The ordinance essentially modifies the Commercial Code. These modifications affect all procedures and aim to strengthen the mechanisms for preventing difficulties (I), collective procedures (II) as well as the creation of a professional rehabilitation procedure (III).
The order will come into force on 1 , 2014 and will be applicable to proceedings opened from that date.
Download our newsletter no. 3 – reform of insolvency proceedings
I. Provisions aimed at strengthening the mechanism for preventing difficulties
(i) The alert mechanism is extended to private legal persons and natural persons engaged in agricultural or independent professional activity, including a liberal profession subject to a legislative or regulatory status or whose title is protected.
This procedure takes place before the regional court. For this purpose, the presiding judge of the court has the same powers as the president of the commercial court. When the activity in question is that of a legal professional, the presiding judge must inform the relevant professional body or the competent authority but may not summon the person concerned or exercise their investigative powers.
(ii) The order increases the powers of the president of the court in matters of prevention in order to enable him to obtain information on the economic situation of the debtor not only from banking and financial institutions but also from auditors, accountants, notaries, members and representatives of staff, public administrations and bodies, social security and welfare bodies, credit institutions, financing companies, electronic money institutions, payment institutions as well as services responsible for centralizing banking risks and payment incidents.
(iii) The order aims to improve the efficiency of the conciliation procedure. The order allows for the preparation of the sale of the business at the conciliation stage. Thus, at the debtor's request and after consulting the creditors, the conciliator can organize a partial or total sale, which can then be implemented within the framework of subsequent safeguard, reorganization, or liquidation proceedings.
Furthermore, to avoid increasing the financial burden on the debtor, it is stipulated that accrued interest on debts cannot generate further interest. During the conciliation process, the judge may grant payment extensions, even if a formal demand for payment was not issued during the proceedings. The duration of these extensions may be contingent upon the actual conclusion of the agreement. During the execution of the agreement, the judge may grant extensions, taking into account the conditions of its implementation.
(iv) The order provides that any clause which modifies, to the detriment of the debtor, the conditions for the continuation of a contract, or places the financial burden of the intervention of counsel exclusively on the debtor, solely by virtue of the appointment of an ad hoc agent, the opening of a conciliation procedure or a request made for this purpose, is deemed unwritten .
II. Amendments relating to collective procedures (safeguard, receivership and liquidation)
A. Modifications common to all three procedures
- Regarding the debtor's obligations in the event of ongoing legal proceedings at the time the insolvency proceedings are initiated:
The order stipulates that the debtor must inform the creditor initiating the proceedings of the commencement of insolvency proceedings within 10 days of such commencement. Failure to do so, and if the debtor knowingly omitted to provide this information, may result in the debtor being barred from managing a business in the context of a reorganization or liquidation proceeding.
- Regarding the procedure for filing a proof of claim:
The ordinance makes various changes to the system of filing claims.
The creditor may ratify the declaration made in their name until the judge rules on the admissibility of the claim. When the debtor has notified the court-appointed administrator of a claim, they are presumed to have acted on behalf of the creditor until the latter has filed the declaration of claim. Subsequently, this declaration may lapse if the judge has not ruled on its admissibility.
The interruption of the statute of limitations effect of the declaration of claim is enshrined in an article, which further provides that the declaration dispenses with any formal notice and constitutes an act of prosecution.
The regime for relief from forfeiture has undergone several important changes. First, when a creditor files an application for relief from forfeiture, they are now only required to demonstrate a simple omission of their claim from the list of claims.
Furthermore, the period within which relief from forfeiture can be filed by the creditor who was unable to know the debtor's obligation is reduced from one year to six months, but from the date on which he could not ignore the existence of his claim.
Once the release of forfeiture has been obtained, the period for declaring the claim runs from the date of the decision, but it is reduced by half.
Failure by a creditor to respond for more than 30 days after being informed by the agent of a dispute concerning their claim prohibits any further dispute unless the discussion concerns the regularity of the declaration of claims.
