Understanding the legal framework for company liquidation and reorganisation in France is crucial for businesses operating in the French market. This comprehensive guide explores the key aspects of French insolvency law, liquidator appointment procedures, and company winding up processes.

Legal Framework for Company Liquidation

The French insolvency framework is primarily governed by the Commercial Code (Code de Commerce) and has undergone significant reforms to enhance its efficiency and flexibility. The system provides various procedures for companies facing financial difficulties.

Key Legislation and Regulations

French insolvency law is mainly governed by the Commercial Code, which establishes a structured legal framework for dealing with financial difficulties of companies, whether domestic or international. This framework is based on three main procedures designed to allow the company in difficulty to either rectify, reorganize, or liquidate its assets :

Safeguard proceedings (procédure de sauvegarde) : It is specifically designed for companies that are experiencing difficulties but are not yet in default – that is, not in a state of insolvency. The main objective is to offer the company a safeguard period during which it can restructure its business without being threatened by its creditors.

Resumption of economic activity

Maintenance of employment

Clearing of liabilities (payment of debts)

Legal basis : Article L.620-1 of Commercial Code

Rehabilitation proceedings (redressement judiciaire) : It applies to companies in default of payments – those that can no longer meet their debts with their available resources. It is an economic recovery procedure that aims to preserve business activity and jobs, while clearing debts where possible.

Restructuring plan (rescheduling debts, etc.)

Selling the company to a receiver.

Legal basis : Article L.631-1 of Commercial Code

Liquidation proceedings (liquidation judiciaire) : It occurs when the company’s financial position is irreversible, and it is clear that its turnaround is impossible. It marks the end of the company’s business and consists of the sale of its assets to repay creditors where possible.

Sale of the company’s assets 

Transfer of the company’s assets to pay debts

Legal basis : Article L.640-1 of Commercial Code

Liquidator Appointment Process

The appointment of a liquidator is a crucial step in the French insolvency process. This professional plays a vital role in managing the company’s assets and ensuring fair distribution to creditors.

Qualification Requirements

Judicial liquidators in France play a key role in collective proceedings and must meet strict professional criteria to guarantee their competence and impartiality :

  • Professional certification and registration with relevant authorities : They have to be registered on the national list of judicial agents maintained by the National Council of Judicial Administrators and Judicial Agents (CNAJMJ). This registration requires obtaining a specific diploma and passing a national aptitude test.
  • Extensive experience in insolvency proceedings : Liquidators should have in-depth knowledge of collective proceedings and be familiar with the financial, legal and administrative aspects of bankruptcy matters.
  • Independence from all parties involved : They must be independent of all parties involved to ensure fair management of the interests at stake.

For further information, you can refer to the official website of CNAJMJ.

Role and Responsibilities

A court liquidator acts as an impartial representative of creditors while managing the debtor’s assets. Its main responsibilities include:

  • Asset inventory and valuation : The liquidator makes a detailed inventory of the assets of the bankrupt company. This assessment makes it possible to estimate the value of the assets to be redistributed.
  • Creditor claim assessment : He analyses creditor statements to determine the validity and rank of claims.
  • Asset disposal management : The liquidator arranges the sale of the debtor’s assets, respecting transparency rules and legal priorities. He can sell individual assets or arrange a wholesale disposal of the business to maximise recoverable value.
  • Distribution of proceeds according to legal priority : The liquidator distributes funds to creditors according to the hierarchy of claims.

Reorganisation Procedures

International companies facing financial difficulties can resort to several restructuring procedures under French law. These procedures aim to preserve their business, maintain employment, and organise the restructuring of their liabilities while avoiding immediate liquidation. Depending on the situation of the company, different options are available.

Conciliation Procedure

The conciliation procedure allows a debtor, under the supervision of a conciliator appointed by the president of the court, to negotiate an agreement with its creditors in order to overcome its financial difficulties. The main objective of this procedure is to find a compromise that will prevent the company’s insolvency and preserve its business :

  • Application : The debtor must apply to the commercial or judicial court to be allowed to do a conciliation procedure. 
  • Appointment by the judicial court of a conciliator (maximum period of 4 months) : The conciliator facilitates negotiations between the debtor and its main creditors to reach an agreement to resolve the company’s economic difficulties.
  • Amicable agreement : The court can certify the agreement and give it enforceable force at the request of the parties or approve the agreement.

During its execution, the agreement forbids any legal action or individual lawsuit to obtain payment from the affected creditors. In return, the deadlines for creditors who are parties to the agreement are also suspended.

Legal basis : Articles L.611-4 et seq. and R.611-22 et seq. of Commercial Code

Accelerated Financial Safeguard 

The accelerated safeguard procedure is a specific measure for companies that have already started conciliation proceedings and are able to present a restructuring plan supported by the majority of their creditors.

