During this second wave of COVID, new lock-down measures have been taken. Belgium has already provided for numerous measures to mitigate the economic impact of the coronavirus (COVID-19). In addition, the Belgian authorities have again adopted a statutory moratorium imposing a stay on creditors’ right to enforce debts, terminate existing agreements early and initiate bankruptcy proceedings. Unlike the first moratorium decided upon in March 2020 (which was in place until mid-June 2020), the new restrictions only apply with respect to companies that have been forced to close their business as a result of the second lock-down.

The specific measures taken by the federal government are bundled in the Law dated 20 December 2020 (the Law) and include a statutory moratorium from 24 December 2020 to (and including) 31 January 2021 for businesses that are or were forced to close according the Ministerial Decree of 1 November 2020, pursuant to which:

  • a business affected by the coronavirus crisis cannot be declared bankrupt or, if it is a legal entity, be dissolved by a court nor can a transfer of the whole or part of its activities be forced unless (i) on the initiative of the public prosecution or a temporary director (voorlopig bewindvoerder/administrateur provisoire), or (ii) with the business’ prior consent;
  • no protective or executory attachment may be granted, and no means of enforcement, including enforcement of security interests, may be taken or continued on certain assets of the business;
  • agreements concluded by the business before 24 December 2020 cannot be terminated unilaterally or by the courts on the grounds of non-payment of a monetary debt due and payable under the agreement. An exception is made for employment contracts; and
  • payment periods included in a homologated judicial reorganisation plan approved before or after 24 December 2020, are extended by the duration of the suspension with a corresponding extension of the maximum period of five years for the implementation of the reorganisation plan.

By taking these measures, the Belgian federal government sends a strong message to the Belgian business community affected by the second lock-down restrictions, providing additional breathing space for businesses in difficulties related to the coronavirus crisis and discouraging creditors from taking aggressive action against their debtors during the crisis.

The above measures will end automatically at midnight on 31 January 2021, unless further extended by the federal government.

Below are a number of questions and answers relating to the Law which look at some specific aspects in detail.

1 What businesses are eligible to benefit from the statutory moratorium?

The statutory moratorium applies to each business which meets the following four conditions:

  • it qualifies as a “business” within the meaning of Book XX of the Belgian Economic Law Code;
  • it had to close mandatorily pursuant to the Ministerial Decree of 28 October 2020 as amended by the Ministerial Decree of 1 November 2020.
  • its continuity is threatened by the coronavirus pandemic and its consequences; and
  • it was not in a state of cessation of payments before 18 March 2020.

First condition: being a 'Business' within the meaning of Book XX of the Belgian Economic Law Code

Book XX of the Belgian Economic Law Code relates to the insolvency of businesses.

A “business” within the meaning of Book XX of the Belgian Economic Law Code, is:

  • a natural person independently exercising a professional activity;
  • a legal person (other than a legal person governed by public law which does not offer goods or services on a market); or
  • any organisation without legal personality, if it is of a profit-making nature or its objective to distribute profit to its members or, irrespective of its 'non-profit' character, because it actually distributes profits to its members or to persons exercising a decisive influence within the organisation.

The prohibition on enforcement is therefore relevant not only for companies, but also for self-employed persons. It should further be considered that, according to a number of legal authors, directors of a company may qualify as a business, provided their mandate is remunerated and they intend to provide an income for themselves by exercising that mandate.

Second condition: the business had to close mandatorily pursuant to the Ministerial Decree of 28 October as amended by the Ministerial Decree of 1 November 2020

Unlike the first moratorium, which ended on 17 June 2020, the current moratorium applies only to business that have been forced to close as a result of the second “lockdown” measures.

Businesses forced to close pursuant the Ministerial Decree of 1November are generally shops, non-medical professions involving close contact with people, the catering industry (restaurants, bars, banquet facilities) and most businesses in the cultural, festive, (indoor) sporting, recreational and event-sector.

Although from 1 December 2020 non-essential shops can re-open, they fall within the scope of the law as they were forced to close in an earlier stage.

Third condition: the business’ continuity is threatened by the coronavirus pandemic and its consequences

The moratorium will apply only if the threat of discontinuity is specifically caused by the coronavirus pandemic. Businesses in financial distress for other reasons will not benefit from the prohibition on enforcement and the protection against bankruptcy organised by the Law.

