8/9/2021 The tax authorities are not always preferred creditors - Seeds of Law

 

 02.03.2016


CORPORATE LAW AND M&A
, TAX LAW

 LEILA MSTOIAN - LEO PEETERS


CONTINUITY OF ENTERPRISES
, LCE
, PUBLIC CREDITOR
, ORDINARY CREDITOR

The tax authorities are not always preferred

creditors

Case
Constitutional Court judged that tax authorities are always ordinary creditors in the LCE.

In its judgement of 18 February 2016, the Constitutional Court has once again made
some
important decisions regarding the position of the tax authorities in their capacity
of public
creditor in the context of a reorganisation in compliance with the Continuity of
Enterprises Act.

According to the Court, the tax authorities are ordinary creditors, and they cannot
improve their
position during the suspension by taking a mortgage registration.

1. The reasons leading to this judgement

Since the entry into force of the law of 31 January 2009 regarding the continuity of
enterprises
(hereinafter “LCE”), the tax authorities have tried, on multiple occasions, to
improve their
position in the procedure of judicial reorganisation by undertaking
creative attempts to “promote”
themselves to extraordinary creditors.

However, this is in conflict with the spirit as well as the purpose of the LCE, regarding to
which
the legislator has clearly imposed its will to treat both public and private creditors
equally. 

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8/9/2021 The tax authorities are not always preferred creditors - Seeds of Law

The Court of Appeal in Brussels has submitted a preliminary question to the

Constitutional Court
whether the tax authorities, by registering their legal mortgage 
during the period of protection
against creditors, violated the constitutional equality
principle.

2. Continuity of Enterprises and attachment during the suspension

of claims

Pursuant to Article 31 of the LCE, no conservatory or executory seizure can be levied

during the
suspension on claims in the suspension (in other words claims that date back
to before the opening
of the suspension). Although, seizures levied before the opening of
the procedure maintain their
conservatory character, but the court can grant releases, to
the extent that this does not cause a
significant disadvantage for the creditor.

Enterprises in difficulties are

legally protected against any
form of execution, bankruptcy
and
seizure of claims in the
suspension

The purpose of the LCE is to grant enterprises in difficulties judicial protection against
any
form of execution, bankruptcy and seizure of claims in the suspension. 

The aim of that period of protection (i.e. period of suspension) is to allow the enterprise in
difficulties to reorganise itself in order to maintain its continuity.

3. The facts

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8/9/2021 The tax authorities are not always preferred creditors - Seeds of Law

In the present case, the tax authorities had registered their legal mortgage on the part of
the
real estate of the enterprise in difficulties, after the opening of the procedure of  
judicial
reorganisation. The tax authorities relied on the legal argument that the right of
the tax
authorities to proceed to register a mortgage cannot be mistaken for a seizure.
According to the
tax authorities, the reserved right of the mortgage registration results
from the VAT code and from
the Income Tax Code. Hence, the tax authorities believed
that Article 31 LCE does not target the
legal mortgages of the tax administration.
Because the LCE does not say a single word about a
possible prohibition of registration
of a legal mortgage by the tax authorities, it seemed evident
for the tax authorities to
levy conservatory attachments during the period of suspension.

This course of action causes an unequal treatment of the creditors during the procedure
of judicial
reorganisation. In that way, the tax authorities obtain a favourable position
compared to other
creditors, which manifestly interferes with the fundamental
principles of the LCE.

Not surprisingly, this has been confirmed by the Court.

4. Argumentation of the Constitutional Court

The Constitutional Court judged that, since Article 31 LCE does not prohibit the tax
authorities
to file a mortgage registration during the period of the suspension in order to
be acknowledged as
a preferred creditor, this impairs, in a disproportionate fashion, the
rights of the other
creditors. Their situation will be directly affected by the existence of
such a prerogative of the
tax authorities, and conflicts, according to the Constitutional
Court, with the desire of the
legislator to protect the equality between creditors.

Technically speaking, the legal mortgage is no seizure. But the seizure on a real estate
does not
constitute a prerogative, whereas a mortgage leads to a right in rem being
granted, which results
in the grade of preferred creditor as of the registration. If the tax
authorities file a mortgage
registration during the suspension, they will not become a
preferred creditor. However, they will
have that grade at the end of the suspension, and
in case of concurrence, the other creditors who
cannot dispose of this prerogative, will
only be paid if the tax authorities are fully paid. The
Constitutional Court argues that
such a situation does not respond to the will of the
legislator.

5. Conclusion

With this judgement, the tax authorities lose yet another one of their many backdoors
that they
are always looking for in order to assert their superior position within the LCE. 

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8/9/2021 The tax authorities are not always preferred creditors - Seeds of Law


For enterprises in difficulties, and their ordinary creditors, this implies the confirmation 
that
the public creditor has to be equally treated, which should allow for a smoother
reorganisation.

Would you like to learn more about this subject?

Contact our experts or telephone +32 (0)2 747 40 07

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8/9/2021 The tax authorities are not always preferred creditors - Seeds of Law

Leila Mstoian  
PARTNER

 

Leo Peeters
PARTNER

 
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8/9/2021 The tax authorities are not always preferred creditors - Seeds of Law

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