Today's farm is much more than just a place of production: it's a real business. Like any business, it has specific needs in terms of financing, valuation of its assets, protection of the farmer's assets and must be able to cope with economic uncertainties. Aware of these challenges, legislators have gradually introduced or adapted legal instruments designed to meet the specific needs of the agricultural sector. These tools are part of a legal framework for agriculture constantly evolving, essential for any operator to understand.
While agriculture remains fundamentally civil in nature, some of these mechanisms draw on tried and tested techniques from commercial law, while adapting them to the rural context. This article explores a number of these essential instruments: identification via the register of agricultural assets, enhancement of the value of the farm through the farm business, protection of personal assets through the EIRL, and specific procedures for managing financial difficulties.
Identifying yourself: the register of agricultural assets
Before you can use certain tools or benefit from certain schemes, you have to be officially recognised as a player in the farming world. This is one of the aims of the Register of Agricultural Assets, instituted by the 2014 Law on the Future of Agriculture (Law no. 2014-1170 of 13 October 2014), which followed on from an earlier project for a "register of agriculture".
Provided for in article L. 311-2 of the French Rural and Maritime Fishing Code, this register is kept by the Chambers of Agriculture. Its purpose is to list natural or legal persons engaged in farming activities. Inclusion in this register is proof of the status of farmer and may be a condition of access to certain aids or specific schemes. This status of farmer is itself defined by precise criteria in the eyes of the lawThis is an administrative identification procedure, distinct from registration with the Trade and Companies Register (RCS). This is an administrative identification procedure, distinct from registration with the Registre du Commerce et des Sociétés (RCS), which does not apply to agricultural activity as such, due to its civil nature.
Even if there is still room for improvement in its practical implementation and impact on the ground, this register marks a desire to better identify and structure the agricultural sector.
Enhancing the value of your farm: the farm business
For a long time, one of the challenges for farmers has been to mobilise the economic value of their working assets to obtain finance. Unlike a shopkeeper, who has a well-defined 'business' that is easy to mobilise (particularly through pledging), a farmer has no direct equivalent for all the elements that make up his farm.
To remedy this shortcoming, the Agricultural Policy Act of 5 January 2006 created the "agricultural fund", defined in article L. 311-3 of the Rural Code. This is a major innovation, although its creation remains entirely the responsibility of the French government. optional. Farmers who wish to do so can declare the creation of a farm business to the Chamber of Agriculture.
What does this fund include? The law lists several elements:
- Dead stock (equipment, tools…) and live stock (animals).
- Stocks (crops, fertilisers, seeds…).
- Contracts and intangible rights used for operations, whether they are transferable. This is an important point, as many of the essential elements of a farm are not freely transferable. For example, the right to a rural lease is in principle non-transferable without the agreement of the lessor (although exceptions do exist, notably with the transferable lease outside the family, also introduced by the 2006 law). Similarly, single payment entitlements (DPU) and official quality labels (AOC, Label Rouge…) are subject to specific transfer rules.
- The sign and the names used.
- Customers attached to the business.
- Patents and other industrial property rights (trademarks, plant varieties, etc.).
- The name of the farm (added by the 2010 law).
Despite this list, which is reminiscent of that for business assets, the legislator has taken care to specify that agricultural assets "is of a civil nature.
What is the main advantage of setting up a farm business? Essentially, it allows you to pledgeIn other words, to use it as collateral to obtain credit. Pledging an agricultural business must follow the formalities laid down in the French Commercial Code for pledging a business (registration in a special register held at the registry of the Commercial Court), but the legal basis remains civil. However, the actual effectiveness of this guarantee is open to debate: the value of the business will depend very much on the nature and actual transferability of its component parts. A fund consisting mainly of equipment that has already been pledged or of non-transferable contracts will offer only limited security to the creditor. It is nevertheless a tool that can be used to recognise and attempt to mobilise the overall value of the farming business.
Protecting your personal assets: the agricultural EIRL
For farmers who run their own businesses, a major concern is protecting their personal assets from business debts. Act no. 2010-658 of 15 June 2010 created the Entreprise Individuelle à Responsabilité Limitée (EIRL), a status open to all sole traders, including farmers.
The principle of the EIRL is to enable entrepreneurs to allocate specific assets to their business, separate from their personal assets. As a result, in the event of business difficulties, only the assets allocated to the EIRL can in principle be seized by business creditors. Personal assets (main residence not used for the business, personal bank accounts, etc.) are protected.
The law of 27 July 2010 on the modernisation of agriculture adapted this system to the specific needs of agriculture. The declaration of assignment of assets is made to the Chamber of Agriculture. A special feature has been introduced for farmers: for tax and transfer purposes in particular, they may ask to do not include the land they own in the assets assigned to the EIRL. This land then remains in their personal assets. Note that this option, if chosen, applies to all the land owned by the farmer.
