<\/p>\n
Introduced by Law 2005-845 of 26 July 2005, known as the \u00abBusiness Safeguard Law\u00bb, the safeguard procedure is based on a simple but demanding idea: intervene before disaster strikes, not afterwards. It is designed for companies that are in troubled waters but have not yet sunk.<\/p>\n
Art. L620-1 of the French Commercial Code (version in force since 1 Oct. 2021)<\/p>\n
\u00abSafeguard proceedings shall be instituted at the request of a debtor referred to in Article L. 620-2, without being in suspension of payments<\/strong>, This procedure is intended to facilitate the reorganisation of the company in order to enable it to continue as a going concern, maintain employment and pay off its debts. The purpose of this procedure is to facilitate the reorganisation of the company in order to allow it to continue as a going concern, maintain employment and pay off its debts.\u00bb<\/p>\n<\/p><\/div>\n Safeguarding is structurally defined by two elements. Firstly, its volunteer<\/em> Only the debtor may request that the proceedings be opened. Neither the creditors, the public prosecutor's office nor the court can force the issue. Secondly, its preventive<\/em> It opens before the cessation of payments, unlike receivership and liquidation, which presuppose that this red line has already been crossed.<\/p>\n By placing itself under the protection of the court, the company obtains immediate respite: its previous debts are frozen, proceedings by its creditors are halted, and it has an observation period in which to draw up a restructuring plan. The law is extending a helping hand to managers who have the courage to act early.<\/p>\n <\/p>\n Access to the safeguard procedure is subject to two cumulative conditions, defined by article L.620-1 of the French Commercial Code. The court assesses these conditions on the day it makes its decision - not on the day the application is filed.<\/p>\n The most imperative condition is also the most counter-intuitive: in order to benefit from a safeguard, the company must must not<\/em> be in a state of suspension of payments. The cessation of payments is defined as the impossibility of meeting current liabilities with available assets (art. L.631-1 C.com). So it's not just a matter of having debts - it's a matter of not being able to pay them with the cash on hand.<\/p>\n There are two important caveats to this definition. On the one hand credit reserves<\/strong> If the company has undrawn confirmed credit lines, they constitute available assets within the meaning of the law. On the other hand moratoria<\/strong> granted by creditors: a debt whose due date has been postponed by agreement is not included in the liabilities due for payment. The Court of Cassation has specified that the judge must expressly identify the elements of available assets and current liabilities used to characterise the cessation of payments (Cass. com., 3 Apr. 2019, no. 17-28.359).<\/p>\n It is up to the debtor to demonstrate that he is not in suspension of payments - cash flow situation, statement of overdue debts, available credit reserves.<\/p>\n Safeguard is not a comfort tool for companies that are doing well. The debtor must prove the existence of \u00abdifficulties that it is unable to overcome\u00bb. The law does not limit the nature of these difficulties - they may be economic (loss of a key market, drop in sales), financial (restructuring of a major future debt), legal (major litigation with an uncertain outcome) or social.<\/p>\n What counts is the character insurmountable<\/em> of these difficulties by the debtor alone. Without the protective framework of the safeguard - debt freeze, suspension of proceedings, possibility of imposing deadlines in the plan - the company would not be able to resolve its problems. Note that since the 2008 Order, it is no longer necessary to demonstrate that the difficulties are \u00abof such a nature as to lead\u00bb to the cessation of payments: it is sufficient to prove that they are real and insurmountable.<\/p>\n For companies belonging to a group, a clarification is in order: the difficulties are assessed at the level of the company itself, independently of the situation of the other entities in the group. A subsidiary in difficulty may apply for protection even if its parent company is prosperous - the principle of the autonomy of legal entities prevails.<\/p>\n Article L.620-2 of the French Commercial Code sets out the list of eligible debtors. The procedure is open to any person carrying on a commercial or craft activity, any farmer, any other self-employed professional (including members of the regulated liberal professions), as well as any legal entity under private law. In practice, this covers most businesses - commercial companies, EIRLs, SCIs and associations.<\/p>\n The court of jurisdiction varies according to the nature of the business: **Commercial Court** for shopkeepers and craftsmen, **Judicial Court** for farmers, self-employed professionals and associations.