Ordinance 2021-1193 of September 15, 2021, issued pursuant to the Pacte Law and reforming Book VI of the Commercial Code, pursues a threefold objective:
- Transpose Directive 2019/1023 of 20 June 2019, known as the "Restructuring and Insolvency"
- Coordinate and adapt the provisions of insolvency law to the reform of security law brought about by Ordinance 2021-1192 of September 15, 2021
- To make permanent certain prevention and treatment measures for difficulties introduced by the "Covid ordinances" (ordinances 2020-341 of March 27, 2020 and 2020-596 of May 20, 2020)
It enters into force on October 1 , 2021 and is not applicable to ongoing proceedings .
Prevention
Detecting difficulties
The order introduces two changes relating to the powers of the president of the commercial court:
- The possibility of obtaining information that would provide an accurate picture of the debtor's situation, as soon as the summons to the manager is sent , and not only after the meeting with the manager. (Article L.611-2 of the French Commercial Code)
- The possibility of adopting immediate measures when it appears that the urgency requires it and that the manager refuses to do so or is considering insufficient measures, after having been informed by the auditor.
Reconciliation
The judge is now entitled, in the event of a simple refusal by a creditor of the conciliator's request, to suspend the enforceability of the debt and to grant payment deferrals/extensions under the conditions of , within the limit, for debts not yet due, of the duration of the conciliator's mission. of the Commercial Code )
The lapse and termination "do not render ineffective the clauses whose purpose is to organize their consequences."
The classes and the adoption of the plans
- A major innovation of the ordinance is that it replaces "creditors' committees" with "classes of creditors" and/or " classes of affected parties ".
- Whereas creditor committees grouped creditors by category (financial, etc.), classes are designed to group creditors who, by the nature of their claim, take comparable risks.
Constitution
- In accelerated backup mode, their implementation is mandatory. ( French Commercial Code, art. L. 628-4 amended )
- In safeguard or receivership proceedings, it depends either on thresholds reached by the company and assessed on the date of the request to open the procedure (250 employees and 20 million euros of turnover or 40 million euros of net turnover [single criterion]) or on thresholds reached by the group (the figures being then consolidated).
- Optionally, below the aforementioned thresholds, at the request of the debtor with the authorization of the supervising judge (L626-29), or if the debtor company is part of a group whose total exceeds the thresholds (L626-29).
Organization
- It will be up to the administrator, in view of the claims and rights prior to the opening judgment, to distribute the affected parties (the creditors affected by the draft plan) into classes representing a "sufficient community of economic interest" .
- Secured creditors and unsecured creditors will necessarily have to be divided into separate classes.
- Claims arising from an employment contract, pension rights acquired under an occupational retirement scheme, and maintenance claims will be excluded from the classes.
- Capital holders will also have to form one or more classes if their shareholding, the company's statutes or their rights are modified by the draft plan.
Appeal
The status of affected party, the methods of class allocation and calculation of votes can be challenged by each affected party, the debtor, administrator, judicial representative and the public prosecutor.
The supervising judge is seized of this dispute by request within 10 days from the notification provided for in the first paragraph of Article R.626-58, under penalty of inadmissibility.
- If the supervising judge does not rule within 10 days of being seized of the matter, the court may be seized by application.
- An appeal may be lodged within 5 days of notification of the decision made by the supervising judge or the court.
- The Court of Appeal shall rule within 15 days of being seized of the matter.
The primary role of classes
- The classes must decide on the draft plan within 20 to 30 days of the plan being sent (this period may nevertheless be increased or reduced by the supervising judge).
- The administrator must submit to each affected party the methods of calculating the votes corresponding to the claims or rights affected, allowing them to cast a vote.
The protection of affected parties
- Maintaining court control during the adoption of the plan to ensure that the interests of the affected parties are adequately protected.
- Introduction of best interest : a criterion which aims to protect dissenting creditors by verifying that they are not in a less favorable situation as a result of the plan than they would be if the order of payments of a judicial liquidation were applicable, even if within the framework of a transfer plan, or any other more favorable alternative.
The forced adoption of the plan or the cross cram-down
A mechanism that consists of forcibly applying the plan to dissenting classes. It constitutes a limit to the power of creditors as well as that of capital holders, who should no longer be able to exercise their veto against the adoption of a plan.
