What is judicial reorganisation?

Judicial reorganisation (redressement judiciaire) is a collective insolvency proceeding designed to enable a company’s survival when it is in cessation of payments, provided that recovery remains possible. Article L.631-1 of the Commercial Code sets out its triple purpose: continuation of business activity, preservation of employment, and settlement of liabilities. These three objectives are hierarchical: the business comes first; settling debts is an expected result, not an end in itself.

The procedure is not a disguised winding up, nor a mere payment holiday for creditors. It rests on a simple idea: a company in difficulty can still live if given time to restructure without its creditors dismantling it through individual pursuits. The court becomes the pivot: it assesses whether recovery is conceivable, appoints the officeholders, and approves the plan. It is not a passive arbiter – it may of its own motion convert to judicial liquidation if the situation demands.

Article L.631-1 of the Commercial Code (in force since 15 May 2022): “A judicial reorganisation procedure is available to any debtor […] who, being unable to meet due liabilities with available assets, is in cessation of payments. […] The procedure is designed to enable the continuation of the company’s activity, the preservation of employment, and the settlement of liabilities. It gives rise to a plan approved by judgment at the conclusion of an observation period.”

Who is eligible?

Article L.631-2 is broad. Judicial reorganisation applies to all traders, persons registered in the trades register, farmers, any other natural person carrying on an independent professional activity – including regulated liberal professions – and any private-law legal entity.

This covers: the SARL manager, the SAS president, the individual sole trader, the self-employed artisan, the medical practitioner, the architect, and associations. Credit institutions and insurance undertakings are excluded: they fall under specific procedures supervised by the ACPR.

The sole condition for opening: cessation of payments

Judicial reorganisation is accessible only where the debtor is in a state of cessation of payments – and inversely, where recovery is not manifestly impossible. If recovery remains conceivable, it is reorganisation. If recovery is manifestly impossible, judicial liquidation is imposed (Cass. com., 12 January 2022, No. 20-16.394).

Cessation of payments is precisely defined by statute: it is the state of a debtor unable to meet due liabilities with available assets. Two elements must coexist: liabilities that have fallen due, and insufficient cash to cover them immediately.

Credit reserves and moratoria

The law provides a nuance: a debtor who establishes that credit reserves or moratoria from creditors enable them to meet due liabilities is not in cessation of payments. A confirmed but undrawn credit line, or a payment schedule agreed by significant suppliers, may neutralise the finding – provided these elements are established and sufficient.

The Cour de cassation has specified that this assessment is made at the date the court rules, not at a frozen historical moment (Cass. com., 2 June 2021, No. 19-25.556).

The individual entrepreneur’s estate

Since the Act of 14 February 2022, the condition of cessation of payments is assessed, where applicable, by reference to the professional patrimony alone. Personal assets are not taken into account.

The mandatory 45-day deadline

Once cessation of payments is established, the debtor must file a declaration at the court registry within forty-five days, unless they have applied for conciliation within that period (Art. L.631-4). The Cour de cassation recently reaffirmed the rigour of this rule (Cass. com., 20 November 2024, No. 23-12.297).

This deadline is not a formality. After forty-five days without filing, the director faces severe personal sanctions: management ban, liability for shortfall in assets, and potentially criminal prosecution for bankruptcy offence (banqueroute).

How the procedure opens

Who may apply to the court?

Several actors may trigger the procedure:

  • The debtor (the “depot de bilan”): the ordinary and mandatory route within 45 days. The legal representative of the company files the application.
  • A creditor: may summon the debtor in reorganisation by demonstrating a certain, liquid, and due claim together with the state of cessation of payments.
  • The public prosecutor (parquet): may apply to the court where informed of a cessation of payments.
  • The court of its own motion: in certain cases (rare and circumscribed).

Which court has jurisdiction?

The tribunal de commerce has jurisdiction for traders and artisans. The tribunal judiciaire for liberal professionals and farmers. Certain large companies exceeding defined thresholds fall under specially designated commercial courts (Art. L.721-8). For groups of companies, the court that opened proceedings against one entity retains jurisdiction for extension requests concerning other group entities (Cass. com., 11 March 2020, No. 18-22.960).

Immediate effects of the opening judgment

The opening judgment produces immediate and radical effects. It is the starting point of the entire procedure: it is at this date that pre-existing claims are assessed, new obligations arise, and the officeholders take up their functions.

Stay of individual proceedings

From the pronouncement of the opening judgment, all individual proceedings commenced by pre-existing creditors are stayed. Creditors who have not yet acted may no longer do so. Pending enforcement procedures are interrupted. This is one of the fundamental protections offered by reorganisation: the company is no longer besieged by individual creditors and can devote its energy to recovery.

