Overview of the French insolvency system. By Isabelle DIDIER Judicial Administrator Partner, Smith Violet February 2012

Transcription

1 Overview of the French insolvency system By Isabelle DIDIER Judicial Administrator Partner, Smith Violet February 2012

2 Isabelle Didier Law degree Past president of INSOL Europe (in 2000) President of GRIP21 ( Insolvency Practitioner since 1986 Appointed by civil and commercial courts or directly by companies to treat insolvency and pre-insolvency cases throughout the country Attorney, Partner of law firm Smith Violet since February 2010 Cabinet Isabelle Didier et Associés Judicial Administrator T F ididier@etude-didier.com Smith Violet T F ididier@smithviolet.com

3 Overview of the Insolvability Field in France French population (as of 1st January 2012): 65,350,000 Enterprises : 550,000 new companies created in In December 2011, 43,947 new companies were created in France, as a note of comparison, this number decreased by 3% for the same period in the past year. 80% of companies created in 2011 do not have any employee. 136 Commercial Courts 3,100 Consular Judges Over 1 million rulings 318 Judicial Liquidators and 118 Judicial Administrators The administrators and liquidators call upon the expertise of other professionals (lawyers, auctioneers, bailiffs, notaries, other experts ) As a note of comparison, there are close to 40,000 lawyers, 18,000 notaries and 36,000 certified accountants in France. Approximately 59,614 liquidation proceedings were commenced in 2011, of which: 58,195 were liquidation or reorganization proceedings and 1,419 were safeguard & rescue proceedings. Sources: INSEE.fr; Banque-France.fr; Eulerhermes.fr 3

4 Actors involved in the insolvency process 1. The Judge: - Commercial judge (juge consulaire): the name attributed to business owners (or staff of large firms eg: banks.) elected by their peers to sit in commercial courts. - Bankruptcy judge (juge commissaire): the judge named in the decision to open insolvency proceedings, to ensure the expeditious conduct of proceedings and the protection of the interested parties involved (non professional and voluntary). 2. The judicial administrator The judicial liquidator 3. The prosecutor 4. The creditors, controller, committees 4

5 Historical background of the Commercial Court In France, the Commercial Court is defined by Article L of the Commercial Code as a lower court composed of judges elected by their peers (merchants or business owners). The first consular jurisdiction was founded in Lyon in A 1563 edict inspired by the chancellor Michel de l'hospital, created a consular jurisdiction in Paris and jurisdictions were expected to be created each time a city required one. The French Revolution retained the principle of these courts. Since the laws of the 16th and 24th August, 1790, the name of the Commercial Court was kept. In the late 1990s, the commercial courts have nevertheless been criticized mainly related to insufficient knowledge of the law on the part of elected judges, as well as the great potential for conflict of interest or lack of transparency. 5

6 Preventing and anticipating future failures is a state of mind It is better to fix the problem of insolvency while it is still a small drip 6

7 rather than dealing with the insolvency problem after the shipwreck. 7

8 Inventory of reforms Many reforms have taken place in France, yet their achievements involve primarily a change in mentality. In this respect, the persistence in everyday language of the world faillite = bankruptcy with its pejorative connotation seems indicative of a mentality ultimately unfavorable to entrepreneurship. To compare with the U.S., where the entrepreneur who has failed is considered more leniently and the concept of management by bankruptcy is acceptable. Bankruptcy as a way to solve economic problems and Chapter 11 proceedings have become goals to achieve. Thus was born the so-called Chapter 11 à la française - loi de sauvegarde safeguard proceedings in The success of the preventive procedure Mandat ad hoc 8

9 Toolkit for prevention Focus on prevention and anticipation of difficulties: Some future failures could have been avoided if the entrepreneur had acquired some reflexes and applied simple techniques for screening and anticipating difficulties, and if he had looked to the courts, lawyers, or chartered accountants for help. 9

10 Restructuring and legal possiblities in order to save companies A) Amicable phase preventive phase AD HOC MANDATE CONCILIATION 10

11 AD HOC MANDATE The Judicial Administrator is usually appointed, there is confidentiality, costs agreed by parties but charged by the commercial court (~350 /h) Opening of proceedings: the president of the court may open ad hoc proceedings by request of the company s representative (Articles L611-3, L611-6 of Commercial Code). Possibilities to influence the appointment of liquidator or administrator: YES, the debtor of the company, and only him, may choose an ad hoc receiver. This is a voluntary decision by the debtor, but the decision is in the hands of the president of the court. The debtor must not be in a situation of the cessation of payments. 11

