Coronavirus – Ongoing agreements in judicial reorganization – Belgium

In these uncertain times, there is a good chance that your company will be confronted with a contracting party that is in the process of judicial reorganization, or that you have initiated this procedure yourself. What are the consequences of this procedure for ongoing agreements between parties?

1. Ongoing agreements continue to exist

The request for or the opening of the judicial reorganization procedure does not terminate ongoing agreements or the terms and conditions of their execution. Provisions stating the contrary - which are often included by default in an agreement - are thus unenforceable.

However, this does not mean that a co-contractor (creditor) cannot terminate the ongoing agreement based on other contractual provisions. For example, the repeated non fulfilment of contractual payment obligations, the late payment to the ONSS (Belgian National Social Security Office) and/or the tax administration.[1] As a creditor, it may therefore be important to foresee such provisions in your commercial contracts.

However, such breach of contract (prior to the granting of the suspension) does not constitute a ground for the creditor to immediately terminate the ongoing agreement. The creditor is obliged to provide its debtor with a notice of default giving its debtor the opportunity to remedy this breach of contract within a period of fifteen days (after having been served with notice of default).

As from the opening of judicial reorganization proceedings, the debtor may unilaterally decide to suspend the performance of its contractual obligations for the duration of the suspension (often 6 months) by providing a notice to the co-contractor. This suspension of the contractual obligations is only allowed if the reorganization of the company so requires.

The debtor's right to unilaterally suspend the performance of his contractual obligations does not apply to employment contracts.

2. Performances during the suspension

Claims resulting from ongoing agreements (with consecutive performances), including interest due under the agreement, shall not be subject to suspension to the extent that it relates to performances performed after the procedure has been declared open. Not the date of invoice is decisive, but the date on which the performance is carried out.[2]

To the extent that the claims against the debtor correspond to services performed during the judicial reorganization procedure by its co-contracting party, and regardless of whether they arise from new obligations of the debtor or from ongoing agreements at the time of the opening of the procedure, the claims shall be considered as debts of the of the insolvency assets in any subsequent bankruptcy to the extent that there is a close link between the termination of the judicial reorganization procedure and the procedure (of bankruptcy).

Debts of the insolvency assets are debts that the trustee (‘curator’/’curateur’) will pay prior to the distribution of the remaining assets among the other creditors.

This way, creditors are (almost) certain that their claims, resulting from the provision of services to a company under judicial reorganization, will be paid in the event of a subsequent bankruptcy.

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[1] F. FREMAT, S. BERG, G. DE SAUVAGE and J-F.GOFFIN (eds), Continuïteit van ondernemingen: artikelsgewijze commentaar bij boek XX en CAO nr. 102, Antwerpen, Intersentia, 196.

[2] Brussels 17 January 2013, AR 2012/AR/1036, www.juridat.be .