Safeguard, recovery and liquidation proceedings: how do they start?

By Yasmine EDDAM5 April 2025

When a company encounters financial headwinds, French law offers several legal frameworks for dealing with the situation. These mechanisms, often grouped together under the generic term of "collective proceedings", are not identical and respond to distinct situations and objectives. Understanding the fundamental differences between safeguard, receivership and compulsory liquidation is essential for managers, creditors and any other economic players involved, so that they can anticipate the consequences and defend their interests as effectively as possible. How do you know which procedure applies? Who can apply to open a procedure? And what are the immediate effects once the judgement has been handed down?

This article aims to shed light on these issues. We will explore the conditions under which each major collective procedure is opened and the possible initiators, briefly describe the stages leading up to the court's decision, and above all detail the immediate and often radical consequences of the opening judgment for the company, its managers and its partners.

The different entry points: Safeguard, Restructuring, Liquidation

The choice of procedure depends mainly on the company's actual financial situation at the time the case is referred to the court.

Safeguard procedure: anticipating the crisis before it happens

Safeguard is the most "preventive" procedure. It is aimed at a company which, are not yet in a state of suspension of payments(Article L. 620-1 of the French Commercial Code). Think of a situation where the company is seeing its orders fall, its margins erode dangerously, or a major conflict block its activity, but where it is still managing to pay its invoices and wages to date.

Conditions Difficulties but not yet insolvency.
Initiation : Only the company director may request the opening of a safeguard procedure. Neither a creditor nor the Public Prosecutor can initiate it. It is a voluntary step taken in advance.
Objective To enable the company to reorganise under the protection of the court, with the aim of maintaining its economic activity and associated jobs and, of course, paying off its liabilities through a negotiated plan.

Safeguarding offers a protective framework for negotiating with creditors while continuing the business, before the situation becomes critical.

Court-ordered receivership: turning around a business in proven difficulty

Court-ordered receivership occurs when a company has crossed a critical threshold: it is in suspension of paymentsbut its recovery is not deemed manifestly impossible (article L. 631-1 of the French Commercial Code).

What is the suspension of payments ? This is when a company is unable to meet its current liabilities (debts that have fallen due) with its available assets (cash and assets that it can mobilise very quickly). In practical terms, this means that the company can no longer pay its suppliers, social security contributions, wages, etc. when they are due.

Conditions Confirmed suspension of payments + prospect of reorganisation.
Initiation :
- Le manager hasobligation The company is legally obliged to declare the cessation of payments and to request the opening of proceedings (receivership or liquidation) within 45 days of the date of cessation of payments (unless it has requested an amicable conciliation procedure within this period) (article L. 631-4). Failure to do so may constitute mismanagement.
- A creditor unpaid debt (whatever the nature of the debt: commercial, civil, tax, etc.).
- Le Public Prosecutor (Public Prosecutor).
Objective Safeguard: Like safeguard, the aim is to continue the business, maintain employment and pay off liabilities, but in a context where the situation has already deteriorated. The solution is to adopt a recovery plan (which may be more restrictive than a safeguard plan) or, if continuation is not possible in this form, to sell the business (sale plan).

Receivership is therefore a curative procedure, launched when the company is already in default of payment but there is still hope of survival.

Judicial liquidation: when the end of business is inevitable

Judicial liquidation is the most radical procedure. It is initiated when a company is in suspension of payments and its recovery is manifestly impossible (article L. 640-1 of the French Commercial Code). There is no longer any hope of saving the company as such.

Conditions Cessation of payments + manifest impossibility of recovery.
Initiation Insolvency proceedings: The same players as for receivership (manager, creditor, public prosecutor). It can also result from the conversion of an unsuccessful safeguard or reorganisation.
Objective Putting an orderly end to the company's activities, selling all its assets ("realising the assets") in order to repay creditors as best as possible according to their priority ranking.

This is the procedure for the "end of life" of the company, although sometimes a sale of the business as part of the liquidation can save jobs and know-how.

The special case of Professional Reinstatement

We should briefly mention a specific procedure, professional recovery, introduced more recently. It is aimed solely at individual entrepreneurs (individuals, excluding EIRLs) who are in suspension of payments and meet the conditions for compulsory liquidation, but whose declared assets are below a very low threshold (currently €5,000), which are good faith (article L. 645-1). Its aim is to allow debts to be written off quickly without going through the cumbersome process of a full judicial liquidation. It is a sort of accelerated "second chance procedure" for very small situations. It is only available at the request of the entrepreneur.

