19 May The end of discrimination between tax authorities and ordinary creditors during a judicial reorganization

In a recent decision (18 February 2016), the Constitutional Court has prohibited tax authorities to take out a legal mortgage during a judicial reorganization procedure. The registration of the mortgage allowed tax authorities to benefit from a privileged status in the event of subsequent bankruptcy of the struggling company.

Whilst all enforcement measures are forbidden during the judicial reorganization (article 31 of the Continuity of Enterprises Act), tax authorities were used to use their legal prerogative entitling them to register a mortgage during the moratorium in order to have a back-up security.

As unsecured creditors, tax authorities are ordinary creditors. Mortgage registration during the moratorium does not turn them into privileged creditors on the day of the introduction of the judicial reorganization, but it still grants them this status from the day of the registration. As a consequence, in case of subsequent bankruptcy, other ordinary creditors could only rank equally once the tax authorities were paid off.

The Constitutional Court has considered the legal mortgage could not be registered by tax authorities during the moratorium, as it jeopardizes, in a disproportionate manner, the rights of other ordinary creditors, subject to the prohibition of enforcement measure during the moratorium.

CAIRN LEGAL has a solid experience in the field of judicial reorganization, both for struggling companies and creditors. This experience has taught us that it is essential to take the right measures at the right time and determining the consequences of such procedures.

If you wish to have more information on this subject, do not hesitate to contact Ms. Virginie SCHOONHEYT (virginie.schoonheyt@cairnlegal.be).

Best regards,

The Cairn Legal team.