The agricultural EIRL therefore offers a solution for limiting the personal financial risks associated with farming, without having to set up a company (such as an EARL, for example). However, its implementation requires a certain amount of administrative rigour (dedicated accounting, valuation of the assets affected) and the protection has its limits, particularly in the event of mismanagement or confusion of assets. The question of the effectiveness of the protection if the land (often the main asset) is not affected also needs to be considered on a case-by-case basis. The choice of a suitable corporate structure is another essential way of organising and securing farming operations.
Managing financial difficulties: appropriate collective procedures
Farming, which is subject to the vagaries of weather, health and the economy, is unfortunately not immune to financial difficulties. As farmers are not traders, they are not covered by the traditional collective procedures before the Commercial Court. However, they are not helpless. Specific procedures, largely inspired by commercial law but adapted and falling within the remit of the Judicial Court (formerly the High Court), were introduced by the law of 30 December 1988 and have since been supplemented.
There are generally two levels of intervention: prevention and dealing with proven difficulties.
Prevention: the conciliation procedure
Before the situation becomes critical (cessation of payments), a farmer who is experiencing financial difficulties can request the opening of a conciliation procedure (formerly known as an amicable agricultural settlement), governed by articles L. 351-1 et seq. of the French Rural Code. The aim is to reach an amicable agreement with the main creditors (suppliers, banks, MSA…) under the aegis of a conciliator appointed by the President of the Judicial Court. The agreement may include payment deadlines, debt write-offs or other restructuring measures.
It is important to note that farmers have the option of initiating these proceedings. They are not obliged to go through this stage before filing for bankruptcy, as confirmed by case law (Rouen Court of Appeal, 20 May 2010). However, creditors can also take the initiative, subject to certain conditions. In addition, the Commissions Départementales d'Orientation de l'Agriculture (CDOA) often play an important role upstream, as they can diagnose the farm's situation, suggest ways to turn it around, and even allocate certain types of aid, before the matter is referred to the court.
Dealing with proven difficulties: protection, receivership and liquidation
When the difficulties are more serious and the farmer is in a state of cessation of payments (unable to meet his current liabilities with his available assets) or is likely to be in this situation in the short term, more serious proceedings may be initiated, again before the Judicial Court:
- La safeguard procedure insolvency proceedings: these are available to farmers who are not in suspension of payments but who can show that they are experiencing difficulties that they are unable to overcome on their own (article L. 620-2 of the French Commercial Code, applicable to agriculture). The aim is to reorganise the business to ensure its survival, pay off its debts and maintain employment, by drawing up a safeguard plan.
- Le legal redress insolvency proceedings: these proceedings are initiated when the farmer is in a state of suspension of payments. The aim is similar to that of safeguard proceedings: to enable the business to continue, pay off its debts and maintain employment, by means of a recovery plan. If recovery is clearly impossible, the procedure may be converted into liquidation.
- La compulsory liquidation Insolvency: this occurs when reorganisation is impossible. It puts an end to the company's activity and aims to realise its assets (sale of property) to pay off creditors.
These procedures are largely modelled on those of the French Commercial Code, but with a number of adjustments to take account of specific agricultural features. One of the most notable is the maximum duration of safeguard or recovery plans. While this is ten years under general commercial law, the Court of Cassation confirmed (ruling of 29 November 2017) that, under the combined application of the Commercial Code and Article L. 351-8 of the Rural Code, the plan may last up to fifteen years for farmers private persons. However, this option is not available to farms set up as companies (such as an EARL), which are still subject to the maximum ten-year period. The purpose of this distinction is to give individual farmers more time to re-establish themselves, given the long cycles involved in certain types of farming.
These legal tools, from the register to the management of difficulties, bear witness to the recognition by the law of the farm as an economic entity in its own right, requiring a framework adapted to its modern challenges.
For a personalised analysis of your situation and to determine which tools would be most appropriate for your operation, our team is at your disposal.
Sources
- Code rural et de la pêche maritime: in particular articles L. 311-2 (Register of agricultural assets), L. 311-3 (Agricultural fund), L. 351-1 et seq. (Collective proceedings), L. 526-6 and L. 526-7 (EIRL adaptation, repealed but principle included in C. com.)
- Commercial Code: in particular articles L. 526-6 et seq. (EIRL), L. 620-2 (Safeguard application), L. 626-12 (Duration of the plan)
- Law no. 2006-11 of 5 January 2006 on agricultural policy
- Law no. 2010-658 of 15 June 2010 relating to the EIRL
- Law no. 2010-874 of 27 July 2010 on the modernisation of agriculture and fisheries
- Law no. 2014-1170 of 13 October 2014 on the future of agriculture, food and forestry
- Cour de cassation, Commercial Chamber, 29 November 2017, no. 16-21.032 (Duration of the plan for agricultural companies).
- Rouen Court of Appeal, 20 May 2010, RG no. 09-04499 (Non-mandatory nature of conciliation for the farmer)
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