France

A look at corporate, personal and, where relevant, partnership insolvency proceedings in France, with a brief description to explain key features, as part of our Dictionary of Insolvency Terms in EU Member States. In particular, we highlight who controls the procedure and whether it is likely to be accompanied by a moratorium to prevent enforcement.


Mandat ad hoc

Preventive composition with creditors – Ad hoc proceedings

  • An out-of-court procedure opened by the President of the Court at the request of the debtor’s legal representative for a debtor experiencing legal, economic or financial difficulties but which is cash flow solvent.
  • A mandataire ad hoc – insolvency practitioner – is appointed in order to assist negotiations with the debtor’s principal creditors but the debtor maintains full control of its assets. The debtor must cooperate with the mandataire ad hoc and the major creditors to negotiate a solution to its difficulties.
  • Major creditors are invited to consider debt rescheduling and/or cancellation and/or an injection of new money. In addition, the main shareholders can be invited to negotiate and potentially re-capitalise the company.
  • A debt restructuring agreement accepted by some creditors cannot be imposed on other dissenting creditors, as the process is consensual and no cram-downs can be imposed.
  • There is no stay on enforcement proceedings on the opening of ad hoc proceedings. However, management can apply for a moratorium (for a maximum of two years) if creditors attempt to enforce their rights while ad hoc proceedings are pending. Mandat ad hoc is fully confidential.

Conciliation

Preventive composition with creditors - Conciliation

  • An out-of-court procedure opened at the request of the debtor’s legal representative. The debtor must face legal, economic or financial difficulties, and not be cash flow insolvent for more than 45 days.
  • A conciliateur is appointed by the court for five months with a view to reaching an agreement between the debtor and its main creditors: (i) to put an end to the debtor’s difficulties; and/or (ii) to prepare a plan for the sale of the business via safeguard proceedings, a pre-pack or judicial reorganisation.
  • Conciliation is not an insolvency proceeding and remains confidential provided that the agreement reached by the debtor and its creditors is not judicially sanctioned by the court. A restructuring plan accepted by some creditors cannot be imposed on others unless accelerated financial safeguard or accelerated safeguard proceedings are opened.
  • The debtor remains in control of its assets. There is no freezing effect and the opening of conciliation proceedings does not trigger an automatic stay on creditor enforcement action. However, the judge may issue a debt deferral for up to two years against certain creditors. The debtor may also, in case of refusal of the creditor following a waiver request submitted by the conciliator, ask for the suspension of payments in respect of that creditor’s outstanding claims during the conciliation proceeding.
  • Parties to the agreement, once fully sanctioned or recognised by the court, are barred from initiating legal proceedings against the debtor.

Sauvegarde

Preventive debt and business restructuring procedure – Safeguard proceedings

  • A court-supervised procedure to alleviate a debtor’s financial difficulties. It is opened at the sole request of a debtor’s representative and is only available to cash flow solvent debtors experiencing difficulties that cannot be overcome.
  • Immediately following a judgment opening safeguard proceedings, an observation period starts for six months, renewable once for a further six months (a total of 12 months).
  • The observation period imposes an automatic stay on all actions against the debtor and the debtor is prevented from making payments of pre-procedure claims.
  • An administrateur judiciaire is appointed by the court who supervises and/or assists the debtor or its management, who remain in control of the company and its assets.
  • The court also appoints a mandataire judiciaire (creditors’ representative) to represent creditors’ interests and assess proofs of claim and a juge-commissaire (supervisory judge) who supervises the proceedings.
  • The debtor and administrator will prepare a plan de sauvegarde during the observation period. The content of the plan is flexible (rescheduling of debt, write-offs, debt for equity swap) and voted on by a creditors’ committee or creditors generally.
  • If the debtor fails to comply with the terms of the plan or becomes cash flow insolvent, the court may open either a redressement judiciaire procedure if rescue remains possible or a liquidation judiciaire procedure if rescue is manifestly impossible.

Sauvegarde accélérée

Accelerated debt and business restructuring procedure (pre-pack plan)

  • A court-supervised procedure that can be opened at the sole request of the debtor provided it has not been cash flow insolvent for more than 45 days prior to the request to open a conciliation procedure that preceded it.
  • The debtor remains in control of its assets.
  • Intended to facilitate the negotiation of a pre-packaged plan with the ability to cram-down dissenting minority creditors through the votes of classes of creditors.
  • Available to debtors that:
    • have previously been subject to a conciliation procedure; and
    • have drawn up a restructuring plan aimed at ensuring the sustainability of their business which is likely to be approved by at least a two-thirds majority of the votes of creditors (who will vote in creditor classes implemented by the appointed trustee) to enable the plan to be adopted within four months following the judgment opening the procedure.
  • Imposes a stay on creditor enforcement action limited to four months from the date of the judgment opening the procedure.