<\/p>\n <\/p>\n The application is filed by the debtor - or its legal representative in the case of a legal entity - with the clerk of the relevant court. It must be accompanied by a file containing, in particular: the annual accounts for the last financial year, a recent cash flow statement, a quantified statement of receivables and debts, a list of employees, and an asset-liability statement of securities. The aim is to enable the court to assess whether the company is really in difficulty and whether payments have stopped.<\/p>\n The court rules in chambers, after hearing the debtor. If it considers that the legal conditions have been met, it issues a **judgment opening the proceedings**, which has immediate effect. The Court of Cassation has laid down a clear principle: if the legal conditions are objectively met, the court will must<\/em> initiate the procedure, regardless of the debtor's motives. The judge does not have to exercise discretion (Cass. com., 8 March 2011, no. 10-13.988 - known as the \u00abC\u0153ur D\u00e9fense\u00bb case). The only limit is manifest fraud.<\/p>\n If the court considers that the difficulties exist but are not insurmountable within the meaning of the Safeguard Act, it may invite the debtor to turn to a conciliation procedure (art. L.621-1, para. 3 C.com), which is better suited to confidential negotiations with the main creditors.<\/p>\n <\/p>\n The opening judgment is published in the BODACC. This publication initiates the period for declaring claims - two months for creditors resident in France, four months for creditors established abroad. Once this period has elapsed, the claim becomes unenforceable against the insolvency proceedings.<\/p>\n The opening judgment prohibits the debtor from settling any claim that has arisen. before<\/em> the judgment. This prohibition is a matter of public policy: any payment made in breach of this rule may be set aside at the request of any interested party within three years. There are a few exceptions - set-off of related claims, maintenance claims, ad hoc authorisations by the official receiver - but they remain marginal.<\/p>\n This is the shield that immediately protects the company. The judgment prohibits any legal action aimed at ordering the debtor to pay a sum of money, and halts or prohibits any enforcement proceedings against his assets. A creditor who had a seizure in progress finds himself blocked. A supplier who was about to file a writ of execution finds his action rendered impossible.<\/p>\n The opening judgment stops the accrual of legal and contractual interest, except for fixed-rate loans with a term of one year or more. Practical consequence: the debt no longer increases during the proceedings. Individual **guarantors** can take advantage of this cessation of interest.<\/p>\n In safeguard proceedings, the protection of guarantors goes further: proceedings against guarantors who are natural persons are prohibited. suspended<\/strong> This is a major difference from receivership, where the protection of sureties is much more limited (Cass. com., 2 June 2015, no. 14-10.673). This is a major difference from receivership, where the protection afforded to sureties is much more limited.<\/p>\n All receivables after<\/em> the opening judgment are not treated in the same way. Those that meet two cumulative conditions - they must have arisen regularly for the purposes of the proceedings or in return for a service provided to the debtor - benefit from preferential treatment. These \u00abprivileged subsequent claims\u00bb are paid when due. In the event of default, they take precedence over all other claims according to a legal order of priority. This mechanism ensures that the business partners of the company under protection continue to be paid normally, thereby preserving the continuity of the business. Please note: this privilege is lost if the administrator is not notified of the claim within one year of the end of the observation period.<\/p>\n <\/p>\n The opening judgment opens a **observation period** lasting a maximum of six months, renewable once for a further six months, i.e. a total of twelve months (art. L.621-3 C.com). This is the heart of the safeguard procedure: the time when, under the supervision of the bodies appointed by the court, the company prepares its restructuring plan.<\/p>\n The opening judgment designates several players (art. L.621-4 C.com). The official receiver** is the court judge who supervises the day-to-day running of the proceedings and settles disputes. The **judicial representative** represents the collective interests of the creditors, verifies claims declarations and prepares distributions. The **judicial administrator** is appointed when the business exceeds certain thresholds (twenty employees and \u20ac3 million turnover); below these thresholds, appointment is optional. In safeguard proceedings, the administrator's role is limited to providing assistance or supervision: unlike in receivership proceedings, the administrator cannot take the place of the director. An employee representative is also appointed.