Collective proceedings

Collective procedures have a bad reputation. They are seen as the chronicle of a death foretold rather than a mechanism for the orderly handling of difficulties that could, in many cases, have been avoided or mitigated. This reading is both fair and misleading. It is fair because, statistically, liquidation is still the most common outcome. It is misleading because it obscures a preventive and curative arsenal that the legislator has constantly expanded since the major Safeguard Act of 2005 and, more recently, the transposition of the European Restructuring Directive by the Order of 15 September 2021.

This guide takes the approach of explaining insolvency proceedings from both sides: from the point of view of the company director, who is seeking to preserve his business or organise a controlled exit, and from that of the creditor - bank, supplier, lessor, employee - who is seeking to recover in a world where the rules of ordinary law are suspended. For each procedure and each technical mechanism, it refers to the specialist guides that go into more detail on the practical issues involved.

A material with two faces: rescue and treatment

Book VI of the French Commercial Code pursues three objectives, in the order laid down by the law itself in Article L. 620-1: continuing the business, maintaining employment and discharging liabilities. This hierarchy is not decorative. It explains why a recovery plan that is a priori unbalanced can be imposed against the advice of some of the creditors, why the court-appointed administrator has considerable power over current contracts, and why the court can extend an observation period beyond what seemed reasonable. This is a matter of economic public policy: it protects not so much private interests as a collective equilibrium where the failure of one company threatens the whole.

This logic produces a fundamental distinction. On the one hand, preventive procedures - ad hoc mandates, conciliation - operate confidentially, on the basis of a voluntary agreement between the debtor and its main creditors, before the situation becomes irreversible. On the other hand, collective proceedings proper - safeguard, reorganisation, liquidation - produce erga omnes effects from the opening judgment: prohibition of previous payments, suspension of individual proceedings, cessation of interest payments, forfeiture of certain rights, nullity of the suspect period. The changeover from one world to another often takes place in a matter of days, and anticipation is almost always the decisive factor that separates successful restructuring from liquidation.

Sources of insolvency law

The central text is Book VI of the Commercial Code, devoted to «business difficulties». Its structure is the product of a sedimentation of legislation that began with the Act of 25 January 1985, extended by the Business Safeguard Act of 26 July 2005 - which created the safeguard procedure and gave the subject its current shape -, reworked by the Order of 18 December 2008 and the Act of 22 October 2010, and then by the Order of 12 March 2014, which overhauled prevention and introduced the accelerated safeguard. The most recent major reform is the’order no. 2021-1193 of 15 september 2021, which transposed the Restructuring and Insolvency Directive (EU) 2019/1023 and introduced the classes of affected parties: a mechanism derived from Anglo-Saxon practices that revolutionises the negotiation of plans in cases of a certain size.

Book VI coexists with several bodies of law. The rules on security interests and privileges, derived from the Civil Code and the Commercial Code, set out the ranking of payments in distributions. Labour law governs what happens to employees and the role of AGS, which advances unpaid employee claims. Tax law governs what happens to public debts. Finally, the European dimension is decisive: Regulation (EU) 2015/848 on insolvency proceedings coordinates the treatment of cross-border insolvencies and determines the competent court when the debtor's centre of main interests is located in a Member State.

As in banking law, the case law of the commercial division of the Cour de cassation plays a decisive role. Over the decades, it has defined the contours of abusive support, the declaration of claims, liability for insufficient assets, the enforceability of retention-of-title clauses and the continuation of current contracts. A practical guide to insolvency proceedings without case law is, quite simply, an empty shell.

Prevention: ad hoc mandates and conciliation

Two mechanisms, which are little known to the general public and under-used despite their effectiveness, allow action to be taken before insolvency proceedings are opened. The ad hoc mandate, This procedure, provided for in article L. 611-3 of the French Commercial Code, is open to any company experiencing difficulties of any kind. The president of the court appoints an ad hoc representative whose mission is freely defined - most often, to negotiate payment deadlines or rescheduling with the main creditors, in particular the banks. The procedure is strictly confidential and can be extended for any length of time. It has no coercive effect: the trustee cannot impose anything; everything depends on the quality of the dialogue.