Redressement judiciaire

Judicial reorganisation

  • An insolvency procedure available only for debtors that are cash flow insolvent.
  • Court-supervised, intended to safeguard the debtor’s activities and prospects of recovery. It can be commenced at the request of either the debtor’s legal representative, any creditor or the public prosecutor.
  • A mandataire judiciaire is appointed by the court to represent creditors’ interests and deal with creditors’ claims.
  • The court also appoints an administrateur judiciaire who manages the debtor’s assets and, in the case of a company, might either supervise the company, assist the directors in all or some management decisions, or be authorised to take over the management and the control of the company.

Liquidation judiciaire

Judicial liquidation / bankruptcy proceedings

  • A court-supervised procedure for debtors that are cash flow insolvent and where rescue is manifestly impossible.
  • Can be opened at the request of the debtor, any creditor or the public prosecutor.
  • The judgment opening the procedure starts an automatic moratorium and all enforcement actions against the debtor are stayed.
  • The court appoints a liquidateur judiciaire whose task is to conclude the debtor’s business activities and sell its assets.
  • Where the debtor is a company, its directors lose all powers of management and in all other cases the debtor loses all rights to dispose of its assets.
  • The judgment opening the redressement judiciaire starts an observation period of six months during which an automatic stay on creditor enforcement action prevents creditors from taking action against the debtor and the debtor is prevented from making payments to any creditor in respect of claims arising before the opening of the insolvency proceedings.

EU Directive Implementation

The EU Directive on Restructuring and Insolvency1 requires Member States to incorporate minimum common standards into their national restructuring and insolvency laws by 17 July 2021, with an option to extend that deadline by one year. The intention of the Directive is to reduce barriers to the free flow of capital stemming from differences in Member States’ restructuring and insolvency frameworks, and to enhance the rescue culture in the EU.

Notable features required to be included in Member States’ national laws include:

  • An effective preventive restructuring framework to enable debtors experiencing financial difficulties to restructure at an early stage, with a view to preventing insolvency and ensuring their viability.
  • A stay of up to four months extendable to up to 12 months to support negotiations of a restructuring proposal, which should prevent individual enforcement action and include rules preventing the withholding of performance, termination, acceleration or modification of essential contracts.
  • An ability to cram down dissenting classes of creditors.
  • Adequate protection for financing needed to allow the business to survive or to preserve the value of the business pending a restructuring, and for new financing necessary to implement a restructuring plan.
  • Provision for honest, insolvent entrepreneurs to have access to a procedure that can lead to a full discharge of their debts (subject to limited exceptions) within three years.

Implementation in France

France has adopted the reform of restructuring and insolvency law by Ordinance 2021-1193 of September 15, 2021, which transposes into French law the European directive on preventive restructuring frameworks, and applies to proceedings opened as of October 1, 2021.

Key points:

  • certain preventive mechanisms in conciliation proceedings are strengthened (eg. Possibility to get an automatic stay during the proceeding (cf. above);
  • a new accelerated safeguard procedure is introduced to serve as a key procedure for the implementation of the law;
  • the Ordinance introduces classes of affected parties and the application of cross-class cramdowns mechanism; and
  • a "post-money" privilege (which was created as a temporary measure in the context of the pandemic crisis) is extended indefinitely. This privilege benefits claims arising from (i) a cash contribution to the debtor during the observation period, authorised by the supervisory judge’s, or (ii) the implementation of the safeguard or reorganisation plan adopted by the court; or (iii) a modification of the plan, adopted by the court.

Recognition of foreign insolvency processes

EU Regulation on Insolvency Proceedings

The EU Regulation on Insolvency Proceedings2  applies to all EU Member States except Denmark and requires that certain collective insolvency proceedings, which are listed in Annex A to the Regulation, occurring in one EU Member State are automatically recognised in all other EU Member States and that each EU Member State automatically recognises the powers and authority of an insolvency practitioner appointed in another EU Member State.

Recognition of third country insolvency processes

The recognition of a foreign decision in France (Procedure d’exequatur) renders this decision enforceable in France.

The recognition process is subject to three conditions:

  • Jurisdiction of the foreign court: this means that the court having rendered the decision must be sufficiently linked to the case and that a French court did not have exclusive jurisdiction;
  • conformity of the foreign decision to the French public policy rules: these rules could be defined as the fundamental principles of the domestic law; and
  • lack of any fraud: such a fraud could result from the intention to avoid French law by requesting a foreign judge to give a decision that could not have been rendered under French law.

Insolvency changes in response to COVID-19

For more information on changes to insolvency law in France as a result of the COVID-19 pandemic please see our Guide to changes in insolvency law in response to COVID-19.

Law stated as at 21 September 2021.

Contact: Caroline Texier, Partner, Paris


1 Directive (EU) 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132.
2 Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (recast).