The opening of a safeguard or receivership procedure marks the start of a delicate phase: the observation period. During this stage, the main objective is to determine whether the company has the necessary capacity to recover while maintaining its activity.. The day-to-day management of the business continues, but within a strict legal framework in which powers are divided between the director and the bodies involved in the proceedings, in particular the court-appointed administrator when he or she is appointed.. Understanding this division of roles and powers is fundamental to navigating this complex period and safeguarding the company's best interests.
The situation of the company director: rights and restrictions
Contrary to popular belief, the opening of insolvency proceedings does not systematically mean that the director is sidelined. However, their position and prerogatives vary depending on the nature of the proceedings and the court's decisions.
Continued employment: principle in safeguard and reorganisation cases
In safeguard proceedings, the principle is clear: the debtor, i.e. the head of the business or the management team, retains control of the business.. Safeguard is designed as a voluntary procedure, initiated by a manager who anticipates difficulties. There is therefore no fundamental reason to relieve him of his management duties.
In the case of receivership, the situation is similar: in principle, the manager remains in charge.. However, the law allows the court to appoint a receiver with a broader remit, which may include representing the director in whole or in part in certain management acts.. Continuation in office is therefore not absolute and will depend on the circumstances and the task entrusted to the administrator. For an overview of this phase, please consult our observation period guide.
Acts of day-to-day management vs. acts of disposal
During the observation period, the manager's powers are limited. The essential distinction lies in the nature of the acts envisaged. Acts of everyday management are those necessary for the normal and usual pursuit of the business: buying raw materials, paying salaries, paying current suppliers, invoicing customers, etc.. In principle, the director may perform these acts alone, unless an administrator has been appointed to assist or represent the company..
On the other hand acts of disposal are those which commit the company's assets in a more significant way and which go beyond the scope of ordinary operations. They may involve selling a building, transferring a branch of activity, granting a mortgage or settling a major dispute.. These acts are subject to stricter control. They generally require the authorisation of the official receiver, and sometimes the agreement or intervention of the administrator if the latter has a mission of assistance or representation.. The classification of an act (day-to-day management or disposal) can sometimes be tricky and a source of litigation, justifying the use of theassistance with insolvency proceedings.
Executive remuneration
The question of the manager's remuneration during the observation period is often a sensitive one. It is set by the official receiver, on the advice of the judicial representative (and the administrator if there is one).. The judge will take into account the situation of the company, the responsibilities exercised and usual practices. The aim is to strike a balance between the need to remunerate the manager, who often continues to work for the recovery, and preserving the funds available for creditors.
Possible specific measures against executives
In certain situations, in particular where there is proven mismanagement which has contributed to the difficulties, or if the director hinders the smooth running of the proceedings, more severe measures may be taken.. At the request of the administrator, the judicial representative or the public prosecutor, the court may impose personal sanctions: a ban on managing the business, personal bankruptcy, or an obligation to make good some of the debt (action en comblement de passif).. These measures remain exceptional during the observation period itself, but underline the importance of rigorous and transparent management.
Involvement of the court-appointed administrator: appointment and tasks
The insolvency administrator is not systematically present in all procedures. His appointment and the scope of his powers are determined by law and the opening judgment. For a better understanding of all key players in insolvency proceedingsIt is essential to understand their respective roles.
Mandatory or optional designation
The appointment of a receiver is mandatory in receivership when the company exceeds certain thresholds (set by decree, generally relating to turnover and number of employees). It is also compulsory in the event of a safeguard if the company reaches these same thresholds.
Below these thresholds, the designation is optional. The court may decide to appoint an administrator if it considers this useful, particularly in view of the complexity of the case or if the debtor so requests. In accelerated sauvegarde, the appointment is systematic. L'lawyer for executives can play an important role in discussions on this designation.
The surveillance mission: content and limits
When the administrator is appointed with a supervisory role (mainly in safeguarding), his role is to observe the management carried out by the director, without interfering directly.. He ensures that the director carries out the acts necessary to preserve the company's rights and informs the juge-commissaire and the public prosecutor of any act or omission that could compromise the company's future.. The manager retains most of his day-to-day management powers.
The assistance mission: working with the debtor
The assistance mission is more intrusive. The administrator assists the debtor in all acts of management or some of them, as the court specified. In practical terms, the acts concerned can only be validly carried out with the dual signature of the executive and the director.. This mission establishes a co-management approach that aims to secure important decisions while leaving a margin of initiative to the manager.
