Member Article

Discussing the legal concept ‘Force Majeure’ in credit agreements – if it can be called upon, it has in principle a temporary nature and does not relief you from payment obligations.

In general, force majeure is an unforeseeable and unavoidable event that occurs  after a credit agreement has been concluded (i.e., a change in circumstances), which is not due to the parties’ own actions and which makes it impossible for a (defaulting) party to perform its obligation(s) under such credit agreement (e.g. the payment of interest).

Under Belgian law, force majeure allows a debtor to temporarily or permanently suspend the performance of its contractual obligations without risking any liability, because a change of circumstances makes it (absolutely or reasonably) impossible for the debtor to perform its obligations. It appears from Belgian case law (both from courts of appeal and lower courts) that the impossibility requirement in case of force majeure often does not apply as strictly (absolute impossibility) as authors traditionally claim. Often in practice, the absolute impossibility becomes a reasonable, human impossibility. The interpretation of the fairness of force majeure is thus left to the discretion of the judge.

Most credit agreements do not explicitly foresee for force majeure, but such concept may be found in a bank’s general terms and conditions and it is anyway a general principle. A reference to force majeure may also be included in the part of the credit agreement listing the information obligations of the borrower. For example, an export financing agreement is used the finance a certain export from one country to another. If the underlying commercial contract of which the supplies are being financed can no longer be performed due to force majeure, the bank will have to be informed and may consequently stop further drawings under the credit agreement. In such case the force majeure is not applicable to the credit agreement itself, but will have an impact on it that is best discussed with the bank.

It is important to note however that even if due to circumstances a debtor is temporarily defaulting its obligation(s) under a credit agreement, which is allowed due to successful invocation of force majeure, this does not mean that the debtor is freed from its payment obligation under the credit agreement. The Belgian Court of Cassation[1] has ruled that financial insolvency, even if due to external circumstances constituting force majeure for the debtor, does not have the effect of releasing the debtor from its payment obligation. The Belgian Civil Code[2] also states that if a debtor is withheld from fulfilling its contractual obligations, the creditor may not claim for an indemnification for the damage/loss suffered from the debtor in this regard.

In each case, our advice is to contact your relationship manager in respect of your credit agreement to inform your bank of the force majeure situation and to discuss how long this may last.

The above information is merely intended as comment on relevant issues of Belgian law and is not intended as legal advice. Before taking action or relying on the comments and the information given, please seek specific advice on the matters that are of concern to you.