Temporary provision for postponement of payment in light of COVID-19
This article discusses a pending COVID-19 related bill in so far as it proposes amendments to the Temporary COVID-19 Justice and Security Act. These amendments, if entered into force, will allow Dutch courts to prolong bankruptcy applications and lift or suspend recovery actions in light of COVID-19.
The proposed bill headed ‘Temporary COVID-19 Social Affairs and Employment and Justice and Security Act’ – which is currently still pending in the early steps of the legislative process – proposes amendments to the Temporary COVID-19 Justice and Security Act that has already entered into force (and to the Participation Act on Social Affairs and Employment).
The purpose of the proposed postponement of payment provisions in the bill is to protect generally healthy businesses from avoidable bankruptcies as a result of, or mostly triggered by, the current COVID-19 crisis by effectively granting these businesses a temporary postponement of payment. The bill provides Dutch courts with the option to (i) temporarily stay the handling of bankruptcy requests and (ii) to lift or suspend recovery actions, such as enforcement of judgments or prejudgment attachments.
The rationale behind the bill is that it is important to prevent bankruptcies of debtors that run a business that is healthy at core, but has limited turnover due to COVID-19. On the other hand, the legislator realizes that it is just as important to avoid that creditors go bankrupt because their debtor(s) obtain a postponement of payment. The proposed measures therefore serve both the interests of the debtor as well as the creditor’s. The measures are based on a balance between those interests.
Stay of bankruptcy requests
A debtor confronted with a bankruptcy request that wants to stay the handling of that request must concisely demonstrate that it is unable to conduct its business only or mostly due to COVID-19 and is for that reason temporarily unable to meet its obligations. This will be assumed to be the case if the debtor shows that it:
- is temporarily unable to meet its payment obligations due to a lack of liquidity;
- the lack of liquidity arose mainly or exclusively because it was unable to (fully) continue its business operations due to the outbreak of COVID-19 or the restrictive measures that the Government announced in connection with it since 16 March 2020;
- the debtor was not in financial distress before the outbreak of COVID-19 or the announcement of the restrictive measures;
- the debtor has earning capacity and future prospects; and
- the interests of the creditor who filed for bankruptcy or instituted recovery proceedings would not be materially and unreasonably harmed by a postponement.
If the stay is granted, the handling of the bankruptcy request will be stayed for eight weeks. By request of the debtor this period may be extended twice, each time by another period of two months.
If the request is granted, the court may also determine that the creditor who submitted the bankruptcy request no longer has the right to enforce its rights on the debtor’s property without the court’s authorization. Attachments by the requesting creditor(s) can be lifted.
During the stay of the bankruptcy request, the relevant creditor cannot proceed to terminate, suspend or dissolve of its agreement(s) with the debtor. Furthermore, the postponement of payment does not affect the ranking of the creditors. The bill will not apply to the tax authorities, who can still independently file for bankruptcy or proceed to enforce their rights to payment without delay.
Lifting or suspension of recovery actions
If necessary to continue its business, a debtor can also request suspension of execution of judgments with a maximum of two months and/or the lifting of prejudgment attachments. The same conditions apply as for the stay of the bankruptcy request.
Entry into force
As the bill still has to pass Parliament, it is yet unknown if and when this bill will enter into force.
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