A business should make a self-assessment as to whether it is subject to the Law. In doing so, it may prove useful to take into account the following objective criteria listed in the preparatory documents:

  • whether the coronavirus has led to a significant decline in turnover or activities;
  • the fact that the business resorted to temporary or full technical unemployment; and/or
  • whether a mandatory temporary closure of the business was ordered by the public authorities.

These criteria also serve as a guide for the President of the business court if a creditor disputes the application of the Law.

Fourth condition: the business was not in a state of cessation of payments on 18 March 2020

Cessation of payments occurs when a business is no longer able to repay its due and payable debts. It is not necessary that it has stopped all payments, it is sufficient that some important debts remain unpaid, such as social security or tax liabilities. The fact that a business is in a state of cessation of payments is one of the two legal requirements to initiate bankruptcy proceedings in Belgium (the other being loss of creditors’ trust).

Financial difficulties of businesses already in cessation of payments on 18 March 2020 are considered historical and unrelated to the current crisis. The statutory moratorium does not apply to such businesses.

Businesses declared bankrupt before 24 December 2020 are also not protected by the statutory moratorium.

Businesses whose claim for bankruptcy was pending on 24 December 2020 can benefit from the statutory moratorium but can still be declared bankrupt in the event they were already in cessation of payments on or prior to 18 March 2020.

In the context of a corporate group, each condition must be assessed at the individual company level. If there are any foreign entities in the group, these will be subject to their applicable local law and will in principle not benefit from the statutory moratorium (see question 8).

2 What assets are protected by the prohibition on enforcement?

The following are excluded from the statutory moratorium:

  • immovable assets of an eligible business (including in our opinion movable assets that have become immovable by destination or by incorporation); and
  • sea-going and inland navigation vessels.

Protective and executory attachments of immovable property are still possible. Protective attachment is possible only on vessels.

Aircrafts are not excluded from the scope of the Law. Enforcement measures against aircraft are therefore temporarily prohibited.

Another notable exception concerns netting and financial collateral. Enforcing netting clauses and security interests over financial collateral (such as shares, bonds, bank accounts or bank loans) under the Financial Collateral Act remain possible.

Receivables (other than receivables that constitute financial collateral under the Financial Collateral Act) are not excluded from the scope of the Law, meaning that enforcing a pledge on receivables will temporarily not be possible. However, collecting pledged receivables by the pledgee is traditionally not seen as an enforcement measure.

The statutory moratorium does not extend to assets located outside Belgium. A creditor must assess on a case-by-case basis whether enforcement measures remain possible on those assets as, from a conflict of laws perspective, the law of the place where those assets are located, the law governing the contractual relationship between the parties and a potential insolvency proceeding opened against the debtor in Belgium or abroad might all affect the validity of any enforcement measures.

However, the assets of a business which is subject to judicial reorganisation proceedings opened in Belgium, which are located in another EU Member State, are subject to the specific Belgian rules governing those proceedings, including the enforcement moratorium. That is the result of the recognition of judicial reorganisation in all EU Member States under the Insolvency Regulation (Recast). A business might therefore have an interest in filing a claim for judicial reorganisation in Belgium with a view to protecting its assets located in other Member States.

3 What debts are covered by the statutory moratorium?

The Law’s measures cover 'all debts' a business may have in the broadest sense.

The measures cover both principal amounts and accrued interest. Both old and new debts are concerned, implying that the date on which the debt arises or falls due, is of no importance. The preparatory documents further confirm that debts which have been assigned to a third party (e.g. to a factoring enterprise) are also covered.

Equally covered are debts included in a homologated reorganisation plan approved by the court before or after the Law enters into force.

The Law makes no exception for the traditional types of “super creditors” such as employees or public authorities, whose claims can also not be enforced during the statutory moratorium. With respect to tax and social security debts, the Belgian government has already introduced several measures such as an extension of their payment date and a waiver of late payment interests and fines (see our website).

4 I am a creditor. What options remain available to enforce my position?

Preparation is key. Although the Law will to a large extent limit a creditor’s possibility to enforce its debt, several options are still available to a creditor dealing with a defaulting debtor.