La conciliation, The insolvency procedure, introduced by articles L. 611-4 et seq, goes further. It is reserved for companies that are experiencing legal, economic or financial difficulties but have not been in suspension of payments for more than forty-five days. The task of the conciliator appointed by the president of the court is to encourage the debtor and its main creditors to reach an amicable agreement. If the agreement is successful, it may simply be recorded - in which case it remains confidential - or approved by the court, which confers enforceability on it, suspends legal proceedings and opens a new procedure. new money privilege (article L. 611-11) to those who have made new contributions as part of the conciliation. The new money privilege is one of the few mechanisms in French law that rewards creditors who take a risk to save a company, and it is in itself a major negotiating argument.

These two tools have one essential merit: they make it possible to restructure a debt without triggering the brutal effects of an opening judgement and without publicly pointing out the difficulty to commercial partners. On the other hand, they presuppose that the manager becomes aware of the situation early enough - before the cash flow plan reaches an impasse and the public creditors take the lead.

The three collective procedures: safeguard, reorganisation, liquidation

When prevention is no longer enough, there are three procedures, each with its own logic. Their relationship is based on a central criterion: the suspension of payments, This is defined in article L. 631-1 as the impossibility of meeting current liabilities with available assets. This concept is more subtle than it appears; it is not synonymous with accounting insolvency and must take into account any moratoria granted and available credit reserves.

La safeguard procedure, instituted in 2005 and codified in articles L. 620-1 et seq., is open to companies that can demonstrate difficulties that they are unable to overcome but which is not yet in suspension of payments. This is a restructuring procedure initiated by the debtor alone. It opens an observation period of six months, renewable, during which the company continues to operate under the aegis of a court-appointed administrator whose role is, in principle, to monitor or provide assistance. The end result is a safeguard plan, which may include payment deadlines, debt write-offs or partial transfers. Its main advantage is that it produces the beneficial effects of collective proceedings - a stay of proceedings, a freeze on liabilities - without the stigmatising effects.

Le legal redress, governed by Articles L. 631-1 et seq. is open to any company that is in suspension of payments but whose recovery appears possible. It includes an observation period, the appointment of an administrator and a court-appointed representative, and a recovery plan, which may be a continuation plan (the debtor keeps the business and pays off its liabilities) or a sale plan (a buyer acquires all or part of the business). Managers who find that payments have ceased must, in principle, apply for the proceedings to be opened within forty-five days, unless they immediately initiate a conciliation procedure, failing which they will be held liable and banned from managing the business.

La compulsory liquidation, Article L. 640-1 et seq., is available to a company that is in suspension of payments and whose recovery is manifestly impossible. It entails the cessation of business, the appointment of a liquidator who relinquishes the debtor's rights, the realisation of assets and the settlement of liabilities according to the ranking of claims. Since 2008, it can take the form of a simplified judicial liquidation for small businesses. It is sometimes extended by a back at the helm a buyer interested in the business, the contracts or the staff can submit a sale offer to the court which, if accepted, preserves part of the business and the jobs.

These three procedures are not watertight: the safeguard procedure may be converted into a recovery procedure if the company ceases to make payments during the observation period; the recovery procedure may be converted into a liquidation procedure if the observation reveals that a plan is not possible. Children's guides to backupat legal redress and compulsory liquidation the mechanisms specific to each procedure, as well as that of the suspension of payments which controls its articulation.

The players in insolvency proceedings

An insolvency case involves a dozen or so parties whose roles are strictly organised. Understanding who does what is the first step in finding your way around a world that appears opaque from the outside.

Le court The competent court is the Tribunal de Commerce (Commercial Court) when the debtor has a commercial or craft business, and the Tribunal Judiciaire (Judicial Court) in other cases (liberal professions, farmers). Since the law of 20 November 2023 on the orientation and programming of the Ministry of Justice, some courts have been in the process of being transformed into business courts, These courts have jurisdiction over all insolvency proceedings in an extended jurisdiction, based on the principle of specialisation. The court makes the structuring rulings: initiation, approval of the plan, closure.

Le official receiver, The administrator, appointed by the court at the time of the opening of the insolvency proceedings, is the individual body responsible for ensuring that the proceedings run smoothly. It decides by order on acts that go beyond day-to-day management, authorises the continuation or termination of contracts, and admits or rejects declared claims when they are disputed. He is the day-to-day contact for the trustees, the administrator and the parties.

