Safeguard, reorganisation and liquidation proceedings: how do they work?

When a business faces a financial crisis, French insolvency law (droit des procédures collectives) offers several mechanisms to organise its rescue or, failing that, the transfer of its activity. The safeguard plan (plan de sauvegarde), the reorganisation plan (plan de redressement) and the asset sale plan (plan de cession) constitute the three possible outcomes of collective proceedings. Each is subject to distinct conditions, rules of preparation and effects, which every director and every creditor must master to effectively defend their interests.

This article provides a comprehensive and up-to-date overview of these three mechanisms, from their preparation to their execution, incorporating the contributions of the Order of 15 September 2021 on classes of affected parties.

What is a Plan in Collective Proceedings?

Under French law, a plan refers to the court decision that sets the conditions under which a business in difficulty will continue its activity (safeguard or reorganisation plan) or transfer all or part of its assets (asset sale plan). It intervenes at the end of an observation period (periode d’observation) during which the company’s situation has been analysed.

The plan fulfils three essential functions:

• Organising the economic recovery of the business (restructuring, disposal of non-strategic assets, renegotiation of contracts);
• Settling the liabilities according to a payment schedule or remissions negotiated with creditors;
• Preserving employment to the extent possible.

The Commercial Code (Code de commerce) distinguishes three types of plans, according to the proceedings in which they arise and the objective pursued. Their legal regime is set out in Articles L626-1 et seq. (safeguard), L631-19 et seq. (reorganisation) and L642-1 et seq. (asset sale).

The Safeguard Plan: A Negotiated Reorganisation

The safeguard plan is the most protective mechanism for the debtor. It arises within safeguard proceedings (procedure de sauvegarde), opened at the request of the director before any cessation of payments. The objective is to reorganise the business while it still has financial room for manoeuvre.

Conditions and Context

Safeguard proceedings require the business to demonstrate difficulties that it is unable to overcome, without being in cessation of payments (Article L620-1 of the Commercial Code). The safeguard plan is therefore a preventive tool: it enables the debtor to take pre-emptive action rather than suffer the opening of judicial reorganisation.

It is the debtor themselves, with the assistance of the court-appointed administrator (administrateur judiciaire), who proposes the plan to the court (Article L626-2). This control of the process by the director constitutes one of the main attractions of safeguard proceedings.

Content of the Plan: Economic and Social Measures

The safeguard plan defines the prospects for recovery of the business having regard to the possibilities and methods of activity, market conditions and available financing (Article L626-2). It specifically sets out:

• Methods of settling liabilities: payment schedule, possible debt write-offs, conversion of debts into equity;
• Employment level and prospects: the plan may provide for redundancies on economic grounds. If these redundancies concern at least 10 employees over 30 days in a company with at least 50 employees, a job protection plan (plan de sauvegarde de l’emploi, PSE) must be established (Article L626-10);
• Reorganisation measures: disposal of non-strategic assets, renegotiation of leases, internal restructuring.

The maximum duration of the plan is 10 years (15 years for agricultural operators). The first payment must be made within one year of the judgment approving the plan. The first two annual instalments may not be less than 5% of the admitted liabilities (Article L626-12).

Creditor Consultation and Classes of Affected Parties

The safeguard plan relies on negotiation with creditors. Two mechanisms coexist depending on the size of the business:

Individual consultation (standard procedure): each creditor is consulted on the proposed deferrals and write-offs. Silence for 30 days is deemed acceptance of payment deferrals, but does not constitute acceptance of debt write-offs or conversion of debts into equity (Article L626-5). This distinction, confirmed by the Court of Cassation (Cass. com., 29 September 2021, No. 20-10.436), is fundamental: a silent creditor accepts being paid later, but not being paid less.

Classes of affected parties (businesses exceeding thresholds): since the Order of 15 September 2021, businesses with 150 or more employees or net turnover exceeding 20 million euros must constitute classes of affected parties (Articles L626-29 and L626-30). Voting then takes place by a majority of two-thirds of the amount of claims cast within each class. This mechanism introduces collective voting by category of interest (secured creditors, unsecured creditors, equity holders).