Lifting the moratorium

If a creditor is of the opinion that its debtor does not qualify to benefit from the above measures (for instance if it considers that the business’ continuity is threatened by reasons other than in relation to the coronavirus pandemic), it can file a petition with the President of the business court.

Only the President of the business court has the power to lift the above measures (partially or in full), at his discretion and taking into account all relevant circumstances. The President may determine whether the debtor falls outside the scope of the Law or decide a specific measure is not applicable due to certain reasons (e.g. in the event of fraud or abuse of rights).

The preparatory documents mention that the President may take various elements into account for his assessment, such as:

  • a decline in the debtor’s turnover as a result of the coronavirus pandemic;
  • the fact that the debtor is closed for business due to certain legal measures;
  • any negotiations between the debtor and the creditor, as well as attempts to obtain new credit;
  • the consequences of the measures to the creditor;
  • the overall level of indebtedness of the debtor and its chances of recovery;
  • the origin of the debt from contracts concluded after the start of the coronavirus pandemic, to the extent the debtor could have known the consequences of the coronavirus measures; and
  • fraud or abuse of rights on the part of the debtor.

The procedure must be introduced as “in summary proceedings” (référé/kort geding), meaning in accordance with the procedures and the shorter timeframe of summary proceedings. The President must give priority to this procedure above all other proceedings.

Assets outside the scope of the Law

Apart from applying for a lifting of the moratorium (see above), a creditor can still take enforcement action in relation to assets that are excluded from the scope of the Law (such as immovable assets, financial collateral and potentially assets located abroad, see also question 2).

Other rights of the creditor

The Law expressly confirms that a creditor can still invoke ordinary contractual penalties, such as the non-performance defence, a right of retention and set-off and netting. Note that a creditor may only invoke these contractual penalties to the extent that this does not constitute an abuse of right.

Finally, the Law does not prevent a business from granting new security interests (though we note such security could still be held unenforceable in subsequent bankruptcy proceedings if granted for existing debt during the suspect period).

5 Are contractual penalties still available if a business does not pay its debt when due?

In principle yes. In general, the Law organises a temporary stay of enforcement under or in connection with an agreement. It does not prevent contractual penalties taking effect.

Late payment may result in default interest becoming due and other costs arising from a payment default will be chargeable, unless other exceptions apply (see in this regard section 3.1 of the full overview of current measures on our website). The Law and its preparatory documents offer no reason to assume that damages clauses or penalties for late performance would no longer have effect. In other words, a creditor may see contractual penalties being triggered, even though it will only be able to enforce these once the statutory moratorium established by the Law has expired.

There is however a notable exception: any (contractual) ground providing for the right to unilaterally dissolve the agreement on the grounds of non-payment of a monetary debt due and payable under the agreement is expressly suspended for the duration of the statutory moratorium. Express dissolution clauses that are triggered in the event of non-payment will as such not be enforceable. Conditions subsequent (e.g. linked to non-payment by a debtor), which as a general rule take effect ipso jure as soon as the condition is satisfied, shall not be effective for the duration of the moratorium either. Once the statutory moratorium has expired, termination clause will be re-activated.

6 I am a business in financial difficulties. Does this mean I do not have to repay any debt until 31 January 2021?

No. The Law offers a prohibition on enforcement and protection against bankruptcy for the eligible businesses that fall within its scope but it explicitly states that it does not detract from the obligation to pay debts that are due and payable and urges businesses to pay their debts as soon as possible. It would as such not be advisable to withhold payment of any debts (that the business is able to pay) until the end of the suspension period. If the business foresees liquidity issues, communicating with the relevant creditor to reach an agreed solution is crucial.

7 I am a business in financial difficulties. Is there any statutory obligation on my director(s) to file for bankruptcy?

The Law suspends this obligation for the duration of the statutory moratorium, provided that the business falls under the scope of application of the Law (see question 1). This requires not only that the business is affected by compulsory closing measures of the Ministerial Decree of 1 November 2020 but also that the conditions for bankruptcy are satisfied as a result of the coronavirus pandemic and its consequences and the business was not in a state of cessation of payments before 18 March 2020. Determining whether the business is in a state of bankruptcy as a result of the pandemic can be difficult if the business was experiencing structural issues before the crisis.

