The business in reorganisation has the right to unilaterally suspend the execution of certain agreements.

Agreements with continued performances, including those that generate interest, will not be suspended, at least in respect of the performances to be executed after the opening of the proceedings. More in particular, loans and the related payment obligations have to be respected.

Social security and tax payments will not be suspended and have to be paid as and when due.

The aim of the proceedings regarding the judicial reorganisation is to safeguard the continuity of the business activities, but it is definitely not a free pass. Creditors keep certain rights, and can recover at least a part of their claims, as well as possible (contractual) damages, if they follow the rules of the law.

Related : Seeds of Law

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