The conditions of eligibility are the following :

  • Mandatory pre-conciliation : It can only be opened if the company is already engaged in a conciliation procedure that has failed. It is an extension of the conciliation to resolve the blockages caused by the refusal of one or more recalcitrant creditors.
  • Support from creditors : The company must have developed a draft backup plan to ensure the sustainability of the company. This plan must have sufficient support from creditors to be viable and likely to be adopted.

The initial duration of the procedure is 2 months from the opening judgment, and it may be extended only once for a maximum period of 4 months.

Legal basis : Articles L.628-1 et seq. and R.628-1 et seq. of Commercial Code

Safeguard Procedure

The traditional safeguard procedure is for companies facing difficulties that they cannot overcome on their own but which are not in a state of insolvency. This procedure allows the company to reorganize in order to preserve its business and employment and to settle its liabilities.

There is three conditions to open a safeguard procedure :

  • No default :  The company must be able to meet its receivables with its available assets.
  • Existence of serious difficulties : The company must justify difficulties that it is unable to overcome. 
  • Debtor’s initiative : The request for the opening of safeguard proceedings can only be made by the company itself (the debtor). Creditors cannot apply for this procedure on their behalf. 
  • Opening judgement : The court makes its decision as soon as it has the necessary evidence.

Once the proceedings open, any action by creditors before the judgment is suspended and any action by creditors after the judgment can only be brought under certain specific conditions. The procedure provides protection to the debtor.

With the judicial administrator’s assistance, the debtor must develop a backup plan to restructure debts and business, while the administrator assesses the company’s situation and supports the restructuring plan’s implementation.

Legal basis : Articles L.610-1 and L.620-1 to L.627-4 of Commercial Code

Creditor Rights and Obligations

Understanding the rights and obligations of creditors is essential to navigating collective proceedings in France. French law sets out strict rules regarding the hierarchy of claims, the specific protections granted to certain categories of creditors, and their obligations to participate in the proceedings.

Priority Order

The distribution of the debtor’s assets follows a precise hierarchy, aimed at protecting creditors according to their status and the collateral associated with their claims. This hierarchy is essential for understanding priorities in liquidation or reorganization proceedings.

Employee claims and wages :

Wages, allowances and other entitlements owned by employees benefit from a super-privilege. 

  • These claims include wages and allowances for a period of 60 days prior to the commencement of the proceedings. 
  • They are covered through the intervention of the Association for the Management of the Employees’ Claims Guarantee Plan (AGS).

Court costs and administrative expenses : These costs and expenses are given special priority because they are essential to the proper conduct of the proceedings.

  • These claims are linked to the costs generated by the class action itself : fees of administrators or court liquidators. 

Secured creditors 

  • Creditors with a security interest : They have priority after legal costs. Their rank is determined by the nature and date of registration of their security interest.
  • Tax and social creditors : They benefit from a legal privilege that gives them priority in the distribution of assets, although they are classified after wage receivables.

Unsecured creditors :

They receive a portion of the remaining assets once the priority claims have been fully honored. These creditors typically suffer the largest losses in a class action.

International Aspects

Cross-border insolvency cases in France are governed by both national law and EU regulations, particularly the European Insolvency Regulation (recast).

EU Regulations

French legislation on collective proceedings is part of a broader framework. Indeed, France applies Regulation (EU) 2015/848 on cross-border insolvency cases within the European Union. It aims to increase the efficiency of collective proceedings in Europe while ensuring a certain harmonisation of the rules between member states : 

Protection of foreign creditor

Main proceedings : All creditors, whatever their nationality, may assert their rights in the main proceedings.

Secondary proceedings : Local creditors may have separate proceedings to protect their interests in the State where the assets are located but without prejudice to creditors involved in the main proceedings.

Recognition of foreign proceedings : Collective proceedings opened in one Member State are automatically recognised in all other Member States without the need for exequatur proceedings.

Coordination between jurisdictions : A close cooperation between national courts and insolvency practitioners, such as administrators and liquidators, are encouraged to ensure the smooth running of cross-border collective proceedings.

Exchange of information on the status of proceedings and important decisions.

Mutual consultation to coordinate the actions taken by the different actors.

Simplification measures to avoid duplication or contradictory decisions.

Practical Recommendations

For businesses considering liquidation or reorganisation in France, consider these essential steps:

  1. Seek early professional advice when financial difficulties arise
  2. Maintain detailed financial records and documentation
  3. Understand the timeline and costs involved
  4. Consider alternative solutions before formal proceedings

Conclusion

Successfully navigating French liquidation and reorganisation procedures requires a thorough understanding of the legal framework and careful preparation. Working with qualified professionals and maintaining clear communication with all stakeholders are essential for achieving the best possible outcome.

For more detailed information about specific aspects of French insolvency law, consult with a qualified legal professional or visit the official French government business portal.

Harley Miller Law Firm ”HMLF”

Head office: 14th floor, HM Tower Building, 421 Nguyen Thi Minh Khai, Ward 05, District 3, Ho Chi Minh City.

Phone number: +84 937215585

Email : [email protected]

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