The running of legal and contractual interest ceases at the date of the opening judgment. Late-payment penalties stop accumulating.

Freeze on pre-existing claims and mandatory proof of debt

All debts arising before the opening judgment are frozen. Affected creditors may no longer claim individual payment: they must file their proof of debt with the mandataire judiciaire within two months of publication of the judgment in the BODACC. This period extends to four months for creditors domiciled outside France.

The sanction for failure to file is severe: the undeclared claim becomes unenforceable against the proceedings (inopposable). The creditor cannot participate in distributions and is excluded from dividends – even if the claim is perfectly well-founded.

Appointment of officeholders

The supervisory judge (juge-commissaire): a magistrate who oversees the observation period, authorises or refuses certain management acts (asset sales, contract continuations, redundancies).

The court-appointed administrator (administrateur judiciaire): an independent professional whose mission may be to assist the director (shared administration) or to substitute for them (exclusive administration) for the most significant acts.

The creditors’ representative (mandataire judiciaire): represents the collective interest of creditors, collects proofs of debt, verifies liabilities, and gives opinions on the draft plan.

The observation period: between 6 and 18 months to find a solution

The observation period is the heart of the procedure. It is the time granted to the company to continue operating under judicial supervision while preparing a recovery plan.

Limited duration, renewable

The observation period is initially fixed at six months. It may be renewed once for six months, and a second time on application by the parquet – a maximum of eighteen months in total (exceptionally twenty-four months).

At any point, the court may terminate the procedure if recovery proves impossible. It may then pronounce judicial liquidation – but only after hearing or duly summoning the debtor by registered letter with acknowledgment of receipt (Cass. com., 20 June 2018, No. 17-13.204). Proper notice is a condition of validity.

Management during observation

The company continues trading. The debtor retains day-to-day management – but with the assistance or substitution of the administrator depending on the mission defined by the court.

Ongoing contracts follow a clear rule: the administrator may require continuation of any ongoing contract (Art. L.622-13, applicable via L.631-14). The counterparty cannot terminate solely on account of the insolvency opening. If the administrator decides not to continue, the contract terminates automatically.

Claims arising during the observation period benefit from a privileged regime: they are paid at maturity, with priority over pre-existing claims (Art. L.622-17). This mechanism allows the company to find new suppliers and partners despite the proceedings: they know their claims will rank first.

The economic and social assessment

At the end of the observation period, the administrator presents an economic and social assessment of the company. This report analyses the causes of difficulties, the state of liabilities, and recovery prospects. It forms the basis on which the parties construct the draft plan submitted to the court.

Timeline:

  • Day 0 – Opening judgment: stay of proceedings, interest cessation, appointment of officeholders, BODACC publication.
  • Day 0 + 2 months – Deadline for proofs of debt.
  • Day 0 + 6 months (max 18 months) – End of observation: administrator presents assessment, draft plan submitted to court.
  • Plan approval – Court approves continuation plan, sale plan, or converts to liquidation.
  • Plan execution (max 10 years) – Progressive settlement of liabilities per schedule. A plan execution commissioner supervises compliance.

The three possible outcomes

The reorganisation plan: continuation or sale

The continuation plan (plan de continuation) is approved where the business can be continued as a whole by the debtor. The court fixes the terms of liability settlement: payment deferrals, debt write-offs accepted by creditors, disposal of non-strategic assets. Maximum duration: ten years (fifteen for farmers). During execution, the debtor must scrupulously respect the schedule: management faults committed during plan execution may ground liability for shortfall in assets if the plan is subsequently resolved (Cass. com., 22 January 2020, No. 18-17.030).

The sale plan (plan de cession) intervenes where the business can be saved only by transfer to a purchaser. The court selects a purchaser from bids submitted, on the basis of statutory criteria: maintenance of employment, price offered, guarantees given. The purchaser takes over all or part of the activity, but not the liabilities.

In larger companies, the Ordinance of 15 September 2021 introduced the possibility of constituting classes of affected parties (creditors grouped by category) to vote on the plan – a transposition of the EU Restructuring Directive. This mechanism allows plan adoption even against the wishes of certain creditor classes (cross-class cram-down).

Conversion to judicial liquidation

If, at the end of the observation period, recovery proves manifestly impossible, the court pronounces judicial liquidation. Activity ceases, assets are realised, and creditors are paid in statutory priority order.

A liquidation opened concurrently with the resolution of a reorganisation plan constitutes a new collective proceeding – it bars termination of the commercial lease for rent arrears arising after the opening of the initial reorganisation (Cass. com., 12 June 2025, No. 23-22.076).

