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“The Show Must Go On”: Protection against creditors during the COVID-19 crisis

30/04/2020
“The Show Must Go On”: Protection against creditors during the COVID-19 crisis
Photo: iQoncept/shutterstock.com

 

Queen’s song was clearly not about COVID 19 but the message remains the same: even if the music industry is struggling, the show must go on!

It is undeniable that, with the lockdown measures and other restrictions imposed by the Belgian government to fight against COVID-19, many companies have to deal with revenue loss while keeping high level of costs. This is particularly true for the cultural sector and the music industry with the cancellation of so many events.

Last week, the Belgian government has adopted several measures to protect debtors against creditors in these difficult times.

In that regard, the Royal Decree n°15 “on the temporary suspension of enforcement measures and other measures during the COVID-19 crisis”, entered into force on 24 April 2020, implements new temporary measures to protect businesses which had not ceased payment prior to or on 18 March 2020 and have faced difficulties due to the impact of COVID-19.

The Royal Decree suspends various enforcement measures automatically until 17 May 2020. This period could be extended if the government deems it necessary.

In summary, creditors’ possibilities are restricted in the following ways:

  • No conservatory attachment of movable property and no executive attachment (of both movable and immovable properties) can be put in place (or continued) on the debtor’s assets in order to secure the debt of that company, including those assets that are covered by an (existing or future) approved reorganization plan. Conservatory attachments on immovable property remain possible.
  • Creditors cannot claim nor obtain the bankruptcy or judicial liquidation of their debtors. Voluntary declaration of bankruptcy by the debtor and voluntary reorganization remain possible. Judicial reorganization in view of a forced under judicial authority is prohibited.
  • Payment terms that have been or will be included in an approved reorganization plan will be extended by the same duration as the suspension period.
  • Any contract that was entered into before 24 April 2020 cannot not be terminated unilaterally or by judicial order if a party fails to fulfill its payment obligation. This provision also affects conventional termination mechanisms.

Upon the unilateral request of an interested party, the President of the relevant Company Court may decide that a company does not fall within the scope of the Royal Decree or that the effects of the measures have to be mitigated.

To rule on those cases, the President shall take into account the interests of the claimant and the impact of COVID-19 on the debtor’s business (such as a significant decline of the turnover or activity, the full or partial use of economic unemployment, the closure of the business due to measures taken by the authorities,…).

Furthermore, during this period, the obligation for directors to file for bankruptcy when the business finds itself in an insolvency situation is suspended, provided that said situation resultss from the outbreak of COVID-19.

As mentioned, the above measures do not apply to companies that were already in an insolvency situation prior to the COVID-19 crisis, i.e. prior to or on 18 March 2020. That being said, such distinction might be difficult to make or prove in practice.

These temporary measures do not release businesses from any of their obligations towards business partners, employees etc. It does not affect either the application of the Belgian Act on Financial Securities. Employment contracts are excluded from the scope of the Royal Decree.

The measures do not constitute a waiver of the obligation to pay. Indeed, the principle remains that debts need to be paid, which means that the other contractual remedies (such as the exception of non-performance, the exception of set-off and retention rights) remain available.

If you have any question, do not hesitate to contact our "Entertainment" & “Insolvency” specialists, Geoffrey Froidbise (Geoffrey.froidbise@altius.com), Bart Heynickx (bart.heynickx@altius.com), Alexander De Bleeckere (alexander.debleeckere@altius.com) and Sheena Belmans (sheena.belmans@altius.com).

 

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