A new form of bankruptcy procedure, Accelerated Financial Safeguard (sauvegarde financière accélérée, “AFS”) was adopted by the French Parliament on October 22, 2010.
Envisaged as a means of facilitating “pre-pack” bankruptcies in France, AFS would permit a debtor, the majority but not all of the creditors of which support a conciliation agreement, to rapidly begin a safeguard procedure, allowing a restructuring plan to be approved by a two-thirds vote of the creditors. Only financial creditors would be implicated in such a restructuring plan, and an AFS filing does not entail suspension of payments to suppliers.
The AFS is intended for businesses which find themselves heavily indebted to financial creditors, and which cannot reach a unanimous agreement with its creditors. As a variant of the safeguard procedure, adopted in 2005, the AFS is designed to allow rapid restructuring of a company’s debts, thereby avoiding the delay involved in more traditional bankruptcy procedures, and the resulting inevitable destruction of value. As with a traditional safeguard procedure, the plan adopted in the context of an AFS may provide for rescheduling, debt reduction, and conversion of debt into equity capital in the debtor company.
In order to file for an AFS, the debtor company must (i) be engaged in a conciliation procedure, (ii) not be in a state of insolvency (cessation de paiements), (iii) face financial difficulties which it finds itself unable to overcome, (iv) have its accounts regularly certified by a statutory auditor or certified public accountant, and (v) have more than 150 employees or annual revenue greater than €20 million. The procedure is thus not available to small businesses.
In addition, the debtor company must produce a restructuring plan intended to ensure the business’s continuation as a going concern, and must demonstrate that such plan is likely to receive the support of a sufficiently large number of financial creditors that it could be adopted, by a two-thirds majority, within 2 months of the AFS filing.
The commercial court with which the AFS is filed will only approve the filing and commence the AFS procedure after receiving a report from the conciliator concerning the progress of the conciliation procedure and the plan’s prospects for adoption. If the conciliator is also an authorized judicial administrator, that individual will be appointed by the court as the judicial administrator for the AFS procedure.
As its name would indicate, only financial creditors, defined as members of the committee of financial institutions and assembly of bondholders, are involved in the AFS. Only such financial creditors are consulted concerning the adoption of the restructuring plan, and the plan must be approved by a two-thirds majority by value of bank and bond debt holders having voted.
Neither public creditors, such as the tax or social security administration, nor suppliers are directly impacted by the AFS. Their debts will continue to be due and payable according to their contractual or legal terms.
As the AFS is by nature an accelerated procedure, very tight deadlines are imposed. The commercial court must approve any restructuring plan within 1 month of the date on which the procedure is begun; this deadline may be extended by up to a maximum of 1 additional month. If a plan is not adopted by the creditors and approved by the court within such deadlines, the court is obliged to terminate the procedure. In practice, the plan adopted by the creditors and approved by the court will be identical or very similar to the plan having received the support of the majority of creditors in the preceding conciliation procedure.
In order to render the AFS procedure more rapid, financial creditors that participated in the preceding conciliation procedure are not required to file a declaration of their claims with the judicial administrator. Such claims are deemed to be declared solely on the basis of a list prepared by the debtor, certified by the debtor’s statutory auditor or certified public accountant and filed with the clerk of court. Regulations concerning the procedures to be followed in such a case will be included in a forthcoming decree. The SFA will become available for debtors for whom a conciliation process is begun on or after March 1, 2011.