The ordinance essentially amends the Commercial Code. These changes affect all the procedures and tend to strengthen the mechanisms for preventing difficulties (I), collective procedures (II) and the creation of a professional recovery procedure (III).
The ordinance will enter into force on July 1 , 2014 and will apply to proceedings initiated from that date.
Download our newsletter n° 3 – insolvency proceedings reform
I. Provisions aimed at strengthening the mechanism for preventing difficulties
(i) The alert mechanism is extended to legal entities governed by private law and to natural persons exercising an agricultural or self-employed professional activity, including a liberal profession subject to a legislative or regulatory status or whose title is protected.
This procedure takes place before the High Court. To this end, the president of the court has the same powers as the president of the commercial court. When the activity in question is that of an auxiliary of justice, the president of the court must inform the professional order concerned or the competent authority but cannot summon the person concerned or exercise his powers of investigation.
(ii) The ordinance increases the powers of the president of the court in matters of prevention in order to enable him to obtain information on the debtor's economic situation not only from banking and financial establishments but also from auditors, experts accountants, notaries, members and representatives of staff, public administrations and bodies, social security and provident bodies, credit institutions, financing companies, electronic money institutions, payment institutions as well as departments responsible for centralizing banking risks and payment incidents.
(iii) The order tends to improve the efficiency of the conciliation procedure. The order makes it possible to prepare the transfer of the company at the stage of the conciliation procedure. Thus, at the request of the debtor and after obtaining the opinion of the creditors, the conciliator can organize a partial or total assignment which may be implemented within the framework of a subsequent safeguard, reorganization or judicial liquidation procedure.
In addition, in order to avoid increasing the financial burden on the debtor, it is provided that interest due on receivables cannot produce interest. During the conciliation, the judge will have the possibility of granting payment deadlines, including when the formal notice has not been given during the procedure. The duration of these periods may be subject to the actual conclusion of the agreement. During the execution of the agreement, the judge can grant delays taking into account the conditions of execution of the agreement.
(iv) The ordinance provides that any clause which modifies, to the detriment of the debtor, the conditions for the continuation of a contract, or imposes exclusively on the latter the financial burden of the intervention of advice, solely because of the appointment of an ad hoc agent, the opening of a conciliation procedure or a request made for this purpose, is deemed not to be in writing .
II. Amendments relating to collective proceedings (safeguard, receivership and judicial liquidation)
A. Modifications common to the three procedures
- Concerning the obligations of the debtor in the event of legal proceedings in progress when the collective proceedings are opened:
The order provides that the debtor must inform the pursuing creditor of the opening of the collective proceedings within 10 days of this opening. Failing this, and if he has knowingly omitted this information, the debtor may have a ban imposed on him to manage in the context of receivership or judicial liquidation.
- Regarding the declaration of claim regime:
The ordinance makes various changes to the declaration of claim system.
The creditor may ratify the declaration made in his name until the judge rules on the admission of the claim. When the debtor has brought a claim to the knowledge of the legal representative, he is presumed to have acted on behalf of the creditor as long as the latter has not sent the declaration of claim. Subsequently, this declaration may become null and void if the judge has not ruled on its admission.
The interruptive effect of prescription of the declaration of claim is enshrined in an article, which also provides that the declaration dispenses with any formal notice and constitutes an act of prosecution.
The foreclosure statement regime has undergone several important changes. First of all, when the creditor submits a request for a statement of foreclosure, he is now only required to demonstrate a simple omission of his claim on the list of claims.
In addition, the period within which the statement of foreclosure can be formed by the creditor in the impossibility of knowing the obligation of the debtor is lowered from one year to six months but from the date on which he could not be unaware of the existence of his claim.
Once the statement of foreclosure has been obtained, the time limit for declaring the debt runs from the date of the decision, but it is reduced by half.
The lack of response for more than 30 days from a creditor informed by the agent of a contestation of his claim prohibits any subsequent contestation unless the discussion relates to the regularity of the declaration of claims.
- Concerning the procedure for verifying and admitting claims:
The order obliges the debtor to present his observations within a time limit set by decree, failing which he cannot issue any dispute on the agent's proposal. In order to speed up the progress of the procedure, the supervising judge is granted jurisdiction to rule on a plea against the application for admission that is not based on a serious dispute.
- Regarding the development of the backup plan:
The ordinance gives jurisdiction to the court to authorize, after consulting the public prosecutor, the sale of the company for the benefit of the de jure or de facto managers by a specially reasoned judgment.
In the event of a capital increase 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 changes made by the ordinance are mainly aimed at reducing the duration of the procedure. To this end, the conditions for opening the procedure require the debtor to have obtained the opening of a conciliation procedure and drawn up a draft plan likely to garner broad support from the creditors. The suspension of payment is not however an obstacle to the opening of the procedure as long as this is not prior to the request for conciliation by more than forty-five days.
Once the procedure has been opened, the court must decide on a safeguard plan within three months, failing which, the procedure is terminated. This procedure has no effect on all creditors and cannot lead to the imposition of uniform payment terms.
B. Modifications to the legal reorganization and liquidation regime
- Regarding the automatic referral:
Automatic referral to the court is abolished. From now on, the president of the court can only inform the public prosecutor of the existence of facts tending to justify the opening of a procedure so that the latter seizes the court of a request for opening.
- Regarding the recovery procedure:
The order provides that the court may only order the partial or total sale of the business if the proposed continuation plan(s) appear manifestly incapable of allowing recovery or in the absence of a plan
- Regarding the liquidation procedure:
The ordinance provides that the payment of debts arising after the judgment opening or pronouncing judicial liquidation must be made on their due date if they arise, in execution of a contract in progress decided by the liquidator.
It also provides that when the judgment does not result in the assignment of a contract for lease, leasing or the supply of goods or services, the co-contracting party may request its termination, if performance is not requested by the liquidator.
Finally, from July 1 , 2014, a judicial liquidation procedure may be closed despite the existence of proceedings in progress or when the interest of this pursuit is disproportionate to the difficulties of realizing the residual assets.
III. Creation of a new procedure: professional recovery
Professional recovery is a procedure inspired by the over-indebtedness procedure in consumer law which is intended to apply to the debtor, a natural person.
With conditions
The opening of this procedure is subject to the fulfillment of six conditions:
- the debtor should not be subject to collective proceedings
- the debtor must not have employed an employee in the last six months
- the declared asset must have a value lower than an amount fixed by decree in Council of State.
- the debtor must not have allocated to the professional activity in difficulty assets separate from his personal assets pursuant to Article L. 526-6.
- the debtor must not be in labor court proceedings
- the debtor must not have been the subject for less than five years, in respect of any of his assets, of a judicial liquidation procedure closed for lack of assets or of a decision to close a professional recovery process.
B. Modalities of the proceedings
The debtor may request, by the same act, the opening of proceedings for judicial liquidation and professional reinstatement.
The procedure is open for a period of four months.
A commissioned judge is appointed when the proceedings are opened. This judge is vested with the same powers as the judge-commissioner in the context of a safeguard procedure in order to collect information on the debtor's financial situation. The assigned judge is assisted by a legal representative. This agent can perform all the acts necessary to preserve the rights of the debtor. The agent informs the creditors of the opening of this procedure and invites them to communicate to him within two months of receipt of this notice, the amount of their claim with an indication of the sums due and the due date.
Effects of the procedure
The closure of the professional recovery procedure entails the cancellation of the debts with regard to the creditors whose claim arose prior to the judgment opening the procedure, was brought to the attention of the judge appointed by the debtor and made the purpose of the information provided.
All claims and in particular wage and food claims cannot be erased.
