- judicial reorganisation plan , WCO , PRJ , "Corona" suspension measures , stressed business , financial difficulties , insolvency , close down
The temporary suspension measures that were applied during the "first wave" of the corona crisis have been reintroduced but only apply now to companies that had to close down further to the corona measures.
Since 28 October 2020, all businesses with activities in the hotel and catering sector, in culture, sports, events and beauty sectors (beauty salons, hairdressing salons) have been ordered to completely shut down.
These measures are now extended until 1 March 2021.
In total, the activities of these companies have been completely stopped for no less than 4 months!
In addition to the financial and economic difficulties linked to the corona crisis, some companies were already experiencing such difficulties in the operation of their activities, leading them to request the opening of a judicial reorganisation in order to preserve the continuity of their activities.
Companies which already have adopted a reorganisation plan (or WCO/PRJ) and which encounter difficulties in complying with it as a result of the coronavirus crisis, are exceptionally entitled to derogate from their obligation to scrupulously execute their reorganisation plan.
1. The WCO/PRJ as a valuable aid to stressed businesses
A WCO/PRJ allows companies facing financial difficulties to preserve the continuity of their activities, by reimbursing their creditors progressively during a period of maximum 5 years.
The WCO/PRJ is in practice the most common form of a judicial reorganisation. It allows debtors to negotiate with their creditors a payment plan with a maximum duration of 5 years, under the supervision of the court of enterprises. The plan may also entail a limited write-off of certain debts.
Such a reorganisation plan covers the payment of so-called "suspended" debts, i.e. debts existing at the time the procedure is initiated. But, the company is still obliged to pay the debts that arise after the initiation of the reorganisation procedure.
As soon the company has drawn up a reorganisation plan, that has received the consent of the creditors, the court approves it. The procedure as such then ends, and the company is obliged to scrupulously respect the payment plan and pay according to the agreed (monthly) instalments.
The company is therefore faced with two challenges: the payment of its "old" debts through the reorganisation plan, and the payment of its usual operating costs and any new debts.
The impact of the temporary legal "corona" suspension on the reorganisation plan - an exceptional legal measure
Since the beginning of the coronavirus crisis, many businesses have been facing additional financial difficulties on the one hand, to pay their current operating costs as well as their suppliers, and on the other hand, to meet the deadlines of their approved reorganisation plan.
Since 28 October 2020, the situation of some companies has become even more critical as they have had to close their doors. A reopening is not planned before at least 1 March!
Already during the "first corona lockdown", a temporary suspension was in place for businesses facing payment difficulties due to the corona crisis. This suspension included an extension of the payment terms of an approved reorganisation plan. This measure was in force until 17 June 2020.
During the "second corona lockdown”, the Covid-19 Law reintroduced this suspension for a (renewable) period from 24 December 2020 to 31 January 2021.
Companies that had been subject to a WCO/PRJ with an approved reorganisation plan, but are unable to comply with the plan because of the corona crisis, may now temporarily suspend the payments foreseen by their plan.
In other words, payment deadlines are extended as long as the general suspension is in force, under the following conditions:
- The company has been subject to the mandatory corona closure measure since 28 October 2020;
- The continuity of the company is threatened by the corona crisis;
- The company was not in a situation of having stopped its payment on 18 March 2020 (i.e. before the 1st lockdown implemented in Belgium).
payment deadlines are extended as long as the general suspension is in force
This legal measure allows the company, very exceptionally, to legally derogate from its obligation to rigorously execute the PRJ/WCO plan within the maximum period of 5 years.
3. What does this mean in practice?
If your company is affected by this situation, you are entitled to suspend the payments agreed with your creditors within the framework of your reorganisation plan, without the latter being able to request the revocation of the WCO/PRJ plan because of non-compliance.
The reorganisation plan will be extended, even beyond the maximum period of 5 years. The duration of the extension will then be equal to the duration of the legal suspension. If the suspension lasts 3 months, the maximum 5-year implementation period will be extended by 3 months.
This applies to all reorganisation plans that have been approved before 24 December 2020, as well as to those that will enter into force after 24 December 2020.
4. What will happen now?
At present, the legal suspension is in force until 31 January 2021. In view of the extension of the compulsory closure measures until 1 March 2021, we can only hope that a Royal Decree will be issued shortly to extend the period of this suspension and the measures resulting from it.
Does your company have to comply with a reorganisation plan and do you think that you fall under the above-mentioned conditions?
Is your company in financial difficulties and do you wish to preserve the continuity of all or part of its activities?
Then we can reassure you. Solutions do exist.
Our insolvency and distressed law practitioners will take the time to listen to you and to assist you. Do not hesitate to contact our specialists via CoronaTaskforce@seeds.law.Read also