Suspension of payments
1. What is it?
Suspension of payments is a procedure by which a trader/company can obtain a suspension of payments from its creditors for a period of time determined by the courts following extraordinary and unforeseen events.
During the suspension, all enforcement proceedings against the trader who has applied for it are suspended, so that its assets cannot be sold at the request of the creditors.
The suspension of payment is provided for in articles 593 to 613 of the Luxembourg Commercial Code.
2. To whom does it apply?
This procedure of suspension of payment is open to the following persons :
· Traders within the meaning of the Luxembourg Commercial Code, which therefore includes companies (article 593 of the Luxembourg Commercial Code); and
· Owners of industrial establishments who are not traders (article 614 of the Luxembourg Commercial Code).
Establishments of the financial sector and insurance companies are not concerned by this procedure of the Luxembourg Commercial Code. However, they each have their own special regime. Indeed, the law of 5 April 1993, as amended, governs the suspension of payments of the establishments of the financial sector and the law of 6 December 1991, as amended, governs the suspension of payments of insurance companies.
3. To what does this apply?
The suspension will only apply to commitments entered into before the suspension was granted.
The suspension will, however, have no effect on the following claims:
- Taxes and other public charges (which entails a certain risk in the context of the current COVID-19. These claims will depend on the goodwill of the public services);
- Claims secured by liens, mortgages or pledges;
- Claims due for maintenance (“au titre d’aliments”);
- Living supplies made to the debtor and its family (during the 6 months prior to the suspension).
4. What are the conditions?
The person who wants to obtain the suspension must be able to demonstrate the following:
· Either that the applicant has sufficient means (property, financial means) to pay all creditors;
· Or, if the financial situation is momentarily complicated, that the applicant has solutions that can bring the situation back to normal. We believe that the exceptional situation of COVID-19 could be considered as exceptional circumstances resulting in a momentarily complicated financial situation.
It should already be noted that even if the above mentioned conditions are considered to be fulfilled, the applicant should obtain the agreement of the majority of the creditors representing ¾ of the due amounts.
5. What is the procedure?
The procedure is initiated by a query addressed to both :
· the district court (“tribunal d’arrondissement”) sitting in commercial matters in the district in which the trader or owner of the industrial establishment in question has its domicile; and
· to the Superior Court of Justice
This query should contain the following information:
· a statement of the extraordinary and unforeseen events on which the request is based;
· a detailed and estimated status of its assets and liabilities;
· a nominative list of its creditors, including their domicile and the amount of their claims.
The district court will appoint one or more experts who will verify the state of the debtor's affairs and will appoint one of its judge-commissioner to supervise the operations.
The creditors will then be convened individually, at least 8 days before the meeting although this convening notice will also be inserted 3 times in different newspapers designated by the judge-commissioner. During the meeting, the creditors and the debtor will be heard in a contradictory manner.
Each creditor (or the person representing him/her if he has delegated the power to do so) will individually declare the amount of his claim as well as his acceptance or refusal to accede to the request for suspension of payment. Minutes will be drawn up including all the documents that have been produced (by the debtor and/or the creditor).
The district court, after having given a reasoned opinion, will forward the file within 3 days to the Superior Court of Justice which will rule within 8 days of receipt of the file.
The Court's approval is dependent on the agreement of the majority of the creditors representing ¾ of the due amounts.
6. For how long can the suspension be granted?
It is the Superior Court of Justice that will determine the duration of the suspension when it grants it.
The suspension may be extended at the discretion of the Court but at the request of the debtor.
7. Can advance payments be made?
Yes, only any payment of claims existing at the time of the application for suspension must be made to each creditor in proportion to his claim.
During the entire period, one or more commissioners will be responsible for monitoring and controlling the debtor's operations.
8. Revocation of the suspension possible?
Yes, at the request of one or more creditors or by the supervisory commissioners if :
- the debtor has committed fraud (“dol”);
- if the debtor has acted in bad faith;
- the debtor has not respected proportionality when paying claims during the suspension period; or
- if its assets no longer appear to be sufficient to pay all debts in full.
9. Does the suspension prevent bankruptcy?
No. Bankruptcy is always possible if the conditions for bankruptcy are met.
Moreover, in the case of a trader, if the bankruptcy occurs within 6 months after the termination of the suspension, it will be possible to bring the date of cessation of payments (“cessation de paiement”) back to the day of the application for a suspension.