Representation: when the director acts alone
This is the most extensive mission. The court-appointed administrator is responsible for onlyin the name and on behalf of the debtor, all or certain acts of management specifically designated by the court. The executive is then divested of the corresponding powers. This mission is generally reserved for situations where the executive's management is deemed to be lacking or where his or her presence has become detrimental to the company.
Focus on non-routine acts
Whatever the mission entrusted to them (supervision, assistance or representation), the administrator plays a key role in acts that are not part of day-to-day management.. These include acts of disposal (sale of major assets, mortgages, etc.) as well as strategic decisions such as the sale of a company. continuation of contracts in progress. For these acts, the administrator often prepares the file, obtains the opinion of the manager (except in the case of total representation) and seeks the necessary authorisation from the official receiver..
The articulation of powers between the debtor and the administrator
The coexistence of the director and the administrator (when appointed) requires a clear definition of the prerogatives of each to ensure effective management during the observation period.
The principle: the debtor continues to manage the business
Except in the case of express exceptions provided for in the opening judgement (representation mission entrusted to the administrator), the head of the business retains responsibility for the day-to-day management and acts necessary for the continuation of the business.. He knows his company, its customers, suppliers and employees best.
The impact of the mission entrusted to the administrator (supervision, assistance, representation)
The actual scope of the manager's powers is directly determined by the mission assigned to the administrator by the court.:
- Monitoring : The director acts alone in the day-to-day management of the company, with the administrator exercising a posteriori control.
- Assistance : The executive shares decision-making and signing powers with the director for the acts covered by the assignment.
- Performance: The executive is divested of the powers entrusted to the director, who acts alone.
It is essential for directors to understand the exact scope of their duties so that they know which actions they can take alone and which require co-signature or are fully delegated.
The need for authorisation for certain acts (juge-commissaire)
In addition to the division of powers between the manager and the administrator, certain particularly important acts require the prior authorisation of the juge-commissaire.. These are mainly :
- Disposals outside the ordinary course of business (sale of fixed assets, pledges, etc.).
- Payment of pre-commencement debts to withdraw a pledge or retention.
- The conclusion of a transaction or an acquiescence to a legal claim.
- Decisions on current contracts (continuation or termination).
The administrator (if there is one) or the debtor (assisted or alone, depending on the mission) must submit a reasoned request to the official receiver to obtain this authorisation. Acting without the required authorisation renders the deed null and void and may render its author liable.
Compliance with legal and regulatory obligations by the company director
Even during the observation period, the company director is still required to comply with all the legal and regulatory obligations normally incumbent on any manager. The opening of proceedings does not constitute a parenthesis in which these rules are suspended.
Accounting and tax obligations
Managers must ensure that the company's accounts are properly kept. These accounts are essential for monitoring business activity during the observation period and for drawing up any safeguard or recovery plan. It must also draw up the annual accounts if the company's financial year ends during this period.
From a tax point of view, all returns (VAT, corporation tax, other taxes) must be filed by the due dates, and the corresponding taxes arising from the business carried on after the opening judgment must be paid on time. Failure to comply with these obligations may result in penalties and complicate the outcome of the proceedings.
Social obligations
The director retains his responsibilities as an employer. They must continue to draw up pay slips, pay salaries due for the period following the opening judgment, and make the corresponding social security declarations.. Social security contributions relating to the continued activity must also be paid. Relations with employee representatives continue as normal. Any decision affecting employees (e.g. economic redundancies envisaged as part of a future plan) must follow specific legal procedures, often in consultation with the administrator and with the authorisation of the official receiver if necessary.
The role of the judicial representative in management?
It is important not to confuse the judicial administrator and the judicial representative, whose roles are distinct and complementary.
Fundamental distinction from the administrator
Whereas the main role of the court-appointed administrator (when appointed) is to assist, supervise or represent the debtor in the management of the company and the development of a turnaround solutionthe mandataire judiciaire has a different function.
Focus on defending the collective interests of creditors
The judicial representative represents the collective interests of the creditors. Its main task is to verify the company's liabilities, i.e. to receive the claims declarations, to verify them in collaboration with the debtor (and the administrator), and to defend the interests of the creditors throughout the procedure.. It does not intervene directly in the day-to-day management of the company, except to give its opinion on certain acts (such as the remuneration of the director) or to take legal action on behalf of creditors if necessary.. Its role is central to the verification of receivables.
Navigating day-to-day management during a period of observation requires a detailed understanding of the powers of each party. Our firm can advise you on your rights and obligations.
Sources
- Commercial Code, in particular articles L622-1 to L622-34 (Safeguard) and L631-1 to L631-22 (Judicial reorganisation) relating to the observation period.
- French Commercial Code, articles R622-1 et seq., R631-1 et seq.
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