The COVID-19 health crisis shook up our economy in 2020. The legislator had to intervene urgently to prevent the collapse of many businesses. An unprecedented legal arsenal was deployed, temporarily modifying certain aspects of banking law.
The provisions of the amended Finance Act of 23 March 2020
Act no. 2020-289 of 23 March 2020 on the amending finance act for 2020 forms the legal basis for the emergency financial measures. It has two main components.
Firstly, it is funding an "Emergency plan to tackle the health crisis" to the tune of €6.25 billion. This plan includes:
- 5.5 billion euros for the short-time working scheme
- 750 million for a compensation fund for very small businesses
The compensation fund, the operation of which is specified by order no. 2020-317 of 25 March 2020, specifically targets "natural and legal persons under private law carrying on an economic activity".
The law also introduces a state guarantee mechanism for bank loans. Article 6 sets aside €300 billion to guarantee loans granted between 16 March and 31 December 2020 to "non-financial companies registered in France".
Conditions of eligibility
Companies concerned
The PGE (State Guaranteed Loan) is aimed at:
- SMEs and ETIs
- Sole proprietorships
- Micro-entrepreneurs
- Associations and foundations with an economic activity
Not included:
- Non-trading property companies
- Credit institutions
- Companies in receivership before 31 December 2019
The Banque de France specifies that only companies deemed viable before the crisis can benefit from this guarantee.
Types of loans and conditions
PGE has several characteristics:
- It can amount to up to 25% of 2019 sales.
- The guarantee covers 70% to 90% of the loan amount, depending on the size of the company.
- No refund is required for the first year
- The maximum duration is 6 years
The cost of the loan to the borrower is limited to the cost of the state guarantee. The banks have undertaken not to add any margin.
Article L. 511-6 of the French Monetary and Financial Code has been applied in an exceptional way. Usually strict on the banking monopoly, the legislator has provided for temporary exemptions to facilitate financial flows between companies.
Credit mediation in times of crisis
Credit mediation is a public scheme that already existed before the crisis. It was considerably strengthened in 2020.
In a market agreement signed on 27 July 2009 but extended during the health crisis, the credit mediation service is explicitly tasked with "facilitating dialogue between companies and credit institutions and recommending solutions in the event of difficulties in obtaining or maintaining credit or guarantees".
The mediation procedure was designed to be simple:
- Online referral to the Ombudsman
- First contact within 48 hours
- Seeking solutions with banks
- Proposed action plan
According to the Banque de France, this system helped to free up more than €6 billion in credit during the health crisis. The mediation success rate exceeded 60% in 2020.
Strategies for companies with cash flow problems
Company directors need to be aware of the legal options available to them:
For relations with banks:
- Proactively renegotiate instalments before a payment incident occurs
- Accurately document the impact of the crisis on the business
- Apply for credit mediation as soon as the first refusal is made
For structural difficulties:
- The conciliation procedure (Article L. 611-4 of the French Commercial Code)
- The ad hoc mandate for confidential negotiations
- Judicial protection in the event of insurmountable difficulties
Article L. 613-31-11 of the Monetary and Financial Code, amended by the Act of 26 July 2013, provides for a bank resolution mechanism that can be activated in the event of default.
In this exceptional context, it is advisable to act quickly. Commercial case law shows that the courts take the COVID context into account when assessing debtors' good faith.
State guarantees can sometimes give rise to complex situations at the end of the grace period. Our firm has observed a number of disputes between companies and banks concerning repayment conditions.
Sources
- Amending Finance Act no. 2020-289 of 23 March 2020
- Order no. 2020-317 of 25 March 2020 creating a solidarity fund
- Monetary and Financial Code, in particular articles L.511-6, L.613-31-11
- French Commercial Code, in particular article L.611-4
- Banking and credit institutions - Hélène AUBRY - May 2006
- Banque de France report on credit mediation (2020)
- Market agreement of 27 July 2009 on business credit mediation
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