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The Constitutional Court brings clarity on the scope of article 37 of the Act on Continuity of Enterprises

According to article 37 of the Belgian Act on Continuity of Enterprises, “claims against the debtor related to services provided by its co-contractor during a judicial reorganization are to be qualified as privileged claims in a following bankruptcy" and receive the status of “super-privileged debt”.

Jurisprudence and doctrine disagreed on whether public authorities with claims regarding VAT, social security etc… are co-contractors in light of this article. The answer to this question is crucial for a debtor in a judicial reorganization, since it determines the scope of its protection and (indirectly) the willingness of (other) co-contractors to continue to provide services.

In its last decision on the matter, the Court of Cassation ruled that public authorities are not co-contractors, as they do not have a contractual relation with the debtor.

In a recent decision of April 27, 2017, the Constitutional Court has confirmed this restrictive interpretation and clarified the status of a public authority debt in judicial reorganization.

The Constitutional Court intervened following to two preliminary questions of the Court of Appeal of Mons, whereby it was asked to assess article 37 of the Act of Continuity of Enterprises in the light of the general principle of equality (articles 10 and 11 of the Belgian Constitution), and more specifically whether the division between a contractual or legal relationship with the debtor is compliant and if the nature of the claim of the public authority (in this case: VAT / company tax prepayments) can make a difference.

In its decision, the Constitutional Court ruled that (i) the VAT-administration is not a co-contractor as prescribed by article 37, since its claims are a mere consequence and application of the law and do not stimulate the continuity of the company’s business and (ii) a different treatment of the public authority claims depending on the nature of the claim cannot be justified in the sense of Articles 10 and 11 of the Belgian Constitution, because of the lack of economic purpose and the contribution to the continuity of a company is common to all public authority claims.

This decision is good news for companies in judicial reorganization, as it reduces the potential super-privileged debts, and as such ties in with the true objective of the judicial reorganization, being the continuity of the business.

For specific questions, you can reach out to the authors of this article or to your regular contact person at Cresco.

Elena Claes Natalie Lemense

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