Initiating proceedings: what happens?

Whether the application comes from the debtor, a creditor or the Public Prosecutor, it must be brought before the competent court (Commercial or Judicial). To understand in detail the the entire legal process leading up to the opening judgment and its effectsand for identify the key players in these proceduresYou can consult our dedicated resources.

Referral to the Tribunal

The forms vary according to the initiator:

The debtor The insolvency representative files a "declaration of cessation of payments" (for Redressement/Liquidation) or an "application to open a safeguard procedure" with the court clerk's office, together with a number of accounting documents and information on the company's situation (articles R. 621-1, R. 631-1).
A creditor The debtor must be served with a "writ of summons". This document must specify the nature and amount of the claim and provide evidence that the debtor has ceased payments (article R. 631-2). The debtor may only request reorganisation or liquidation, not safeguard.
The Public Prosecutor's Office He generally acts by "application" to the court.

The hearing and the Tribunal's decision

The court examines the application. This phase takes place in Council ChamberIn other words, without publicity, to preserve confidentiality at this critical stage. The court must hear the leader of the company. It must also hear (or at least convene) the employee representatives (Social and Economic Committee or, failing that, staff representatives) (article L. 621-1). If the situation is complex, the court may appoint a judge to conduct a more in-depth investigation before making its decision ("juge commis").

At the end of this review, the court issues a decision. opening judgment (if it accepts the claim) or a judgment rejecting the claim. The opening judgment marks the official starting point of the collective proceedings.

The immediate effects of the opening judgment

The pronouncement of the opening judgment has immediate and very important consequences, applicable from the day of the judgment. The main purpose of these effects is to "freeze" the situation so that the next steps can be organised.

The Observation Period (Safeguard/Restructuring)

In safeguard and reorganisation cases, the judgment opens a observation period. Its initial duration is set by the court (maximum 6 months), but it can be renewed, generally for up to 18 months in total (article L. 621-3). Its purpose is to enable :

Accurately assess the economic and financial situation.
To see if the company can continue in business.
Draw up a safeguard or recovery plan.

During this period, the company continues to operate, but under court supervision.

Freezing past liabilities

This is the best-known effect. From the opening judgment :

Stopping individual prosecutions Creditors whose debt has arisen before the judgment may no longer take legal action (seizures, payment actions, etc.) against the company to obtain payment (article L. 622-21). They must declare their claim.
Prohibition on payment of previous debts Article L. 622-7: The company is formally prohibited from settling debts that arose prior to the judgment (except in very limited circumstances with the authorisation of the juge-commissaire). Imagine a dam holding back all old debts to prevent the company from running out of cash.
Stopping interest payments For loans, legal and contractual interest (except for loans of more than one year) ceases to accrue (article L. 622-28).

These measures create a much-needed respite for the company.

Determining the date of cessation of payments (Recovery/Liquidation)

In the judgment initiating a reorganisation or liquidation, the court shall set the date of cessation of payments. This date is crucial because it marks the start of the "suspect period" (article L. 631-8). This is a period prior to the judgment during which certain acts carried out by the company while it was already in difficulty (abnormal payments, gifts, unbalanced contracts, etc.) may potentially be cancelled at a later date. The court may set this date up to 18 months before the opening judgment. If it does not set the date, it is deemed to be the date of the opening judgment itself.

Appointment of procedural bodies

Lastly, the opening judgment appoints the key players who will manage the proceedings (article L. 621-4): the official receiver, the judicial representative (always in safeguard/rehabilitation), and the judicial administrator if justified by the size of the company or the complexity of the case (particularly in reorganisation). In the event of liquidation, a liquidator is appointed. These appointments take effect immediately.

The opening of insolvency proceedings is therefore a major legal act, which profoundly changes the rules of the game for the company and its partners. It is essential to be familiar with the conditions and consequences of each type of procedure. For more information, visit explore the different possible outcomes of a collective procedure, whether it be a safeguard plan, a continuation recovery plan or a sale plan, consult our detailed analysis.

Each procedure has specific implications and different consequences for the company, its directors, employees and creditors. If you are concerned about the financial health of your company or if you are a creditor of a company in difficulty, it is important to understand your rights and the options available to you. Our firm can help you to analyse your situation and define the best strategyWe can help you, whether you are a director or a creditor, to defend your interests as effectively as possible.