- Regarding the procedure for verifying and admitting claims:
The order requires the debtor to submit observations within a timeframe set by decree, failing which they will be unable to contest the trustee's proposal. To expedite the proceedings, the supervising judge is granted jurisdiction to rule on any objection to the application for admission that is not based on a serious dispute.
- Regarding the development of the safeguard plan:
The order gives the court jurisdiction to authorize, after consultation with the public prosecutor, the transfer of the company to the de jure or de facto managers by a specially reasoned judgment.
In the event of an increase in the capital of a company in safeguard proceedings, the partners or shareholders may benefit from compensation up to the amount of their admitted claims and within the limit of the reduction to which they are subject in the plan.
- Regarding the accelerated backup procedure:
The amendments introduced by the ordinance are primarily aimed at reducing the length of the proceedings. To this end, the conditions for initiating the proceedings require, in particular, that the debtor have obtained the opening of conciliation proceedings and developed a draft plan likely to garner broad support from creditors. However, cessation of payments is not an obstacle to initiating the proceedings as long as it does not precede the request for conciliation by more than forty-five days.
Once the proceedings are initiated, the court must approve a safeguard plan within three months; otherwise, the proceedings are terminated. These proceedings do not affect all creditors and cannot lead to the imposition of uniform payment deadlines.
B. Amendments to the reorganization and judicial liquidation regime
- Regarding the referral ex officio:
The court's power to initiate proceedings on its own motion is abolished. From now on, the president of the court can only inform the public prosecutor of the existence of facts that tend to justify the opening of proceedings so that the latter can then submit a request to the court for their initiation.
- Regarding the recovery procedure:
The order stipulates that the court may only order the partial or total sale of the business if the proposed continuation plan(s) appear manifestly incapable of enabling recovery, or in the absence of a plan
- Regarding the liquidation procedure:
The order provides that the payment of debts arising after the judgment which opens or pronounces the judicial liquidation must be made on their due date if they arose, in execution of a contract in progress decided by the liquidator.
It also provides that when the judgment does not entail the assignment of a lease, finance lease or supply contract for goods or services, the co-contractor may request its termination, if execution is not requested by the liquidator.
Finally, from July 1, 2014 , a judicial liquidation procedure may be closed despite the existence of ongoing proceedings or when the interest of this continuation is disproportionate to the difficulties of realizing the residual assets.
III. Creation of a new procedure: professional rehabilitation
Professional rehabilitation is a procedure inspired by the over-indebtedness procedure in consumer law which is intended to apply to the debtor, a natural person.
A. Conditions
The initiation of this procedure is subject to compliance with six conditions:
- the debtor must not be subject to insolvency proceedings
- the debtor must not have employed any employees during the last six months
- the declared asset must have a value less than an amount set by decree in the Council of State.
- the debtor must not have allocated to the struggling business assets separate from his personal assets in accordance with article L. 526-6.
- the debtor must not be involved in any employment tribunal proceedings
- the debtor must not have been subject, for less than five years, in respect of any of his assets, to a judicial liquidation procedure closed due to insufficient assets or to a decision to close a professional rehabilitation procedure.
B. Procedure details
The debtor may, in the same act, request the opening of a judicial liquidation and professional rehabilitation procedure.
The procedure is open for a period of four months.
A judge is appointed at the start of the proceedings. This judge has the same powers as the supervising judge in safeguard proceedings to gather information on the debtor's financial situation. The judge is assisted by a court-appointed administrator. This administrator can take all necessary steps to preserve the debtor's rights. The administrator informs the creditors of the start of these proceedings and invites them to submit, within two months of receiving this notification, the amount of their claims, including any amounts not yet due and the due dates.
Effects of the procedure
The closure of the professional rehabilitation procedure results in the cancellation of debts owed to creditors whose claim, arising prior to the judgment opening the procedure, was brought to the attention of the judge appointed by the debtor and was the subject of the required information.
Not all debts, and in particular wage and alimony debts, can be erased.