Several conditions must be met:
- Respect for the best interest
- The plan must have been adopted by a majority of classes, provided that at least one class is composed of security holders or creditors whose rank is higher than unsecured creditors.
- A specific control is planned in the event of rejection of the plan by the class of capital holders.
- Respect for the rule of absolute priority.
Securities
The protection of guarantors
- The protection of natural persons providing guarantees, whether they have entered into a personal guarantee or a real guarantee as security for the debt of others, is increased by the Ordinance.
- In conciliation proceedings : the guarantors will be able to take advantage of the new grace periods granted to the debtor during the proceedings.
- In receivership proceedings : individual guarantors can now invoke the provisions of the plan.
- Therefore, it is only in judicial liquidation that guarantees for others granted by natural persons will remain effective.
The ban on prosecutions
- Securities that have not been properly declared, like claims, are not enforceable against the proceedings.
- The unenforceability of the procedure benefits co-obligors and guarantors who are natural persons under the same conditions as the debtor and not only during the execution of the plan.
- These solutions are extended to the recovery, with co-obligors and guarantors who are natural persons also benefiting from the cessation of interest accrual in recovery.
- However, they remain exposed to legal action from creditors who have declared their claims, once the plan has been finalized or the liquidation has been ordered.
- The prohibition of legal action by the debtor's creditors now applies to the beneficiary (required to declare) of a real security interest established by the debtor as security for the debt of another.
- Prohibition, from the date of the judgment opening proceedings, of any increase in the base of a conventional security interest.
The suspicious period
While the current provisions list the securities whose creation as security for a prior debt must be cancelled, the order now targets "any conventional real security or conventional right of retention created on the assets or rights of the debtor for debts previously contracted".
Two exceptions are provided for in the text:
- The substitution of a security interest for a prior guarantee of at least equivalent nature and basis.
- The Dailly assignment carried out in execution of a framework contract concluded prior to the date of cessation of payments.
The privilege of post money
- The privilege of "new money" in conciliation is extended to safeguard and receivership procedures, thus making permanent one of the flagship measures of Ordinance 2020-596.
- Subject to a decision by the supervising judge and its publication, claims resulting from a cash contribution will benefit from preferential payment priority (safeguard or reorganization privilege) under the conditions of Articles L. 622-17 and L. 643-8:
- agreed during the observation period in order to ensure the continuation of the activity;
- corresponding to a commitment mentioned in the draft plan, adopted or modified by the court.
Creditor ranking
- The provisions significantly enrich the current classification, by inserting numerous regulated securities outside of Book VI of the Commercial Code (pledge, lien of the lessor and seller of business assets, liens granted to the Treasury).
- The ranking of the post-money is specified, this being paid in competition with the creditors providing cash during the observation period.
- According to the order, court costs incurred after the opening judgment are paid after the super-priority of wages.
Miscellaneous provisions
Accelerated safeguarding: "the framework for restructuring preventive procedures"
- The order generalizes the use of accelerated safeguard proceedings by opening it up to all companies without threshold conditions, as had been permitted by order no. 2020-596.
- It also eliminates the accelerated financial safeguard, but retains a substitute by allowing the possibility of limiting the procedure to certain financial creditors.
- For the rest, the fundamentals of the accelerated safeguard are maintained: it can only be opened for the benefit of a debtor who justifies having drawn up a draft conciliation plan aimed at ensuring the sustainability of the company and who has not been in cessation of payments for more than 45 days.
- Due to the need for speed, the duration of the procedure is reduced to two months, which can be extended for a total duration not exceeding 4.
The overall procedural architecture remains unchanged
Several measures have been taken to enhance the speed and efficiency of the procedures:
- The observation period in safeguard proceedings can now not exceed 12 months (initial duration of 6 months extended only once on a "specially reasoned decision" of the court ).
- A creditor's failure to respond to a written consultation on the terms of debt settlement constitutes acceptance of the proposed modifications, unless they involve debt forgiveness.
- The benefits of existing classes will be maintained in the event of conversion of the safeguard procedure into receivership. It should be noted that it is only in receivership proceedings that the affected parties, grouped into classes, may submit draft plans that compete with that of the debtor.
