The French conciliation procedure, introduced in 2005, has become such a key procedure in France that it cannot be ignored. For any restructuring involving France (whether partially or wholly), the possibility of a conciliation procedure has to be seriously considered.
Concept of conciliation procedure
Conciliation is a pre-insolvency and amicable procedure available to a company which faces legal, economic or financial difficulties, whether proven or foreseeable (but which has not been insolvent for more than 45 days). It involves the company obtaining, from the president of the commercial court, the appointment of a “conciliator”. The role of the conciliator is to help reach an amicable agreement with the company’s stakeholders in order to resolve the company’s difficulties and, in this context, submit any proposal relating to the continuance of the company (as an entity), its business and the maintenance of employment. The company’s directors retain control and the procedure remains confidential.
The conciliation procedure is very attractive, particularly given its flexibility: it can be either a stand-alone, fully consensual procedure or a preliminary procedure within the framework of a prepack agreement or sale.
To be eligible for conciliation from a jurisdictional perspective, a company must either be a French company with its registered office in France or otherwise have its main centre of interests (“centre principal des intérêts”) in France. In this respect, the conciliation procedure does not fall within the scope of the European Insolvency Regulation (current or recast, as it will be from June 2017). This means that French international private law applies as to the concept of “main centre of interests”, which can be established based on evidence as to e.g. the existence of a commercial establishment, the existence of assets, the administration of the company, and the location of decision-making.
Stand-alone, fully consensual procedure
The conciliation procedure is mainly used in financial restructurings, where the purpose is to reach an amicable agreement between the debtor and its main creditors as well as, if need be, its contractors, suppliers, creditors, clients or shareholders. It can also be used to effect a sale of all or part of the debtor’s business and assets. Although the third parties involved have no legal obligation to take part in the negotiations, they have a clear incentive to do so given the risk of insolvency proceedings if the negotiations fail.
In both cases, the procedure is often preceded by a “mandat ad hoc”, a similarly amicable procedure but without time-limit. The use of mandat ad hoc prior to conciliation is a particularly useful technique in light of time limits applicable to the conciliation procedure (which cannot exceed five months; there must also be at least a three month period between two successive conciliation procedures).
Where all stakeholders unanimously agree, the conciliation agreement can be either acknowledged (“constaté”) by an order of the president of the commercial court or sanctioned (“homologué”) by a judgment of the commercial court.
The latter option is generally advisable in practice, due to its numerous advantages in the event of subsequent insolvency proceedings, even if the sanctioning judgement is public and discloses the existence of the conciliation procedure (but not the conciliation agreement):
a) priority of new money: creditors which provide the debtor with cash or services within the course of the conciliation procedure benefit from a new money privilege by virtue of law: they rank senior to any other prior creditor (including most of the subsequent creditors) and their claims cannot be subject to write-off or delays in the safeguard/reorganisation plan unless they consent;
b) securing the transaction: on the one hand, the date of cash-flow insolvency cannot be prior to the date of a definitive judgment sanctioning the conciliation agreement. This mitigates the risk of certain transactions concluded between the opening of insolvency proceedings and the date of cash-flow insolvency becoming void. On the other hand, if the debtor wants the agreement to be formally sanctioned by the court (and not simply “acknowledged”), then the debtor must prove that the conciliation agreement facilitates the sustainability of the company’s business and that it does not affect the rights of creditors who have not signed the agreement. These requirements effectively mean that obtaining court sanction of the agreement reduces the risk of liability or potential challenges to the transaction (in comparison to the lighter-touch “acknowledgement” route); and
c) mitigation (but not exclusion) of the risk of liability: homologation reduces the risk of actions based on faults or facts occurring prior to the sanction judgment (e.g. liability for improper support or shortfall of assets), except in case of fraud.
Weil has advised on the following recent examples of conciliation as a stand-alone, fully consensual procedure:
- advising Spir, a listed group involved in communication services and door-drop media with more than 20,000 employees, with respect to the carve-out of its subsidiary Adrexo and the sale of the business activity of its subsidiary Regicom;
- advising Latecoere in the restructuring of the group’s debt and equity capital through a €280 million capital increase and a bank debt “amend and extend”;
- advising Cinven in connection with the €1.1 billion debt restructuring and recapitalisation of Camaïeu (the French retail company);
- advising Oaktree, one of the main creditors and shareholder of Vivarte (the French retail company), in the €2.8 billion Vivarte debt restructuring (lender-led) in 2014. Weil continues to advise Oaktree regarding the current restructuring of Vivarte, further to the completion of the 2014 restructuring; and
- advising Campofrio Food Group, which held 49% of the share capital of Jean Caby (dry and cooked meat specialist, with 1,100 employees), to ensure a clean and legally-secured exit from Jean Caby.
Preliminary procedure within the framework of prepack agreement or sale
In the absence of unanimous consent, the conciliation procedure is a preliminary step to opening accelerated safeguard or financial accelerated safeguard proceedings. Those proceedings allow an agreement, approved by at least a 2/3 majority (in value) of those creditors voting, to be sanctioned by the court and thereby bind all relevant creditors, including dissenting creditors.
Weil recently advised on the following such transactions:
- advising the ad hoc committee composed of the largest lenders (Paulson, Monarch and Amber) of Solocal (the listed holding company of Pages Jaunes), regarding its financial restructuring of €1.16 trillion through an accelerated financial safeguard plan, sanctioned in 2014, amended in 2016 and which closed in March 2017;
- advising Alma regarding its financial restructuring through accelerated safeguard plan (for further information, see our previous Restructuring Watch post here); and
- advising AgroGeneration, a listed agricultural commodities producer, on its financial restructuring pursuant to an accelerated financial safeguard plan.
If a solvent sale is not achievable, a pre-pack business sale plan allows a disposal plan drafted within conciliation proceedings to be subsequently implemented within insolvency proceedings. As in the English context, a key purpose of effecting a pre-pack sale is to complete the sale as quickly as possible after the opening of insolvency proceedings in order to avoid damaging the company’s business. In France, the sale could be completed three weeks to one month after the opening of proceedings.