Order no. 2014-326 dated 12 March 2014, applicable as of 1 July 2014, amends the rules on the prevention of business difficulties and on insolvency. The key highlights of the reform include:

  •  power to issue an alert by the President of the Civil Court

New §L. 611-2-1 of the Commercial Code permits the President of the Civil Court (Tribunal de grande instance) to use, as can the President of the Commercial Court (Tribunal de commerce), the alert mechanism.

The President of the Civil Court will also be able to call in a director if he has knowledge of difficulties likely to compromise the continued operation of the business so as to contemplate any possible remedial measures.

  •  changes to judicial conciliation

The conciliator may, at the request of the debtor and after hearing the opinion of the participating creditors, be entrusted with the mission of organizing a partial or total sale of the business of the company (new §L. 611-7 of the Commercial Code).

A debtor being put on notice or sued by a creditor who is not a party to the conciliation agreement is also given the possibility of seeking and obtaining a schedule of payments from the judge having opened the conciliation under the conditions laid down by the ordinary rule of law at §1244-1 to §1244-3 of the Civil Code (new point two of §L. 611-10-1 of the Commercial Code). However, this prerogative does not concern public sector creditors such as the tax authorities or social security and related bodies and is up to the judge’s discretion.

  •  new “accelerated safeguard” proceedings

“Accelerated safeguard” proceedings have been set up. The new proceedings are inspired, despite certain adaptations, by the philosophy and the financial safeguard proceedings introduced by the law of 22 October 2010.

Pursuant to the terms of the new §L. 628-1 of the Commercial Code, “[t]he accelerated safeguard proceedings are opened on the application of a debtor who has embarked upon a conciliation process who justifies having prepared a proposed plan in view of ensuring the continued existence of the company”. The proposed plan must “be likely to obtain, on the part of the creditors in respect of whom the opening of the proceedings will produce effect, sufficiently broad support to make its adoption probable” within a period of three months from the date of opening of the proceedings.

However, the new accelerated safeguard proceedings only produces effect as regards creditors who are under the obligation to file their proofs of claim and to the contracting parties of the debtor (new §L. 628-6 of the Commercial Code). Accordingly, it will not produce effect, for example, as regards the employees of the debtor placed in these proceedings.

  •  appointment of a mandataire ad hoc in the scope of judicial reorganisation proceedings

The new §L. 631-9-1 of the Commercial Code introduces a major change aimed at overcoming the inertia of the shareholders of the company in reorganisation proceedings by allowing themandataire ad hoc (ad hoc mediator) to convene a shareholders’ meeting and vote, under certain conditions, for a recovery plan providing for a modification of the capital structure.

This new possibility of appointing an ad hoc mediator is in line with the spirit guiding the reform, namely to attempt to level the playing field between shareholders and creditors, by giving the latter more rights, while setting limits to the encroachment of shareholders’ voting rights.

  •  new “professional recovery” proceedings without liquidation

Pursuant to the new §L. 645-1 of the Commercial Code, professional recovery proceedings are open to professional debtors who are natural persons, other than sole traders with EIRL status (which provides limited liability status to a business that is not run as a limited liability company), who have not hired any employees during the six months prior to the commencement of the proceedings and own assets of a value below that to be set by decree taken by the Council of State.

These simplified proceedings allows covering the procedural costs and facilitating the closure of the proceedings for inadequacy of assets when the cost of selling the residual assets is disproportionate (new §L. 645-1 of the Commercial Code).

The professional recovery proceedings introduce protection for the debtor. “If the debtor is put on notice or sued by a creditor during the course of the proceedings, the assigned judge (juge commis) may, at the debtor’s request, grant a payment extension for the amounts owed up to a maximum of four months and order, during this same period, the suspension of any enforcement procedures that may have been brought by the creditor”. Also, any provision to the contrary will be deemed unwritten (new §L. 645-6 of the Commercial Code).

Inasmuch as non-monetary proceedings not resulting in any distribution are involved, no procedure for the verification of claims has been organized. Creditors simply give information on the amount of their claim, indicating the sums accruing and the maturity date as well as any useful information in relation to the economic rights they consider holding over the debtor (new §L. 645-8 of the Commercial Code).

The closure of the professional recovery proceedings entails the discharge of debt vis-à-vis creditors whose claim arose prior to the decision opening the proceedings and reported to the judge by the debtor under the conditions previously outlined (new §L. 645-11 of the Commercial Code).

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In a nutshell, this reform is a move towards a better balancing of power between players in the proceedings, essentially by levelling the playing field between shareholders and creditors, essentially to the benefit of the latter.