Closure for extinction of liabilities

In rare cases, liabilities are fully settled before the plan term – because the company recovered faster than expected, or because creditors accepted significant write-offs. The court may then pronounce closure for extinction of liabilities. The company regains full freedom.

What reorganisation changes for the director, employees, and creditors

Consequences for the director

The director does not automatically lose powers upon the opening of reorganisation. Their scope of action depends on the administrator’s mission. If the administrator is in an assistance mission, the debtor continues managing but needs approval for significant acts. If the administrator is in a representation mission, they substitute entirely for the director.

Personal liability is not erased by the opening of proceedings. Management faults committed before opening, during the observation period, and even during plan execution may ground liability for shortfall in assets if the procedure ultimately ends in liquidation (Art. L.651-2). Neither the reorganisation judgment nor the plan approval judgment has any amnestying effect (Cass. com., 22 January 2020, No. 18-17.030).

Consequences for employees

Opening of reorganisation does not automatically terminate employment contracts. Employees continue working and being paid. But economic redundancies may be authorised if company preservation requires it: they need approval of the supervisory judge.

In the event of employer default on wages, the AGS (wage guarantee association) intervenes and guarantees payment of pre-opening wages and termination indemnities, within statutory caps. The AGS benefits from a super-priority allowing repayment ahead of other creditors.

Consequences for creditors

Pre-opening creditors are the immediate losers: their proceedings are stayed, interest ceases to run, and they must file a proof of debt to have any hope of payment. After the two-month deadline, their claim becomes unenforceable against the proceedings – not void, but unenforceable.

Exception: creditors holding a proprietary security (mortgage, pledge) do not lose their security by reason of the proceedings. Their security subsists, but they cannot individually enforce it during the procedure. They must await distribution or plan resolution to assert their rank.

Reorganisation, safeguard, or liquidation: how to navigate the options

French corporate distress law rests on a gradation of procedures. The golden rule is simple: the earlier the intervention, the higher the success rate. Safeguard achieves a success rate of 62%. Reorganisation only 27% (France Strategie, note No. 84, February 2020). The gap reflects a simple fact: intervening early, before creditors have exhausted their patience, gives the restructuring plan much stronger foundations.

Criterion Safeguard Judicial reorganisation Judicial liquidation
Opening condition Difficulties, without cessation of payments Cessation of payments + recovery possible Cessation of payments + recovery impossible
Who may apply Debtor only Debtor, creditor, parquet Debtor, creditor, parquet, court
Activity maintained? Yes Yes (during observation) No (ceases at judgment)
Observation period 6 months, max 18 months 6 months, max 18 months (24 exceptionally) None
Possible outcome Safeguard plan (10 years max) Continuation plan, sale plan, or liquidation Asset realisation, creditor payment
Success rate 62% 27% N/A (terminal procedure)

The practical conclusion is clear: if your company faces serious difficulties but cessation of payments has not yet occurred, the safeguard procedure is markedly preferable. Do not wait to be forced into reorganisation.

Frequently asked questions

What is the difference between judicial reorganisation and judicial liquidation?

Reorganisation opens when the company is in cessation of payments but recovery remains possible. The procedure results in a plan – continuation or sale – allowing settlement of liabilities while maintaining activity and employment. It may last up to ten years. Liquidation, by contrast, is pronounced when recovery is manifestly impossible. Activity ceases immediately, assets are sold, and proceeds distributed to creditors in statutory priority order.

Who pays the debts of a company in reorganisation?

Pre-opening debts are frozen. They are not written off, but their enforceability is suspended throughout the procedure. They will be repaid according to the schedule fixed by the reorganisation plan – which may extend up to ten years – with possible write-offs accepted by creditors. The director is not personally liable for company debts, unless a characterised management fault contributed to the shortfall in assets.

How long does judicial reorganisation last?

The observation period lasts initially six months, renewable to eighteen months total (exceptionally twenty-four). Once the plan is approved, its execution may last up to ten years (fifteen for farmers). In total, judicial reorganisation may therefore engage the company for a decade before liabilities are fully settled.

Is it a good idea to enter judicial reorganisation?

The question deserves reframing: do you still have a choice? If your company is already in cessation of payments, reorganisation is often the only alternative to immediate liquidation. In that case, it is clearly preferable: the procedure offers protection against enforcement and a structured framework for negotiating with creditors. But if cessation of payments has not yet occurred, safeguard is markedly preferable – double the success rate.

What happens if the director fails to file within 45 days?

The forty-five-day period is statutory and mandatory. After this period, the director faces cumulative personal sanctions: a management ban for up to fifteen years (Art. L.653-8); personal liability for shortfall in assets if a management fault aggravated the situation during the delay (Art. L.651-2); and in the most serious cases, criminal prosecution for bankruptcy offence (Art. L.654-2).