<\/p>\n The business continues to operate. The director retains his powers - this is a fundamental difference from judicial liquidation. He or she manages the business under the supervision of the court-appointed administrator (with a mission to assist or supervise, depending on the case). An economic, social and environmental report is drawn up to identify the causes of the difficulties and the prospects for recovery. Creditors declare their claims. The administrator prepares a report on the company's prospects.<\/p>\n D-Day<\/p>\n Opening judgment<\/p>\n Freezing of previous liabilities. Stay of proceedings. Appointment of bodies. Publication in the BODACC. Start of the period for declaring claims (2 months).<\/p>\n<\/p><\/div>\n D + 2 months<\/p>\n End of the period for filing claims<\/p>\n Previous creditors must have declared their claims to the judicial representative. Once this period has elapsed, the claim cannot be set up against the proceedings.<\/p>\n<\/p><\/div>\n D + 6 months (max D + 12 months)<\/p>\n End of the observation period<\/p>\n The administrator presents his economic and social report and his outlook report. The draft safeguard plan is submitted to the court.<\/p>\n<\/p><\/div>\n Stopping the plan<\/p>\n Judgement approving the safeguard plan<\/p>\n The court adopts the plan or, if it proves impossible to adopt the plan and payments are likely to cease, converts the safeguard into a receivership.<\/p>\n<\/p><\/div>\n Current plan (max 10 years)<\/p>\n Execution of the safeguard plan<\/p>\n Progressive discharge of liabilities in accordance with the agreed schedule. A commissioner oversees the debtor's commitments.<\/p>\n<\/p><\/div>\n<\/p><\/div>\n <\/p>\n The safeguard procedure is designed to result in a safeguard plan approved by a court. This plan sets out the conditions under which the company will pay off its previous liabilities: payment deadlines, debt write-offs accepted by creditors, sale of non-strategic assets. The maximum duration of the plan is ten years<\/strong> (fifteen years for agricultural businesses).<\/p>\n The safeguard plan - unlike the reorganisation plan - cannot include a total sale of the business to a buyer. It is the debtor who remains in control, which is both the procedure's main advantage and its limitation: if the business is not viable as it stands, the safeguard plan cannot force a sale.<\/p>\n In large companies (those exceeding certain turnover and debt thresholds), Order no. 2021-1193 of 15 September 2021 generalised the constitution of classes of parts affected<\/strong> - creditors and sometimes partners, grouped according to their rights - to vote on the plan. This mechanism, inspired by the European Restructuring and Insolvency Directive, allows a plan to be adopted even against the opinion of certain classes of creditors, provided that the other classes approve it and that the treatment imposed remains fair.<\/p>\n If, during the observation period, it becomes clear that no viable plan can be agreed and<\/em> that closure of the safeguard would lead to a definite and imminent cessation of payments, the court may convert the safeguard into a receivership (art. L.622-10 C.com). This conversion does not result in the opening of a new procedure - the procedure continues, but under a different regime. The deadlines for filing claims do not reopen.<\/p>\n <\/p>\n French law on companies in difficulty is based on a gradation of procedures based on the seriousness of the situation. The rule is simple: the earlier you intervene, the greater the chances of success. The safeguard procedure has a success rate of 62 %<\/strong>, against 27 %<\/strong> for receivership (France Strat\u00e9gie, analysis note no. 84, Feb. 2020). The difference can be explained by the fact that in a safeguard procedure, the company is not yet asphyxiated.<\/p>\nConditions of access to back-up<\/h2>\n
No suspension of payments: the cardinal negative condition<\/h3>\n
Insurmountable difficulties without a judicial framework: the positive condition<\/h3>\n
Who can request a safeguard?<\/h3>\n
How do I submit an application?<\/h2>\n
The immediate effects of the opening judgment<\/h2>\n
Freezing of prior liabilities (art. L.622-7 C.com)<\/h3>\n
Stay of individual proceedings (art. L.622-21 C.com)<\/h3>\n
Stopping the accrual of interest (art. L.622-28 C.com)<\/h3>\n
Preferential treatment for subsequent claims (art. L.622-17 C.com)<\/h3>\n
The observation period: drawing up a protected plan<\/h2>\n
The procedural bodies<\/h3>\n
What happens during the observation period<\/h3>\n
The safeguard plan: the normal outcome of the procedure<\/h2>\n
What happens if the plan cannot be adopted?<\/h3>\n
Safeguard, receivership, compulsory liquidation: comparative benchmarks<\/h2>\n