12 AD HOC MANDATE continued Suspension of payments: NO, the notion has evolved from payments due to current liabilities so when agreements exist with creditors the company is not facing cessation des paiements Possibility to ask for global negotiation with state for tax and social debts (commission chefs des services ) Conditions : - immediate payment of employee contributions (30% of total contributions). - personal surety of the business manager regarding the entire amount due. - deferral not exceeding 24 months. - late interest of 10% at the due date plus 2% per quarter of delay, with an optional waiver of part. 12

13 AD HOC MANDATE continued Possibilities for wage guaranty during proceedings: NO Contracts: Protection from termination, possibilities for the debtor to terminate contracts, fate of contracts: NO Who runs the business: The managing director continues to exercise all of his powers. The mandataire ad hoc cannot interfere with the trade of business. 13

14 CONCILIATION Conciliation: Amicable settlement & informal resolution - In more serious difficulties, it becomes necessary to use an "individual treatment" with certain creditors, whereby negotiations are carried out by the company alone or with the assistance of the court = conciliation with main creditors The Judicial Administrator is usually appointed, there is confidentiality, costs agreed by parties but charged by the commercial court Opening of proceedings: the president of the court may open conciliation proceedings by request of the debtor (Articles L611-4, L611-5 of Commercial Code) and appoints the conciliator Possibilities to influence the appointment of liquidator or administrator: YES, the debtor of the company may propose a conciliator. Does the debtor need to be insolvent in order for the formal (court) reorganization to be initiated? Debtor must not be in a situation of the cessation of payments or must be in a situation of the cessation of payments for no more than 45 days previously to the filing at the court. 14

15 CONCILIATION continued: Financing possibilities during restructuring and possibility for super-preferential ranking and any legal conditions for this: If subsequent safeguard, reorganization or liquidation proceedings are commenced after conciliation, those persons who, under approved agreement, have made a contribution of fresh funds to the debtor in order to ensure the continuation and long-term future of the business s activity will be paid according to their preferential lien before all other claims prior to the commencement of the composition proceedings (Article L of the Commercial Code) 15

16 CONCILIATION continued Suspension of payments: NO. In any case, the debtor may apply to the president of the commercial court for an extension. The president may grant extensions of up to 2 years (Article of the Civil Code). Possibilities for wage guaranty during proceedings: NO Contracts: Protection from termination, possibilites for the debtor to terminate contracts, fate of contracts: NO Who runs the business? The debtor maintains all control. There is no delegation of authority of his business. 16

17 Restructuring and legal possiblities in order to save companies B) Judiciary phase ACCELERATED FINANCIAL SAFEGUARD SAFEGUARD PROCEEDINGS JUDICIAL REORGANIZATION 17

18 ACCELERATED FINANCIAL SAFEGUARD Opening of proceedings: by request of the debtor. (Article L628-1 of New Commercial Code) after a conciliation proceeding to obtain a cram down effect. Possibilities to influence the appointment of liquidator or administrator: YES, as it is built to follow the conciliation process the conciliator will generally be appointed as judicial administrator. Does the debtor need to be insolvent in order for the formal (court) reorganization to be initiated? Debtor must not be insolvent but face insurmontable (without the help of the court) difficulties. 18

19 ACCELERATED FINANCIAL SAFEGUARD continued Financing possibilites during restructuring and possibility for superpreferential ranking and any legal conditions for this: Financial creditors and bondholders will be regrouped in two separate Committees to vote on the arrangement proposed by the debtor and already negotiated through the conciliation period. Suspension of payments: NO, this procedure deals with financial creditors and bondholders only. Other creditors must be paid on regular basis Possibilities for wage guaranty during proceedings: NO, the employees are not insured against the risk of non-payment, only for redundancy packages (72K maximum). The AGS national wage insurance scheme, which reimburses employees, is financed by obligatory contributions by the employer. 19

20 ACCELERATED FINANCIAL SAFEGUARD continued Claims: Have to be reimbursed in the plan over a period of 24 months for the super-priority claims and over 10 years maximum for the rest (as any other creditor) Contracts: Protection from termination, possibilites for the debtor to terminate contracts, fate of contracts: YES, by the judicial administrator. If none is appointed, the decision to continue current contracts is the responsibility of the managing director with the authorisation of the Commercial Judge. 20

21 SAFEGUARD PROCEEDINGS The Safeguard & Rescue law of 26th July 2005 and the order of 18th December 2008 have optimized the amicable settlement process so as to encourage their use by managers. The 2005 Act formalizes the Ad Hoc Mandate in Article L611-3 of the Commercial Code. The principle is as follow: a bad arrangement is better than a good lawsuit. This technique of preventing problems is to involve a third party appointed by the presiding judge based on the debtor s proposal. (This person may be a lawyer or a court administrator). 21