The framework further provides a cross-class cram-down mechanism (Article L626-32): the court may impose the plan on a dissenting class if certain conditions are met, including compliance with the best interest test (no creditor must receive less than in a liquidation) and approval by at least one class of affected creditors whose members would have a right to value in a liquidation.

Approval by the Court

The court approves the plan after verifying that the interests of all creditors are sufficiently protected and that recovery of the business is realistic. The judgment is published and binding on all creditors, including those who did not participate in the consultations.

The Position of Personal Guarantors

In safeguard proceedings, personal guarantors who are natural persons (directors, partners, family members) benefit from significant protection: they may avail themselves of the deferrals and write-offs granted to the debtor in the plan (Article L626-11). Concretely, if the plan provides for payment over 8 years with a 30% write-off, the personal guarantor may oppose these terms to the pursuing creditor.

This protection, confirmed by the Court of Cassation (Cass. com., 10 January 2012, No. 11-11.482), constitutes a considerable advantage for directors who have stood as guarantor for the business. It does not exist in judicial reorganisation.

The Judicial Reorganisation Plan: Saving a Business in Cessation of Payments

The reorganisation plan (sometimes called the « continuation plan ») arises within judicial reorganisation (redressement judiciaire), i.e. when the business is in cessation of payments but its recovery appears possible. The Commercial Code largely applies the same rules as for the safeguard plan, with significant differences on several key points.

Key Differences from Safeguard

The first difference concerns who drafts the plan. In judicial reorganisation, it is the court-appointed administrator who proposes the plan to the court, not the debtor (Article L631-19). The director therefore loses control of the drafting process.

Second specificity: competing plans may be submitted. Any interested person (including a creditor or third-party purchaser) may submit an alternative reorganisation plan. The court then chooses the plan offering the best prospects of recovery.

Third particularity: approval clauses (clauses d’agrement) in the company’s articles of association are deemed unwritten during the plan (Article L631-19). This means that shareholders cannot oppose the entry of a new investor if the plan so provides.

Specific Coercive Measures

The reorganisation plan may include more intrusive measures than the safeguard plan:

• Partial disposal of assets ordered by the court;
• Replacement of the director if the court considers it necessary for maintaining activity;
• Temporary inalienability of certain business assets;
• Forced capital increase through conversion of debts into equity.

In all other respects, the rules relating to the content of the plan, its duration (10 years, 15 for agricultural operators), minimum annual instalments and creditor consultation are identical to those of the safeguard plan.

No Protection for Guarantors

Unlike safeguard proceedings, personal guarantors do not benefit from the deferrals and write-offs of the reorganisation plan (Article L631-20). The Court of Cassation has firmly reiterated this: guarantors remain liable for the full amount of their commitment, regardless of any adjustments granted to the principal debtor in the plan (Cass. com., 8 September 2021, No. 19-25.686).

This difference in treatment is one of the most powerful arguments in favour of opening safeguard proceedings before cessation of payments, where the director has personally guaranteed the company’s debts.

The Asset Sale Plan: Selling the Business to Save the Activity

The asset sale plan (plan de cession) follows a radically different logic: it is no longer a matter of restructuring the existing business, but of transferring all or part of the activity to a purchaser. The original debtor disappears (it is generally liquidated), but the activity, jobs and contracts are taken over by a third party.

Context and Process

The asset sale plan is considered when recovery by continuation appears impossible or insufficient. It may arise within judicial reorganisation or judicial liquidation (liquidation judiciaire) (Articles L642-1 and L642-5). Asset sale is subsidiary to the continuation plan: the court may only order it if no viable reorganisation plan exists (Cass. com., 4 November 2014, No. 13-21.703).

The process unfolds in several stages:

1. Call for offers: the court-appointed administrator (or the liquidator) publishes a call for candidates specifying the scope of the sale;
2. Submission of offers: candidate purchasers submit offers detailing the proposed price, scope of activity taken over, number of jobs maintained and guarantees provided;
3. Hearing and judgment: the court examines the offers in the presence of the parties (debtor, administrator, employee representatives, creditors) and approves the asset sale plan.

