President of Brussels Commercial Court Limits Enforcement of Securities during Judicial Composition Procedure

FINANCIAL LAW AND SECURITY

Introduction

In its judgment of 15 June 2009, the President of the Brussels Commercial Court held in summary proceedings that the foreclosure of a pledge (pand/gage) on the bank accounts of a company under judicial composition could be considered as an abuse of a right when it may jeopardise the continuity of the company.

Facts

A company entered into a facility agreement with a bank consortium and agreed to grant a pledge on its bank accounts, receivables and goodwill in order to secure its obligations under the facility agreement. Following the company's breach of its covenants, the loans under the facility agreement were accelerated. As the company did not immediately comply with the requests of the bank consortium, the latter decided to initiate the foreclosure procedure in relation to the pledged bank accounts and requested the banks to transfer the monies on the pledged bank accounts into the bank account of the bank consortium. Following this request, the banks blocked the bank accounts in question.

Subsequently, the company filed a request for judicial composition under the Judicial Composition Law (Wet betreffende de continuïteit van de ondernemingen/Loi relative à la continuité des entreprises). This request was approved by the Brussels Commercial Court. In the meantime, the President of the Brussels Commercial Court decided, further to the company's request, to suspend the rights of the bank consortium on the pledged bank accounts for as long as the judicial composition procedure was pending. As a result, the bank consortium introduced third party summary proceedings (derdenverzet/tierce opposition) before the President of the Brussels Commercial Court.

Decision

The President reminded first that, despite an insolvency procedure, a creditor may enforce a security on monies (including on bank accounts) upon the occurrence of an event of default pursuant to article 9 of the Law on Financial Securities dated 15 December 2004 (Wet Financiële Zekerheden/Loi relative aux Sûretés...