Exceptional adjustments to French Insolvency Law in response to Covid-19

French insolvency law has been substantially strengthened twice to fight more effectively against the effects of the Covid-19 crisis


A first Ministerial Ordinance dated 27 March 2020 (n°2020-341) provided a series of responses to the immediate difficulties by not penalizing companies whose state of cash-insolvency results from the Covid-19 crisis. A second Ministerial Ordinance dated 20 May 2020 (n°2020-596) has consolidated these initial measures and considerably strengthened French insolvency law to make it temporarily more effective in the fight against this broad crisis.


The neutralization of the economic consequences resulting from the lock-down by the ordinance dated 27 March 2020


This Ordinance notably froze the assessment of cash-insolvency on 12 March 2020. Thus, an insolvent company from 12 March to 23 August 2020 was not required to apply for a rehabilitation proceedings or judicial liquidation within 45 days and the company directors can not be sanctioned for negligence. In addition, the duration of conciliation proceedings initiated between 23 March and 23 August 2020 has been automatically extended by 5 months. These amicable proceedings may therefore last up to 10 months, or even 15 months in the event of succession between two conciliations, the 3-month waiting period having been waived.


Most of the procedural deadlines have also been temporarily extended:


Until 23 June 2020: the durations of observation periods, rehabilitation plans, temporary continuation of the activity and simplified judicial liquidation are automatically extended by 3 months;


Until 23 August 2020: the time limits imposed on insolvency practitioners (judicial administrator or liquidator and plan commissioner) may be extended by 5 months and the President of the court, ruling at the request of the plan commissioner or the Public Prosecutor, may extend the duration of the plans by 5 months or one year;


From 23 August 2020 to 23 February 2021: at the request of the Public Prosecutor or the plan commissioner, the court may extend the duration of the plan for a maximum of one year.


Moreover, filing of court documents and procedural communications may be carried out electronically or by post. Hearings may be held virtually.


Ongoing proceedings can benefit from these measures.


The innovations of the ordinance of 20 May 2020 to increase the effectiveness of the treatment of companies facing difficulties


  • Acceleration of the procedure for alerting the president of the court by the statutory auditor

Article 1 of this Ordinance allows earlier and more complete transmission of information to the President of the Court in the context of the statutory auditor's exercise of his duty to warn (Article L. 234-1 et seq., R. 234-1 et seq. and L. 612-3 of French Commercial Code). The statutory auditor may thus, from the first information given to the head of the company, and then at any time, if he considers that the urgency requires the adoption of immediate measures and that companies directors refuse to do so, or adopts insufficient measures, inform the president of the court and send him all useful information on the situation of the company.


This provision is applicable between 22 May 2020 and 31 December 2020.


  • Suspension of the enforceability of debts in conciliation proceedings

Article 2 of the Ordinance allows a debtor subject to a conciliation proceedings (Articles L. 611-4 and L. 611-5 of French Commercial Code) and who is facing a creditor who does not agree to suspend the due date of his claim for the duration of the negotiations, to refer the matter to the President of the Court who can order:


The interruption or prohibition of any legal action seeking an order against the debtor for the payment of a sum of money or the termination of a contract for non-payment of a sum of money;


The cessation or prohibition of any enforcement or distribution procedure which has not yet produced effects;


Postponement or staggering of the payment of sums due.


This provision is applicable between 22 May 2020 and 31 December 2020 and concerns ongoing proceedings.


  • Removal of eligibility thresholds for accelerated safeguard proceedings ("Procédure de sauvegarde accélérée" - Art. L.628-1 et seq.)

This provision is applicable between 22 May 2020 and the entry into force of the Ordinance transposing the Directive "Insolvency" (no later than 17 July 2021).


  • Reduction by half of the time required to consult creditors on plans approved by the court

At the request of the administrator or the creditor’s representative, the insolvency judge may reduce by half, i.e. to 15 days, the time limit for creditors to reply to the written consultation (Art. L. 626-5), it being specified that failure to reply within this time limit constitutes acceptance of the proposals.


This provision is applicable between 22 May 2020 and 31 December 2020 and concerns ongoing proceedings.


  • Extension of the duration of the plans up to 12 years

At the request of the Public Prosecutor or the plan commissioner, the court may extend the duration of the safeguard or rehabilitation plans (plans de sauvegarde ou de redressement) by two years, to which may be added the extensions provided for in the Ordinance dated 27 March 2020. A plan may thus last up to 12 years, instead of the usual 10 years. The Court may also adapt the payment schedule to the new duration of the plan by derogating from the provisions of Article L. 626-18 of French Commercial Code, making possible a first payment beyond the first year of the plan or, from the third year of its performance, payments of less than 5% of the admitted claims.


This provision is applicable between 22 May 2020 and 31 December 2020 and concerns ongoing proceedings.


  • Creation of new privileges in safeguard proceedings ("sauvegarde") and judicial rehabilitation proceedings ("redressement judiciaire")

Safeguard and judicial rehabilitation privileges are created to encourage cash contributions to the debtor during the observation period, if it ensures the continuation of the business and the sustainability of the company. To date, such a privilege, with priority of payment, existed only in conciliation. However, contributions of funds made by partners or shareholders within the framework of an increase of capital are expressly excluded.


This provision is applicable between 22 May 2020 and the entry into force of the Ordinance transposing the Directive "Insolvency" (no later than 17 July 2021).


  • Flexibility of eligibility thresholds for simplified and professional judicial liquidation proceedings ("liquidation judiciaire simplifiée" et "rétablissement professionnel")

The value of the assets that determine eligibility for the professional liquidation proceedings is tripled from €5,000 to €15,000. This procedure remains reserved for natural persons, without employees, and with no income.


Furthermore, simplified judicial liquidation may be opened to any natural person whose assets do not include real estate. The criterion of not having employed more than 5 employees in the last 6 months is temporarily dropped, although the judge retains the option of dismissing this procedure in such a case.


This provision is applicable between 22 May 2020 and the entry into force of the Ordinance transposing the Directive "Insolvency" (no later than 17 July 2021).


  • Removal of the ban on selling one's business to oneself or one's relatives

Where the proposed transfer of an enterprise preserves jobs, the Court may henceforth, at the request of the debtor or the judicial administrator, authorize the transfer to the de jure or de facto director of the company or to its relatives by a specially motivated judgment, in the presence of the public prosecutor and after consulting the controllers.


In the case of a sale of the business as a going concern (plan de cession), the time limit for convening the secured creditors is reduced from 15 to 8 days.


This provision is applicable between 22 May 2020 and the entry into force of the Ordinance transposing the Directive "Insolvency" (no later than 17 July 2021) and also concerns ongoing proceedings.


  • Facilitation of business turnaround

The time limit for deleting certain entries in the register of compagnies concerning companies subject to a judicial plan (plan de sauvegarde ou de redressement) is reduced from two years to one year from the date of the approval of the plan


This provision is applicable between 22 May 2020 and the entry into force of the Ordinance transposing the Directive "Insolvency" (no later than 17 July 2021) and also concerns ongoing proceedings.

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Maître Benjamin Gallo

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