Temporary provision for deferment of payment covid-19 came into effect

As of March 2020, the Dutch government has taken exceptional measures to alleviate, among other things, the liquidity problems of companies due to the coronavirus crisis. You can read more about these measures and other related information on our Covid-19 Desk page. It is conceivable that in the months to come, restrictive government measures imposed due to the coronavirus crisis will cause situations in in which creditors will file for a debtor’s bankruptcy or institute other actions for recourse against this debtor.

To prevent such undesirable consequences, the Temporary Provision for Deferment of Payment covid-19 (de Tijdelijke voorziening betalingsuitstel covid-19) came into effect on 17 December 2020. This Provision is contained in the second chapter of the Temporary COVID-19 SZW and JenV Act (Act, Tijdelijke wet COVID-19 SZW en JenV). The provision allows a debtor to request the court to suspend proceedings for bankruptcy filed against that debtor or to suspend creditors' recourse actions if the debtor has liquidity concerns because the restrictive coronavirus measures have interrupted business operations. This "moratorium" applies only to creditors who have filed for bankruptcy, and is not a total moratorium.

This scheme pertains to entrepreneurs who are unable to meet their payment obligations because they were unable to continue their businesses due to the outbreak of Covid-19, and as a result ran into liquidity problems. However, the starting point still is that the court will weigh the debtor’s interests in being granted defer of payment against those of the creditor (s) being able to institute recourse actions.

Specifics of the Temporary provision for deferment of payment
What does this scheme entail? Below we will give a summary of the main measures. Please note that these temporary rules do not apply to the Tax Authorities.

Request for deferment of bankruptcy petition
Entrepreneurs confronted with a bankruptcy petition will be given the option to request the court to postpone the handling of this bankruptcy petition for, in principle, two months. The grant of such request for deferment implies the grant of deferment of payment towards the creditor who filed the bankruptcy petition.

After a summary review, the court can grant the requests only if the following conditions are met:

• the entrepreneur is temporarily unable to meet his payment obligations due to a lack of liquid assets;
•  this liquidity shortage arose mainly or exclusively because the entrepreneur was unable to (fully) continue his business operations due to the restrictive government measures that took effect on 15 March 2020, which caused. a loss of turnover of at least 20%. The debtor must provide sufficient evidence of this;
• prior to the restrictive measures, the entrepreneur had no financial problems and sufficient liquidity to pay due and payable debts;
• the debtor is likely able to pay creditors again after the term set by the court; and
• the interests of the creditor who has filed for bankruptcy will not be materially and unreasonably harmed by deferment.

If the court adjourns the bankruptcy petition, debtors cannot be forced to meet payment obligations that were already due before. For these debts, they are in fact granted deferment of payment. If debtors enter into new obligations or a new payment term expires in an ongoing agreement (for example, a rental agreement), they should be able to meet those obligations. This prevents the debtors’ debts from further increasing during the payment deferment. Moreover, the deferment applies only to the debtor's payment obligations towards the party filing the bankruptcy petition.

During deferment, the creditor who filed a bankruptcy petition may not terminate, suspend or dissolve the agreement with the debtor in question, if the default arose before the request for deferment. It is also not possible to claim goods at this stage and any attachments already levied lapse if the court so decides at the request of the debtor.

The debtor has the option to request the court two more times to adjourn the bankruptcy petition by two months maximum. In the event of a request for extension of the deferment, the court must again check whether the aforementioned conditions have been met.

Suspension / lifting of enforcement measures
Should one or more creditors proceed with an attachment or the enforcement of a security right or an attachment, the debtor can request the preliminary relief judge to suspend execution or to lift the attachment. Such request does not require that a bankruptcy petition has already been deferred as set out above. The same conditions apply to the granting of such request as to the granting of a petition to suspend a bankruptcy petition.

The claim for suspension of execution applies for a period of no more than two months, which can be extended twice by two months maximum.

Applicability of general principles and rules of the Bankruptcy Act
It is possible that the temporary deferment of payment is still too short to turn the tide and the company will still be declared bankrupt. If it then turns out that the entrepreneur has paid one or more specific creditors in the run-up to the bankruptcy without any valid reasons, the bankruptcy trustee can annul such transactions on the basis of the so-called action pauliana (Article 42 et seq. of the Bankruptcy Act (Fw)) or hold directors liable for any loss caused as a result. These principles and rules remain fully applicable.

However, the settlement of a due and payable debt during the deferment period cannot be annulled on the basis of Article 47 Fw simply because the creditor who received payment knew that a petition had been filed for the debtor's bankruptcy.

Finally, the party setting off a debt acts in good faith as referred to in Article 54, first paragraph, Fw if this set-off:

a) is made after the court has granted the request for deferment, and

(b) is carried out as part of the financing of the continuation of the business carried on by the debtor and does not serve to curtail such financing.

Entry into force and expiry date
The provision came into effect on 17 December 2020 and will be expiring on 1 February 2021. The expiry date could be changed, however, by Royal Decree, but will never be more two months after the date on which the Act would originally lapse.

Take away
This scheme offers courts the possibility to temporarily suspend bankruptcy petitions and to suspend other recourse actions against entrepreneurs who have temporary liquidity problems as a result of the outbreak of the COVID-19 virus. This allows these entrepreneurs to obtain temporary payment deferment, in order to prevent avoidable bankruptcies and associated recourse actions.

The scheme will give these entrepreneurs more time to effect a turnaround and / or a restructuring of the debt position of the company.

If you have any questions or comments on this subject, please do not hesitate to contact us.