An extract from The Restructuring Review, 13th Edition

Overview of restructuring and insolvency activity

With a GDP growth of 1.3 per cent in 2019 (compared to 1.7 per cent in 2018, 2.3 per cent in 2017, 1.1 per cent in 2016 and 1.2 per cent in 2015), restructuring and insolvency activity in France continued to decrease slightly, broadly speaking, in 2019 compared to previous years. With a total of 51,165 insolvency proceedings (safeguard, rehabilitation and liquidation proceedings; see Section II) opened in 2019 (down 5.2 per cent compared with 2018), this decrease is more significant than in 2018 (with a total number of insolvency proceedings down 1 per cent compared with 2017). As in previous years, the bulk of these proceedings relate to very small enterprises, as only 1,189 insolvency proceedings were opened for small and medium enterprises and bigger enterprises (representing only 2 per cent of the total number of insolvency proceedings).

In this context, the industries that have faced the most restructuring issues are the food and agricultural sector, the industry sector, the transport sector, and the oil and gas sector (because of the continuing slump in energy and commodity prices), as well as the retail and tourism sectors (restaurants, carriers, hotels and tour operators) because of sluggish household consumption, the geopolitical background) and domestic social protests (in particular the 'yellow vests' protests and protests against pension reforms).

As in previous years, restructuring and insolvency activity continued to witness a decrease of failing leveraged buy-outs in 2019 (compared to the 2008–2010 and 2012–2014 rounds of restructuring). However, bankruptcy practitioners have continued to deal with a surge in sizeable and complex restructuring matters, including for listed companies.

In addition, 2019 saw the implementation of numerous total or partial sale plans in rehabilitation proceedings to transfer the business and assets of companies for which restructuring options were or proved impossible or that needed to scale down their operations (see Section IV). Turnaround funds have also been very active in this period and participated in most of these court-monitored auctions.

Recent legal developments

The 2014 Ordinance (applicable to pre-insolvency and insolvency proceedings since 1 July 2014) reformed French bankruptcy laws, with a view to favouring reorganisation at a preventive stage, strengthening the efficiency of out-of-court proceedings and increasing the rights of creditors in insolvency proceedings.

One of the main features of the 2014 reform was the introduction of pre-packaged sale plan, namely the possibility for the court-appointed agent to prepare a partial or total sale of the business in conciliation proceedings, the sale of which will ultimately be implemented in safeguard, rehabilitation or liquidation. The major purpose of such a procedure is to shorten the period during which the company is under bankruptcy proceedings so as to preserve the value of the business transferred. The first pre-packaged sale plan was implemented in June 2015 when the business and assets of NextiraOne, a spin-off of Alcatel-Lucent, were transferred (along with all of its 1,400 employees) to a purchaser only one month after the opening of rehabilitation proceedings. Later in 2015, the business and assets of Fram, a French tour operator, were also transferred through a pre-packaged sale plan.

The 2014 Ordinance also introduced a limited possibility to have a court-appointed agent vote at shareholder meetings if the insolvent company's net equity is not restored. However, some practitioners considered that in this respect, the 2014 reform missed its initial purpose, which was to allow a squeeze-out of shareholders through forced sale of their shares or forced dilution of their equity stake. Even though the enforcement of a debt-to-equity swap against dissenting shareholders when the equity has lost all value and conversion of debt is the only solution to preserve the business as a going concern is viewed as essential by most practitioners, squeeze-out provisions were not adopted in 2014, as they could be assimilated into the creation of a new right to expropriate. This created constitutional law issues, which needed further review. The 2015 Bill sought to address this issue and provided for a limited squeeze-out of the shareholders in rehabilitation proceedings (see Section II). However, such squeeze-out remains untested to our knowledge.

In addition, the 2015 Bill also purported to enhance the restructuring of 'large' companies and group companies through the creation of specialised commercial courts having jurisdiction to supervise insolvency proceedings opened against companies of a certain size or that feature multi-jurisdictional aspects; the extension of the jurisdiction of the same commercial court to group's subsidiaries or affiliates of a company under insolvency proceedings; and the obligation for the court, under certain conditions, to appoint at least two administrators and two creditors' representatives.

Most recently, the Business Growth and Transformation Bill, dated 22 May 2019, empowered the French government to extensively modify, by way of ordinance, rules mainly pertaining to the vote on the draft safeguard or rehabilitation plan by classes of creditors as well as rules relating to security interests, especially in the context of restructuring and insolvency proceedings, to transpose Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on restructuring and insolvency, paving the way for substantial reforms to be implemented in the coming years (see Section VI).

Finally, in the context of the covid-19 pandemic crisis, a certain number of exceptional but temporary measures were adopted by way of ordinance to adapt French bankruptcy law to this specific context. Those notably include the extension of legal deadlines applicable in the context of bankruptcy proceedings and the assessment of a company's financial situation by reference to its situation prior to the lockdown, so that companies becoming insolvent during this period and in the following months can still benefit from solvent restructuring proceedings (mandat ad hoc and safeguard proceedings).

Significant transactions, key developments and most active industries

As described above, the most active sectors in 2019 were the industrial, retail, food and agricultural, oil and gas, automotive and tourism sectors. Although there has been a decrease in the number of insolvency proceedings in 2019, there were still quite a few active situations on the restructuring market with a surge in the number of sizeable and complex situations, many of them being listed companies or belonging to international corporate groups such as Toys 'R' Us, the sale plan of which was implemented in 2019 as a consequence of the Chapter 11 proceedings commenced for the US entities.

In this context, the most significant French insolvency cases of 2019 include the liquidation of the paper maker Sequana and the related opening of insolvency proceedings for the French and English companies of the Arjowiggins branch as well as the liquidation of the airline company Aigle Azur and the sale in bankruptcy of the Bourbon group (shipping services) to some of its main creditors in view of implementing a massive debt restructuring.

In the retail sector, major restructurings had to be negotiated, such as the €3bn debt restructuring of Casino's parent company Rallye, implemented through safeguard proceedings, the debt restructuring of the French furniture retailer Conforama (which belongs to the Steinhoff group) implemented in conciliation proceedings or the debt restructuring of the French fashion retailer Camaïeu.