Selection Criteria and Effects of Transfer

The court selects the offer providing the best conditions having regard to three criteria prioritised by law (Article L642-5):

1. The sustainable maintenance of employment attached to the transferred activity;
2. Payment of creditors;
3. The sustainability of the activity and the guarantees offered by the purchaser.

The asset sale plan effects transfer to the purchaser of:

• Contracts necessary for maintaining the activity (leases, employment contracts, supply contracts), designated by the court;
• Tangible and intangible assets within the scope;
• Employment contracts of retained employees, under the conditions of Article L1224-1 of the Labour Code.

However, the purchaser does not assume the liabilities of the debtor (unless expressly provided in the judgment). Debts remain the responsibility of the transferring debtor, who will generally be liquidated.

Preparing and Negotiating the Plan: Key Steps

Whether it is a safeguard or reorganisation plan, preparation follows a structured process in which each step conditions the success of the whole.

The Economic, Social and Environmental Assessment

The court-appointed administrator draws up an economic, social and environmental assessment of the business (Article L626-8). This foundational document analyses:

• The origin, importance and nature of the difficulties facing the business;
• The prospects for recovery having regard to possibilities and methods of activity;
• Market conditions and available financing;
• Social impact: workforce, skills, employment measures envisaged;
• Environmental impact of the activity (added by the 2021 Order).

This assessment serves as the foundation for preparing the plan. Its quality and comprehensiveness are decisive in convincing creditors and the court of the project’s viability.

Developing Recovery Prospects

Based on the assessment, the debtor (in safeguard) or the administrator (in reorganisation) develops a draft plan detailing:

• The reorganisation measures envisaged (asset disposals, cost reductions, diversification);
• The financing plan over the plan’s duration (self-financing, new credit facilities, capital contributions);
• The creditor repayment schedule;
• Where applicable, the redundancies envisaged and social support measures.

This draft is communicated to creditors before consultation and transmitted to the court with all supporting documents.

Individual Consultation: Rules and Pitfalls

Where the constitution of classes of affected parties is not mandatory, creditors are consulted individually on the plan’s proposals (Article L626-5).

The mechanism is as follows:

• Each creditor receives a registered letter detailing the proposals concerning them (deferrals, write-offs, conversions);
• They have 30 days to respond;
• Silence is deemed acceptance of the payment deferrals proposed.

Caution: silence never constitutes acceptance of debt write-offs or conversions of debts into equity. Only express and unequivocal acceptance by the creditor permits the imposition of these measures (Cass. com., 29 September 2021, No. 20-10.436). Any plan providing for write-offs granted by silent creditors is exposed to challenge.

In practice, this rule means that the debtor must actively negotiate with each creditor to obtain write-offs, and cannot simply await expiry of the time limit.

Classes of Affected Parties

For businesses reaching the thresholds of 150 employees or 20 million euros net turnover, individual consultation is replaced by class voting (Articles L626-29 and L626-30).

Creditors are divided into homogeneous classes according to the nature of their claims:

• Creditors holding security interests (mortgages, pledges, charges);
• Unsecured creditors (creanciers chirographaires);
• Equity holders (shareholders, partners).

The plan is adopted when it receives a majority of two-thirds of the amount of claims cast within each class. Creditors who do not vote are not counted.

If one or more classes reject the plan, the court may nonetheless impose it through the cross-class cram-down mechanism (Article L626-32), subject to meeting several cumulative conditions, including:

• The plan must be approved by at least one class of affected creditors whose members would have a right to value in liquidation;
• No creditor must receive less than what they would obtain in liquidation (best interest test);
• The plan must comply with the absolute priority rule (senior classes are fully satisfied before junior classes, except for justified derogations).

Plan Execution: Monitoring, Modification, Termination

Adoption of the plan by the court is merely the beginning of an execution phase that may extend over 10 to 15 years. This period is punctuated by obligations and risks for the debtor.

The Plan Execution Commissioner

The court appoints a plan execution commissioner (commissaire a l’execution du plan, CEP), generally the former court-appointed administrator or the creditors’ representative, for the entire duration of the plan (Article L626-25). Their duties are as follows:

• Monitoring proper execution of the plan by the debtor;
• Collecting the dividends due to creditors and ensuring their distribution;
• Reporting to the court through annual reports on the plan’s progress;
• Referring matters to the court in the event of difficulties or non-performance.