Under Belgian law, the cumulative conditions for bankruptcy are that a business (i) faces a persistent cessation of payments and (ii) has lost its creditors’ trust. Cessation of payments occurs where a business can no longer repay its due and payable debts, and such inability is persistent. A business which meets the bankruptcy conditions must normally file a petition in bankruptcy, together with certain accounting and other documents, within one month of the date of cessation of payments.

While the Law suspends the filing obligation, bankruptcy proceedings can still be commenced at the initiative of the public prosecutor or by a temporary director (voorlopig bewindvoerder/administrateur provisioire). A business can also still voluntarily file for bankruptcy. This may in certain cases be advisable to limit the directors’ potential liability, in particular if structural financial issues already existed prior to the coronavirus crisis.

8 Can non-Belgian businesses benefit from the protection against bankruptcy?

The Law does not address this situation.

The two main measures set out in the Law (i.e. the protection against bankruptcy and prohibition on enforcement) are intrinsically linked to insolvency proceedings. In addition, the scope of the above measures is also expressly limited to businesses within the meaning of Book XX of the Belgian Economic Code, which deals with insolvency. Book XX applies to insolvency proceedings opened in Belgium and does not contain any indication as to cross-border application.

Pursuant to the EU Insolvency Regulation (Recast), a bankruptcy proceeding may be opened in Belgium against any business with its centre of main interest (COMI) in Belgium. Any business with its COMI in Belgium will therefore benefit from the protection against bankruptcy. Advice should be sought if the COMI and the registered office are located in different countries.

Foreign businesses with an establishment in Belgium should benefit from the protection against bankruptcy in the context of a secondary insolvency proceeding opened in Belgium.

9 I am a foreign business with assets in Belgium. Do I also benefit from the prohibition on enforcement in relation to my Belgian assets?

This remains unclear. The Law and its preparatory documents remain silent on the consequences of the measures to foreign businesses.

While it is our view that foreign businesses with an establishment in Belgium will also benefit from the protection against a local bankruptcy proceeding in Belgium (see question 8 above), it is not clear whether this protection also relates to the prohibition on enforcement in relation to their assets located in Belgium.

As foreign entities with no establishment in Belgium do not qualify as a 'business' within the meaning of Book XX of the Belgian Economic Law Code, they will not be able to benefit from the measures. As a consequence, protective and executory attachment in relation to such businesses’ assets located in Belgium will still be possible.

10 I am a lender, do I incur liability if I continue to provide credit to the debtor who has suspended the repayment of its debts?

The Law reduces such potential liability in relation to businesses that fall under the scope of application of the Law.

As a general principle under Belgian law, lenders must monitor the activities and creditworthiness of a borrower throughout the lifetime of a loan. In practice, lenders must monitor their borrowers on a regular, continuous, thorough and reasonable basis. Based on the information obtained during such monitoring, it should be decided whether to maintain the funding.

If a lender maintains a loan to a debtor that is no longer deemed creditworthy and maintaining that loan cannot be justified based on objective criteria, it is generally accepted that the lender could be held liable for creating a wrongful appearance of solvency. This is the case, for example, when a debtor finds itself in severe financial difficulties and has no reasonable chance of avoiding bankruptcy. Maintaining a loan or credit in such circumstances artificially keeps the debtor in business, which may result in further losses, which in turn reduces the chances of recovery for other creditors.

Lenders should also always investigate the solvency and creditworthiness of a debtor if a new loan is granted. If a lender does not carry out such an investigation, it risks acting negligently by creating a wrongful appearance of solvency if it subsequently turns out that the debtor was insolvent.

The Law, however, expressly deviates from this established principle and limits lenders’ liability. It provides that lenders who grant a new credit during the statutory moratorium (i.e. from 24 December 2020 to and including 31 January 2020) cannot be held liable solely on the grounds that the new credit did not actually enable all or part of the debtor's assets or activities to be maintained.

The preparatory documents of the Law confirm that this exception does not apply to existing credit arrangements which are refinanced. Nothing is specified or explained as regards maintaining existing credit already granted before the entry into force of the Law.

Finally, it should also be noted that the limitation of liability is limited in the sense that lenders cannot be held liable solely on the grounds of creating a wrongful appearance of creditworthiness. Liability arising from any other breach or negligence, contractual or otherwise is not affected by the Law.