22 SAFEGUARD PROCEEDINGS continued Opening of proceedings: the court may open safeguard proceedings (sauvegarde) by request of the debtor (Article L620-1 of Commercial Code). Designed to facilitate the reorganization of the business before difficulties arise. Creditors do not have a say in the decision of opening the proceedings. Possibilities to influence the appointment of liquidator or administrator: YES, the judicial auxiliary is appointed by the Commercial Court but the proceedings is still considered as preventive. It is possible to choose the professional. Does the debtor need to be insolvent in order for the formal (court) reorganization to be initiated? Debtor must not be in a situation of suspension of payments. 22

23 SAFEGUARD PROCEEDINGS continued Suspension of actions: YES, the liabilities arising from the day of the judgment are frozen. Possibilities for wage guaranty during proceedings: NO, the employees are not insured against the non-payment of their wages as the company is supposed to be solvent, but if required, the redundancy package is funded by the national fund (72K maximum). Contracts: Protection from termination, possibilities for the debtor to terminate contracts, fate of contracts: YES, by judicial administrator. 23

24 JUDICIAL REORGANIZATION Opening of proceedings: by request of the debtor, or creditors Possibilities to influence the appointment of liquidator or administrator: NO, the court appoints the professional. Does the debtor need to be insolvent in order for the (court) reorganization to be initiated? YES Suspension of payments: YES Possibility for wage guaranty during proceedings: YES, employees are insured against the risk of non-payment. Contracts: Protection from termination, possibilities for the debtor to terminate contracts, fate of contracts. YES, by the court-appointed Judicial Administrator. 24

25 Role of the judicial auxiliaries 1/ AD HOC MANDATE AND CONCILIATION The intervention of the special commissioner is carried out under the auspices of the President of the Commercial Court, whose order encourages the creditors and suppliers to negotiate with the company on a new basis as quickly as possible. The mandataire ad hoc has no special power, just the status that helps to find new solutions, unseen by parties. It is similar to ADR, but confidentiality cannot be opposed to the president of the court, who is informed of the progress. The independence of this intervention guarantees the credibility of information transmitted to all the players. As a known specialist in insolvency, the administrator gives a strong signal: if no solution is found then the company will have to seek an insolvency proceedings where all parties may lose. Conflicts can be various: between shareholders, with creditors, clients, co contractors. When the solution takes place, the parties sign a contact which only links the parties. 2/ ACCELERATED FINANCIAL SAFEGUARD / SAFEGUARD The judicial administrator intervenes in both safeguard and reorganization proceedings, where he is charged with assisting the manager to find solutions to settle the company s difficulties and to prepare for reorganization or the sale of the company as a going concern. He is not in charge of running the business, just assisting the manager in his decisions (except in very rare circumstances) and brings a legal and judicial safety, a guarantee of loyalty and transparency in the negotiations to find a fair solution for all of the players. b) Can the debtors remain in possession of their assets? YES, for the following four proceedings: AD HOC MANDATE CONCILIATION ACCELERATED FINANCIAL SAFEGUARD - SAFEGUARD 25

26 Sale plan: transfer of work contracts When a modification in the legal situation of the employer occurs, in particular by a succession, sale, merger, transformation of funds, or a change in the articles of association, all work contracts current on the day of the modification will continue between the new employer and the personnel of the company. (Article L of the Labour Code). If a dismissal is carried out, it must take place in the framework of a dismissal for economic motives. Fate of contracts SAFEGUARD All current contracts at the day of the opening judgement can become the subject of a request for continuation at the time of proceedings. The insurance contract is subjected to the same measures as all other contracts. If the contract is continued in the interest of continuing the business activity of the company, the co-contracting party profits from a preferential payment compared to co-contractors from before the opening judgement. The contract is automatically terminated after a formal notice addressed to the administrator remains unanswered after a period of one month. 26

27 Global / Partial Sale 1/ AD HOC MANDATE, CONCILIATION, ACCELERATED FINANCIAL SAFEGUARD, SAFEGUARD N/A: the purpose is to save the company, the legal entity, but the sale of non core business can intervene. 2/ RESCUE and JUDICIAL ORGANIZATION The sale aims at ensuring the maintenance of activities likely to be autonomously exploited and all or part of the employment, which is attached to the sale (sale as a going concern). Employment contracts can be terminated by court order. 27

28 Summary table of restructuring and the legal possibilities in France Opening of proceedings Possibilities to influence appointment of liquidator/ administrator Ad Hoc Mandate By request of the company Conciliation By request of the debtor Accelerated Financial Safeguard By request of the debtor Safeguard By request of the debtor Judicial Reorganization By request of the debtor or creditors YES YES YES YES NO Can the debtor be insolvent? NO NO (-45days) NO NO YES Stopping of legal action NO NO, but delays accorded by president up to 2 years No for ordinary creditors Yes for financial institutions YES YES Possibilities for wage guaranty NO NO YES except redundancy YES YES 28