Introduction

The French insolvency system has evolved significantly to address the complexities of cross-border business operations. As a major European economy, France plays a crucial role in international business restructuring and liquidation proceedings. This comprehensive guide explores the intricacies of managing cross-border insolvency in France, providing essential insights for international business owners and legal professionals.

Legal Framework

French Insolvency Law Basics

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 designed for companies facing difficulties but not yet insolvent, providing a safeguard period for restructuring without creditor threats.

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

EU Insolvency Regulation Application

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 : 

Determination of jurisdiction for primary and secondary proceedings : The court with jurisdiction for the main proceedings is generally the one of the Member State in which the company has its centre of main interests.

Legal basis : Article 3 of Regulation (EU) 2015/848

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

Cooperation between courts and insolvency practitioners : 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.

Communication mechanisms between competent authorities

Informations exchanges between competent authorities

International Treaties and Agreements

Beyond European regulations, France is a party to several international agreements that govern cross-border collective proceedings and facilitate judicial cooperation between different countries. These treaties cover both relations with EU countries and with third countries :

  • Bilateral treaties with specific countries : These agreements aim to resolve conflicts of law in the area of collective proceedings and to establish clear rules for the mutual recognition of judicial decisions.
  • UNCITRAL Model Law on International Insolvency principles (2005) : It proposes principles to facilitate judicial cooperation between countries in cross-border insolvency cases.
    • Rules on the recognition of judicial decisions
    • Rules on judicial cooperation
    • Rules on coordination of procedures in the different states concerned
  • International protocols for judicial cooperation : They promote cooperation between courts in insolvency matters, to ensure that collective proceedings are conducted in a consistent and effective manner globally.

Cross-Border Insolvency Procedures

Main Proceedings vs. Secondary Proceedings

The distinction between primary and secondary class proceedings is essential in cross-border bankruptcy cases, particularly in the context of companies operating both in France and abroad. These proceedings are governed by the principles of territoriality and mutual recognition of judicial decisions.

  1. Main Proceedings

The main proceedings are initiated in the country where the debtor has its center of main interests (COMI). The COMI is generally located where the company has its central management and administration or its head office. 

The main proceedings have universal effects. In other words, they extend to all the assets of the company, including those located abroad. It allows for a coherent and centralised management of the proceedings and aims to restore the debtor’s financial situation globally.

Legal basis : Article 3 of EU Regulation 2015/848

  1. Secondary Proceedings

Secondary collective proceedings are opened in other countries than the one where the debtor has its COMI. They are generally initiated where there are establishments or subsidiaries in another country, where creditors or property are located in that jurisdiction. 

However, secondary proceedings are only for assets located in the country where the secondary proceedings were opened. In France, these proceedings are limited to the assets located within French territory.

Legal basis : Article 3 of EU Regulation 2015/848

  1. Coordination Mechanisms Between Different Jurisdictions

One of the main challenges of international collective proceedings is coordination between competent courts to avoid conflicts of law and ensure fair treatment of creditors. The EU Insolvency Regulation provides for mechanisms for cooperation between national courts :

  • Exchange of informations
  • Possibility of appointing collective proceedings coordinators : It refers to court administrators or joint agents.

Legal basis : Articles 41 to 44 of EU Regulation 2015/848

Recognition of Foreign Proceedings

French law recognises foreign collective proceedings within a well-defined framework. This recognition is done according to a territoriality and exequatur mechanism.

Legal basis : Articles 19 and 20 of EU Regulation 2015/848

Automatic Recognition for Procedures from EU

Collective proceedings opened in another member state of the EU are automatically recognised in France. Indeed, decisions rendered in the Member State of opening the proceedings must be recognised in all other member states. This means that when proceedings are opened in another EU Member State, their effects are generally extended to France.

Exceptions : The decisions are not recognized in cases of manifest conflict with French public policy or absence of jurisdiction. 

Exequatur of Non-European Foreign Judgments

In the case of collective proceedings from countries that are not members of the EU, the recognition of foreign judgments is done through the exequatur procedure. The French judge must ensure that the judgment has been rendered by a competent court and that it does not violate the public policy rules in force in France, in particular on bankruptcy law.

The exequatur procedure aims to verify that the foreign judgment meets the necessary conditions for recognition in France :

  • Jurisdiction of the foreign court : The foreign court must have jurisdiction according to international rules and private international law.
  • Compliance with French public order : The foreign judgment must not contradict fundamental principles of French law, such as the protection of creditors or the rights of workers.
  • No fraud : The action must not have been initiated under fraudulent circumstances to evade French laws. 

Absence of Exequatur

If the foreign judgment is not enforced in France, the foreign proceedings will have only limited effects on French territory. 

  • Protective measures on the debtor’s assets located in France : the syndicate will be able to protect the assets but will not be able to take decisions on the active management of these assets.
  • Remaining of the debtor as the master of the management of his assets located in France : the foreign proceeding will not be able to intervene in the management of the French assets, unless a secondary proceeding is opened in France.