The CEP has extensive investigative powers: they may obtain all documents necessary for their duties and access the company’s accounts.

Payment of Dividends: Schedule and Consequences

The debtor must scrupulously comply with the payment schedule set by the plan. The essential rules are as follows (Article L626-12):

• The first payment must be made within one year of the judgment approving the plan;
• The first two annual instalments may not be less than 5% of the total admitted liabilities;
• The balance is spread over the remaining instalments, within the limit of 10 years (15 years for agricultural operators);
• The schedule may provide for progressive instalments (larger payments towards the end of the plan).

Non-compliance with the schedule exposes the debtor to a request for termination of the plan, with potentially disastrous consequences.

Substantial Modification of the Plan

If circumstances require, the plan may be modified by the court at the debtor’s request, after a report by the CEP (Article L626-26). The procedure distinguishes two situations:

• Modification not affecting liability settlement: the court rules directly, without consulting creditors;
• Modification affecting settlement methods (extension of duration, new write-offs, reduction of dividends): creditors must be consulted again. As at initial adoption, silence constitutes acceptance of deferrals, but not of write-offs.

In practice, substantial modification is frequent: a business whose cash flow projections deteriorate may request a rescheduling rather than risk termination.

Termination of the Plan: Causes and Consequences

Termination (resolution) of the plan prematurely ends its execution. Article L626-27 distinguishes two scenarios:

Discretionary termination: the court may terminate the plan when the debtor fails to perform their obligations within the prescribed time. This termination is at the court’s discretion, which may take into account circumstances (isolated delay, temporary difficulties).

Automatic termination: the court must terminate the plan when the debtor is in cessation of payments during plan execution. In this scenario, termination is automatic and the court opens new reorganisation or liquidation proceedings.

The consequences of termination are severe:

• Creditors recover the full amount of their claims, less sums already received. Write-offs granted in the plan are annulled (Cass. com., 2 May 2024, No. 22-22.968);
• Creditors are exempt from re-filing their claims in the new proceedings (Cass. com., 2 February 2022, No. 20-20.199);
• The debtor enters collective proceedings, generally judicial liquidation.

Key point: termination of the plan retroactively annuls the write-offs, but not payments already made. Sums paid to creditors remain theirs and are deducted from the original claim amount.

Normal Completion of the Plan

When the debtor has performed all their obligations (payment of dividends, compliance with reorganisation measures), the court records proper execution of the plan and terminates the CEP’s appointment. The business then regains full freedom of management.

If payments have been anticipated (the debtor has repaid all dividends early), the plan may be closed before its normal term.

Comparative Table: Safeguard, Reorganisation, Asset Sale

Criterion	Safeguard Plan	Reorganisation Plan	Asset Sale Plan
Opening condition	Insurmountable difficulties, no cessation of payments	Cessation of payments, recovery possible	Recovery by continuation impossible
Plan initiative	Debtor (Art. L626-2)	Court-appointed administrator (Art. L631-19)	Third-party purchaser (takeover bid)
Objective	Reorganise the existing business	Recover a business in cessation of payments	Transfer the activity to a purchaser
Position of director	Retained in office	May be replaced	Loses control of the transferred activity
Maximum duration	10 years (15 for agricultural operators)	10 years (15 for agricultural operators)	Not applicable (one-off transfer)
Personal guarantors (natural persons)	Benefit from deferrals and write-offs (Art. L626-11)	Do not benefit from deferrals and write-offs (Art. L631-20)	Remain bound by their commitment
Competing plans	No	Yes (Art. L631-19)	Yes (competing offers)
Assumption of liabilities	Yes (schedule + write-offs)	Yes (schedule + write-offs)	No (liabilities remain with the transferor)
Approval clauses	Applicable	Deemed unwritten (Art. L631-19)	Not applicable
Principal legislation	Art. L626-1 to L626-35	Art. L631-19 to L631-22	Art. L642-1 to L642-12

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