Outcome of pending contracts at the opening of collective proceedings
Verified 18 March 2024 - Directorate for Legal and Administrative Information (Prime Minister)
When opening a collective proceedings, the continuation of certain contracts is necessary for the continuation of the business or for the disposal of the company under the best conditions. On the other hand, the continuation of other contracts may aggravate the already fragile situation of the company. The receiver (or liquidator) decides whether to continue or terminate contracts that are in progress.
A contract is referred to as a “current contract” when the two conditions the following are combined:
- He is concluded before the opening judgment of collective proceedings.
- He is running on the day of the judgment opening the collective proceedings.
An ongoing contract must be useful to the company in difficulty in order to pursue its activity.
Example :
These contracts may include:
- Contract of frankness
- Contract of management leasing of goodwill
- Contract for the rental of a vehicle
- Insurance contract
- Contract of leasing for computer hardware.
Please note
The rules on current contracts do not apply to employment contracts.
The opening judgment of a collective proceedings does not terminate automatically contracts in the course of performance. A company in difficulty must be able to continue to execute all contracts which are useful for the maintenance of its activity.
FYI
It shall be prohibited to include in a contract a clause providing that the opening of collective proceedings will lead to the termination of the contract.
Contracts in the course of execution at the time of the initiation of the procedure therefore continue to same conditions.
For example, a supplier must comply with all the obligations laid down in the contract, even if the company in difficulty did not comply with its own obligations before the procedure was opened. Thus, he cannot refuse the delivery of an order on the ground that previous deliveries have not been paid for.
The contract continued during the observation period shall continue to have effect after the observation period has expired in the event of the adoption of a recovery plan.
The decision to continue the performance of a contract depends on the collective procedure opened: safeguard, judicial redress or liquidation.
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Safeguarding or judicial redress
It's the court administrator appointed by the court which alone has the power to require the continuation of contracts in progress at the time of the opening of safeguard or judicial redress proceedings.
Please note
The judicial administrator is obligatorily appointed by the court when the company has 20 or more employees and a duty-free turnover greater than or equal to €3 000 000.
If the court does not appoint a judicial administrator, it is the legal representative of the company (e.g., the manager of a LLC) who may decide to continue with contracts that are relevant to the maintenance of the business. It shall exercise that power after agreement of the judicial representative. If a disagreement arises on the continuation of the contract, the judge-commissioner is seised by the judicial representative, the company in difficulty or the co-contractor.
The administrator must continue the contracts necessary for the survival of the business. Where the administrator requires the other party to perform his contractual obligations, for example to deliver goods, he shall check, within forward-looking documents the company (for example, a schedule) that it has the funds to perform its own obligations.
In the case of a performance or installment contract (e.g. an internet subscription contract), the administrator must terminate the contract if he does not have the funds to pay for the next installment.
If the administrator does not decide on the performance of an ongoing contract, the co-contractor of the company in difficulty may address a formal notice (usually by registered letter with AR) to make a decision on the continuation of the contract. This notice is not mandatory. It allows the other party to know more quickly the fate of the contract so as not to remain in uncertainty.
Where the supply or service provided for in the contract requires payment of a sum of money from the company in difficulty, that payment must be made spot, i.e. the company in difficulty must be able to pay the sum in one installment. However, the administrator may obtain payment periods with the agreement of the co-contractor.
Please note
Cash payment is not required in the case of a safeguard procedure.
Judicial winding-up
It's the liquidator which has the power to require the performance of contracts in progress or the court administrator where the court has appointed one.
FYI
A judicial administrator may be appointed where the transfer of the company in whole or in part is conceivable, where necessary, or where the turnover is greater than or equal to €3 000 000 and if the company has more than 20 employees.
Where the supply or service provided for in the contract requires payment of a sum of money from the company in difficulty, such payment shall be made in cash. This means that the company in difficulty must be able to pay the amount due in one go. However, the liquidator may obtain payment periods with the agreement of the other party.
With the provisional documents at his disposal (e.g. a timetable), the liquidator shall verify, at the time when he requests the performance of the contract in progress, that he will have the funds necessary to ensure the resulting payment.
The liquidator shall terminate the performance or installment contract (e.g. an internet subscription contract) if it appears to the liquidator that he does not have the funds to pay for the next installment.
Decision of the administrator or liquidator
It's the court administrator (or the liquidator) who decides to terminate the current contract.
FYI
In safeguard and judicial redress, if no judicial administrator is appointed, it is the legal representative of the company in difficulty (manager of SARL: titleContent, director or head of company) who requires the continuation of contracts in progress. It may therefore waive its own obligation to require the continuation of the contract.
Failure to respond to a formal notice from the other party to the contract
The co-contractor of the company in difficulty may ask the administrator or the liquidator to decide whether the contract in progress should continue.
If this letter remains unanswered for more than 1 month, the contract is automatically terminated.
Failure to pay the company in difficulty
Initially, the administrator opted to continue the contract (in writing or tacitly). Then, the current contract is terminated because the company has not been able to pay one of the contractual deadlines.
- Or in the case of backup : it was unable to pay the benefits provided for in the current contract by the deadlines set.
- Or in the case of judicial reorganization or liquidation : it was unable to pay cash, i.e. in one installment, the benefits provided for in the current contract.
Termination must be established by the Judge-Commissioner.
Necessity for the safeguard or recovery procedure
At the request of the administrator, the termination shall be ordered by the judge-commissioner it is necessary for the safeguarding or recovery of the company in difficulty. Such termination shall not unduly prejudice the interests of the co-contractor. This means that the termination must not cause him any difficulty. For example, a breakdown of a distribution contract is possible but should not cause too much harm to the supplier by placing him outside the network of certain distributors.
The Judge-Commissioner who establishes the termination must fix the date of the termination.
In the case of compulsory winding-up, termination shall be ordered by the Judge-Commissioner if it is necessary for winding-up operations and does not unduly prejudice the interests of the other party to the contract. However, in the context of judicial winding-up, termination shall be reserved for the contract in which the company in difficulty does not provide for the payment of a sum of money.
FYI
In the absence ofcourt administrator appointed when the safeguard or judicial redress procedure is initiated, the head of company or officer shall address the request for termination to the judge-commissioner.
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