Requirements for Evidence and Documentation

When a foreign collective judgment is recognised, French courts require the presentation of documents and evidence attesting to the validity and legality of the judgment :

  • Opening judgment of the insolvency proceedings
  • Decision to appoint the trustee or the judicial administrator
  • Evidence of jurisdiction of foreign jurisdiction
  • Official translation of the documents 
  • Attestation of compliance with public order

Restructuring Options

Available Procedures for International Businesses

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.

Preventive Procedures : Ad Hoc Mandate and Conciliation

Preventive procedures allow companies to avoid default by seeking an amicable solution with their creditors, before being forced into formal class action. These procedures are particularly suitable for companies that want to manage their financial difficulties proactively

Conciliation

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

Ad Hoc Mandate

The ad hoc mandate allows the debtor to appoint an ad hoc agent to help it find a solution to its financial difficulties, without the need for a judicial conciliator. This procedure is even more flexible than conciliation, as it does not require formal negotiation between creditors and the debtor. In other words, the ad hoc mandate is intended to facilitate informal negotiations between the debtor and its creditors.

Safeguard Proceedings : Accelerated and Traditional

Safeguard procedures are intended for companies that are experiencing difficulties that they cannot overcome on their own, but are not in default of payments. These procedures freeze creditor lawsuits and give the company time to reorganize to come up with a restructuring plan.

Accelerated Safeguard Proceedings

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

Traditional safeguard proceedings

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.

However, with the assistance of a judicial administrator, the debtor has to develop a backup plan to restructure his debts and business. The judicial administrator plays a key role in assessing the economic and social situation of the company, and in accompanying the implementation of the restructuring plan.

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

Practical Considerations

When a company decides to undertake a cross-border restructuring in France, several key elements must be taken into account to ensure the success of the process :

Timeline : Every restructuring procedure in France is subject to specific deadlines imposed by law. These deadlines are often strict and must be scrupulously respected to ensure the smooth running of the procedure.

Costs : The implementation of a cross-border restructuring involves considerable costs that may vary depending on the complexity of the procedure and the amount of the proposed restructuring.

Legal costs : court fees, expert fees, etc. 

Fees of practitioners specialised in the field : lawyers, court administrators and accountants. 

Additional costs related to coordination between different jurisdictions

Documentation requirements : Cross-border restructuring requires detailed and precise documentation.

Financial statements

Restructuring plans

Creditor information

Working with French Insolvency Practitioners

The success of insolvency proceedings in France often relies on effective collaboration with specialist local professionals. They play a crucial role in the management, supervision and restructuring of companies in difficulty.

Court-appointed administrators (administrateur judiciaire) 

The court administrator is an agent of justice appointed by the court for safeguarding, judicial redress, and judicial liquidation proceedings. He is responsible for administering the property of others or for assisting or supervising the management of such property.

The duties of the Judicial Administrator depends of the procedure : 

Observation period : The administrator performs various functions.

Necessary precautionary measures

Assistance in the management of pending contracts

Request for conversion of the safeguard procedure into judicial redress or for judicial liquidation. 

Preparation of an economic and social balance sheet of the company

Safeguard proceedings : The administrator supervises or assists the debtor in the management of the business.

Judicial redress : The administrator can either assist the manager in the management of the company or take charge, totally or partially, of the management of the business, in particular in the event of default of the manager.

Legal basis : Articles L.621-4, L.811-1 to L.811-16 and R.811-1 to R.811-59 of Commercial Code

Judicial Representative (mandataire judiciaire)

The judicial representative is a court agent appointed by the court to represent creditors and manage the liquidation of the company. The tasks of the judicial representative are the following :

  • Liability verification : He receives statements from creditors, lists claims and proposes admission or rejection of claims. This plays a key role in assessing the company’s liabilities.
  • Representation of creditors : The court agent acts exclusively in the interests of creditors collectively. He is prohibited from defending the interests of a specific creditor or group of creditors on his behalf, which guarantees his impartial and collective role.

Legal basis : Articles L. 621-4, L.622-20 and L.812-1 to L.812-16, R.812-1 to R.812-23 of Commercial Code

Legal Counsel Specializing in Cross-Border Insolvency

Cross-border insolvency lawyers play a critical role in managing insolvency proceedings involving companies operating internationally or having creditors and partners in multiple jurisdictions :

  • Strategic and legal advice : They advise companies on how to manage the various procedures in France and the other jurisdictions involved and the best strategy for debt restructuring to follow. 
  • Inter-jurisdictional coordination : They ensure coordination between courts and lawyers in other jurisdictions, especially in cases where companies are present in several countries. 

Conclusion

Cross-border insolvency in France requires careful navigation of both domestic and international legal frameworks. Understanding the available procedures, working effectively with local practitioners, and maintaining clear communication with all stakeholders are essential for successful outcomes.

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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