L'receiver is appointed in safeguard and reorganisation cases (except for the smallest structures). He supervises or assists the debtor in its management, draws up the company's economic and social balance sheet and prepares the draft plan. Generally speaking, its role is to steer the restructuring. In liquidation, there is no longer an administrator: the liquidator concentrates the functions.

Le judicial representative, appointed in all procedures, represents the collective interests of the creditors. He receives claims, checks that they are well-founded, proposes to the official receiver that they be accepted or rejected, and distributes the payments. He becomes liquidator in the event of liquidation, combining the role of representing creditors with that of realising assets.

Le public prosecutor is playing an increasingly important role. It is a party to all the proceedings, and can request that the proceedings be opened, ask for a safeguard to be converted into a reorganisation, and bring an action against the director for lack of assets or personal bankruptcy. In practice, its opinion is decisive in large-scale cases.

The fate of creditors

On the date of the opening judgment, the fate of creditors changes radically. Three rules structure this new regime.

The first is the’prohibition of prior payments. Article L. 622-7 prohibits the debtor from paying any claim that arose prior to the opening judgment, subject to limited exceptions (payment of wages, legal set-off of related claims, withdrawal of a pledge). This rule is a matter of public policy, and any breach of it renders the payment null and void and exposes the director to civil and criminal penalties. It also applies to payments made by contractual set-off.

The second is the’stay of individual proceedings. The judgment suspends any action for payment brought by a previous creditor and prohibits the bringing of new actions. This rule is at the heart of the system: it guarantees equal treatment and enables the court to organise the discharge methodically. It applies to current seizures, which are suspended, and to protective measures, which lapse. There is a direct link here with enforcement measures: a creditor who has just obtained an enforcement order and was preparing to levy a seizure loses all his individual means of action overnight.

The third is the claims declaration. All previous creditors must declare their claims to the judicial representative within two months of publication of the judgment in the BODACC (four months for creditors domiciled abroad), failing which they will be barred from the proceedings. The declaration must quantify the claim, indicate its nature and any securities, and attach supporting documents. This formalism has long been undermined by case law; since the 2014 Order, the system has been made more flexible and relief from the foreclosure is more easily granted when the creditor demonstrates that its default is not attributable to it. The guide to filing claims sets out the formalities to be observed and the pitfalls to be avoided.

Then there is the question of payment rank. Subsequent claims that are useful to the proceedings or to the continuation of the business receive preferential treatment (article L. 622-17). Prior claims are ranked according to the rules of security law: super-privilege on salaries, conciliation privilege, legal costs, Treasury privilege, claims guaranteed by a security interest, unsecured claims. The order of ranking ultimately governs the distribution of the proceeds of the assets. Since the Order of 15 September 2021, files of a certain size have been subject to the mechanism of classes of parts affected The court may, subject to certain conditions, impose the plan on a dissenting class - this is known as inter-class compulsory application. cross-class cram-down Anglo-Saxon.

The fate of the director: liability and sanctions

Directors' liability is the other main theme of insolvency law. It covers four areas that must be distinguished to avoid recurring confusion.

La liability for insufficiency of assets, Under Article L. 651-2 of the French Commercial Code, the court may order a company director in liquidation to bear all or part of any shortfall in assets where this is the result of a management error that contributed to the company's failure. Since the Sapin 2 Act of 9 December 2016, simple negligence on the part of the director is no longer sufficient: gross negligence is required. The action is brought by the liquidator or, failing that, by the public prosecutor. The limitation period is three years from the date of the liquidation judgment. In practice, this is the main financial risk for a director whose company is being wound up.

La personal bankruptcy and themanagement ban, Articles L. 653-1 et seq. are professional sanctions imposed by the court in the event of conduct listed exhaustively by law: abusive pursuit of a loss-making activity, misappropriation of assets, keeping fictitious accounts, failure to declare cessation of payments within forty-five days, etc. They may be imposed for a period of up to fifteen years. They may not be imposed for more than fifteen years. Disqualification from managing a business is the most common and least severe sanction; it deprives the director of the right to manage, direct, administer or control any business.

