Business in financial difficulty: How can you, the creditor, safeguard your rights as much as possible when you have to deal with a business that is in financial difficulty?

No one has yet given their last word yet (orally or in writing) about the current financial environment. It is clear that virtually everyone has been impacted by it one way or another. Naturally, when one undergoes financial problems, it creates the risk of a snowball effect on another. It is this very reason that you, the business owner, should explore what other options are out there to safeguard your rights in respect of your co-contracting party.

How can you, as a buyer or supplier, protect yourself as much as possible from your co-contracting party’s financial problems or even in the event that your co-contracting party goes bankrupt?

1. Retention of title

Moveable goods – If you are a seller or supplier of moveable goods, you should agree on a retention-of-title clause with your co-contracting party. In particular, the clause should stipulate that the transfer of the title to the goods in question is suspended until the buyer pays the full purchase price. A retention-of-title clause gives you the possibility to recover the moveable goods if the buyer continues to default in paying the purchase price or, alternatively, if the buyer goes bankrupt.

Prior agreement – Retention of title is valid only if parties agreed upon it in writing before the goods are delivered. It can be based not only on an agreement concluded before the cooperation but also on your general conditions. If these conditions are printed on the back side of the invoices, you should mention this on the front side, directing the recipient to read the reverse. The general conditions on the back side apply in such scenario if there is a sustainable commercial relationship whereby the co-contracting party in question would have already read the conditions and would have never opposed them.

Goods become immoveable from use or because of its nature – When agreeing on title retention, you don’t have to fulfill any validity requirements or register it unless it concerns goods that could become immoveable from use or because of its nature. These would be goods that are incorporated into or linked to an immoveable property, such as, for example, the sale and installation of windows, roller shutters, built-in closets, staircases, etc.

For these types of goods, your can continue to keep your right to their title only if you register this right in the National Pledge Register and this is done before the goods becomes immoveable. Registering this right is not mandatory, but it significantly offers you protection because, theoretically, every merchant buyer must check the Pledge Register. If, despite the registered title retention in the Pledge Register, a merchant buyer proceeds to purchase the goods from the co-contracting party (against whom the title retention was agreed upon)—and this purchase falls under the buyer’s “normal business activity”—this merchant buyer would be regarded as having acted in bad faith and the title retention will have a knock-on effect on him as well.

Do bear in mind that there are limited costs associated with this registration.

Demanding return of the goods – If your co-contracting party remains in default in paying the purchase price, you can demand the return of the goods to which you retain their title, without the need to seek a court to intervene. In addition, your title retention continues to be valid even in the event of concursus creditorum, such as the situation in which a company goes bankrupt or goes into liquidation. Therefore, based on your title retention, you can demand return of the goods from the receiver. If the goods are part of stock items or an inventory and they have been resold before the bankruptcy, you can enforce your title retention right against the amount of money that was generated from those goods. You therefore have a preferential position (i.e., that of a secured creditor) in the context of the bankruptcy.


2. Security right (a pledge)

Pledge agreement – If you cannot invoke a retention of title but you wish to agree on a right that secures payment of your claim, a pledge agreement offers you an extra warranty. A pledge is a security in rem whereby you can agree that specific goods of the debtor be encumbered with a pledge as security for your debt claim.

This security right can be agreed upon under an agreement between the pledgor and pledgee in which it clearly describes which goods are encumbered with the pledge and which debt claim the pledge secures. Moreover, the maximum sum that is secured must be mentioned.

Broad subject-matter – The goods that can be encumbered with a pledge are rather broad. These can be tangible or intangible goods, a business, or even clusters of these goods as long as they are “determinable.” The advantage of this is that the pledgor is no longer required to transfer the physical possession of the pledge goods in order to create a valid pledge (so-called pledge without dispossession).

Disposition and processing – Unless otherwise agreed upon, the pledgor may make the goods available for use, sell them, or even process them as long as these activities fall within its usual business operations. The security right therefore remains pledged on the goods or on the sum of money that replaces them.

Registration – Pledge Register – The pledged security interest must be registered in the National Pledge Register so that it can be enforced against third parties. The registration consequently precludes a merchant buyer, who trades as part of his business or profession, from being considered a “good-faith buyer.” After all, every merchant buyer is obliged to check and consult the Pledge Register if he does not want a purchase to be declared invalid because the pledgee can enforce the pledge against him. Therefore, if the pledgor sells the pledge-encumbered goods to a merchant buyer who trades as part of his usual business activities, this sale cannot bind you, the pledgee. In such scenario, you can still enforce your pledge, even if the merchant buyer has possession of the goods.

The usual possessory pledge, with dispossession, continues to be valid. This means that there is no obligation to register it. However, you, the pledgee, bear the responsibility to handle the pledge-encumbered goods with care. Moreover, you have the obligation to keep these goods separate from similar goods so that they do not get mixed up.

Enforcement – If the pledgor (a non-consumer) remains in default in paying the debt it owes you, the pledgee, can proceed to enforce the security right on the pledge-encumbered goods. If no voluntary enforcement takes place, a private or public auction sale of the goods can be organized, either with or without the involvement of a bailiff. A court will verify this only afterwards. The pledgee, pledgor, or other third party with protected interest can turn to court at any time if a dispute arises concerning the enforcement.

If the pledgor is a consumer and defaults in payment, you, the pledgee, are not allowed to take possession of the pledge. What you can do is to seek the court to award you collateral whose value is the amount of the debt owed to you.


3. Judicial reorganization

If your co-contracting party undergoes judicial reorganization, you must declare your debt claim on time on the website and mention your preferential right. This puts you in a preferential position (i.e., as a secured creditor) when this procedure is being handled.

Regarding the procedural possibilities as part of a judicial reorganization, we refer you to our newsletter that is dedicated to this subject-matter.


4. Bankruptcy

If your co-contracting party goes bankrupt, it is important that you declare your debt claim on time on the website and mention your preferential right. This declaration must be done within the year when the bankruptcy proceeding is opened, on penalty of it being time-barred. And, if you wish, you can urge enforcement of your preferential right, but this must be done, if appropriate, before the first affidavit (official police report) concerning the debt claim is drawn up, which is around 30 days after the bankruptcy proceeding is opened. If you still have no possibility to recover your debt claim, you always seek a fiscal affidavit from the receiver. With that, you can recover your VAT.




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