The government has taken a number of emergency measures on bankruptcy and insolvency proceedings as part of its response to the COVID-19 pandemic. These measures apply during the duration of the so-called 'health emergency', plus one or three months, depending on the case. This article considers the impact of the emergency measures on bankruptcy and insolvency proceedings in France.
The Sapin II Act amended the regime governing directors' liability in an insolvency scenario in order to encourage the recovery of honest directors of failed businesses. The Commercial Code now states that mere negligence is not a form of mismanagement that can serve as the basis of an action by the court-appointed liquidator against the director of a company in liquidation proceedings.
Parliament recently adopted the Sapin II Act, which authorises the government to make decisions regarding legislative matters, including with regard to clarifying and modernising the status of security agents and their role in restructurings. This is another step towards making French law more attractive for investors. The resulting reform will be welcomed by market players, as the status of security agents, which was recognised by French law in 2007, has raised more questions than it has solved.
It might appear reasonable to assume that if adequate information is given to the purchaser of a distressed business, the seller will incur no risk if the purchaser fails to resolve the business difficulties and eventually files for insolvency. However, this assumption is misleading, since case law regularly shows that sales of distressed businesses may carry high risks for sellers if the takeover fails and the transferred business is eventually the subject of insolvency proceedings.
The Supreme Court recent ruled that the confidentiality of out-of-court ad hoc mandates and conciliations prevails over the freedom of the press. The court held that the statutory confidentiality of out-of-court ad hoc restructuring processes is designed to protect the rights and freedoms of debtor companies and is therefore a necessary restriction of the press's freedom of expression, unless the information is of general public interest.
In a liquidation case, the Court of Cassation has sent two interlocutory questions to the European Court of Justice. The case revolved around the principle of the intermingling of assets, which provides that opened insolvency proceedings may be extended to other parties if their assets are intermingled with those of the debtor.
The Cour de Cassation recently handed down its decision in the Coeur Défense case, which quashed last year's decision by the Paris Court of Appeal. The consequences of this decision are far-reaching. The position taken by the Cour de Cassation opens the floodgates for appeals by creditors against judgments on opening safeguard proceedings.
The recently published Banking and Financial Law changes French law with regard to insolvency proceedings. The reform will apply to voluntary arrangement, safeguard and judicial reorganisation proceedings. It represents real progress for companies in distress, allowing them to reach an agreement for financing their debts while maintaining supplier confidence.
A recent case shows that a pre-pack can be implemented under French law, but only under specific circumstances. More generally, it demonstrates that French law offers a wide range of possibilities which enable businesses to restructure and find their way back to solvency.
Since the fiducie was introduced, a number of amendments have altered the applicable legal framework, both for the fiducie in general and in respect of contracts for the fiducie as security. Certain changes apply, particularly in the context of insolvency proceedings.
In reaction to apparent failures and in light of the global economic crisis, the legislature and regulatory authorities have proposed further insolvency law reforms. It is hoped that companies will gradually gain confidence in the new procedures and avail themselves of the possibilities offered by the law with a view to the continuation of their business.
Professionals who deal with the restructuring of distressed companies have long hailed recourse to independent mediation as the most flexible and confidential means at their disposal to deal with the issues they face. Consideration must be given to whether mediation is suitable, the specifics of any assignment given to an administrator and the choice of administrator.
French insolvency law has traditionally been more favourable to debtors than to creditors. Consequently banks have been reluctant to grant loans to businesses, particularly small ones. The solution, the fiducie, was enacted in February 2007, following a movement to modernize French securities laws which began in 2005.
Recent discussion following a decision by the Versailles Court of Appeal has shed some light on the use of the 'centre of main interests' concept in insolvency proceedings by groups of companies established solely in France. It has demonstrated that there are means available to centralize proceedings and thus address the concerns raised.
The new Insolvency Law makes five routes available to debtors and/or creditors and investors. Certain high-profile cases have widely publicized the sauvegarde procedure as an innovative and efficient way for debtors with sound operating business models to avoid insolvency. However, the new conciliation procedure should now be considered as a source of business opportunities for investors.
On July 26 2005 Parliament enacted the Corporate Protection Law, which entered into force on January 1 2006. Pursuant to the new Article L611-11 of the Commercial Code, if an order of conciliation is approved by means of formal judgment, creditors making new money (or goods or services) available to the debtor in connection with the order will rank in priority to other creditors.
A proposal to reform the insolvency procedure in France has been drafted following discussions between the government and insolvency professionals. The proposal has a preventative focus. Among other things, it replaces amicable settlements with amicable reorganizations, which privilege creditors that agree to grant additional credit.
The Commercial Tribunal of Paris recently placed Tati, one of the most famous discount companies in France, under reorganization, even though many experts thought that liquidation was the only option. Tati is just one of many companies that are struggling in the current climate - the number of insolvent companies rose by 8% in the first half of 2003.
Including: Preventing Insolvency; Right to Warn; Approved Prevention Associations; Amicable Settlement Procedure; Judicial Reorganization; Liquidation Procedure; Liability of Banks and Suppliers.
In the absence of a specific personal bankruptcy law, legislation exists instead on overindebtedness. With consumer credit now widely available, more people are struggling to pay their debts. The legislation is therefore being revised to introduce a new procedure which will protect families against overindebtedness.