La bankruptcy, Lastly, it is a criminal offence under Articles L. 654-1 et seq. of the French Commercial Code. In the event of suspension of payments, this offence is punishable by particularly serious offences: misappropriation of assets, fraudulent increase in liabilities, or manifestly incomplete or irregular bookkeeping. It is punishable by five years' imprisonment and a fine of 75,000 euros - penalties increased to seven years and 100,000 euros when the perpetrator is a de jure or de facto manager of an investment services provider. Visit guide to bankruptcy explores the regime for this offence and its interaction with civil penalties.

A fourth, separate area is the’extension of proceedings against the executive himself, based on the confusion of assets or the fictitious nature of the company (article L. 621-2). The court may then extend the proceedings initiated against the legal entity to the executive in his or her personal capacity: this is the ultimate sanction for the legal separation between the company and the person running it, and can have considerable financial consequences.

Links with neighbouring areas

Insolvency law does not exist in isolation. Together with four neighbouring areas, it forms an ecosystem that the firm practices in a cross-disciplinary manner.

With the banking law firstly: the banker is one of the central creditors in any insolvency proceedings. They declare their claims, sit on the classes of affected parties when they are formed, and negotiate the terms of a plan. Their liability for improper support has been severely restricted by the’article L. 650-1 of the French Commercial Code, which establishes the principle that creditors providing assistance are not liable, except in the case of fraud, gross interference in management or the provision of disproportionate guarantees. This text is not a blank cheque: its relationship with ordinary civil liability law continues to be the subject of abundant case law.

With the securities and guarantees The opening of insolvency proceedings is the moment when securities prove - or fail to prove - their effectiveness. A security that has not been declared within the time limit becomes unenforceable; an unpublished mortgage loses its rank; a properly stipulated retention-of-title clause makes it possible to claim movable property from the insolvency proceedings. Security law and insolvency law can be separated only for the purposes of the exhibition.

With the enforcement procedures The opening judgment suspends the individual proceedings. A pursuing creditor must redeploy its action before the trustee. Seizures made during the suspect period may be cancelled, and the lapse of protective measures sometimes transforms a solid position into an ordinary position. This is one of the points where coordination between a creditor's counsel and his bailiff or commissioner must be the closest.

With the commercial law, Finally, there is the question of ongoing contracts. The administrator has an option (article L. 622-13): whether or not to continue each contract that has not yet been breached on the day of the judgment. His choice is discretionary, but it is binding on the company. Commercial leases, franchise agreements, account agreements and distribution contracts are all governed by specific rules that must be understood before advising one or other of the signatories.

When to consult a bankruptcy lawyer

Three situations call for immediate consultation. The first concerns manager who sees the problem coming. The usual reflex - wait, hope, renegotiate alone with the bank - is almost always the worst option. Conciliation and the ad hoc mandate open up windows of opportunity for restructuring that close on the date of cessation of payments. Forty-five days after the cessation of payments, the company director is required by law to request the opening of collective proceedings. A lawyer consulted three months before this deadline can propose a range of options; consulted three months afterwards, he can only accompany the opening of a procedure that has been imposed.

The second concerns creditor - bank, major supplier, lessor, franchisor - who learns that a business partner is the subject of proceedings. The deadlines for making a declaration are short, formal errors are irrecoverable and the tactical choices - whether to make a final or provisional declaration, whether or not to include default interest, whether to claim an asset subject to a retention of title clause, whether or not to assert a lien - determine everything that follows. An initial examination of the case beforehand almost always ensures that nothing is lost through simple inattention.

The third concerns parties to related litigation These include the guarantor sued by the bank whose principal debtor is in reorganisation, the vendor seeking to exercise his retention of title clause, the subcontractor invoking the direct action provided for in the 1975 Act, and the employee faced with a company transfer. These issues do not fall within the scope of insolvency law in the strict sense, but they do require counsel to master the rules of Book VI in order to coordinate actions correctly and avoid losing, through ignorance, rights whose exercise is conditional on the main proceedings.

Beyond these three situations, insolvency proceedings are an area where anticipation makes all the difference. The firm acts in Marseille and throughout France, in French and English, for company directors facing difficulties, for creditors seeking to assert their rights in proceedings and for business partners affected by the default of a co-contractor.