Overview of the judicial mandate in France. By Isabelle DIDIER Judicial Administrator Partner, Smith Violet February 2012

Size: px

Start display at page:

Download "Overview of the judicial mandate in France. By Isabelle DIDIER Judicial Administrator Partner, Smith Violet February 2012"

Kory Osborne
5 years ago
Views:

1 Overview of the judicial mandate in France By Isabelle DIDIER Judicial Administrator Partner, Smith Violet February 2012

Isabelle Didier Law degree Past president of INSOL Europe (in 2000) President of GRIP21 ( www.grip21.

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

Historical background In the early 1970 s, business insolvencies occurred very seldomly and were generally attributed to mismanagement. (approximately 11 000 proceedings per year).

3 Historical background In the early 1970 s, business insolvencies occurred very seldomly and were generally attributed to mismanagement. (approximately proceedings per year). In the 1980 s, insolvency proceedings had more than doubled. (approximately procedures). In 2011, insolvency proceedings stabilized at an all time high: proceedings (68,2% of proceedings were liquidation proceedings). In insolvency matters, the term judicial mandate" includes mainly two types of court officers whose status is defined by the Act of 25 January 1985: Judicial Administrators and Judicial Liquidators. Key figures in the profession in France: judicial administrators judicial liquidators 3

4 Historical background continued Company bankruptcies have always required the intervention of a key person, the syndic judiciaire or judicial auxiliary, in charge of the provisional administration and liquidation of failed businesses. It is this particular court officer that Balzac immortalized in Histoire de la grandeur et de la décadence de César Birotteau (1837). These two professions are provided instead of the syndic, who was accused of being in charge of competing interests: - on one hand, assistance or representation of the debtor. - on the other hand, the representation of creditors in the settlement of transactions in liabilities. Since this reform, the judicial administrator participates in the management and recovery of the company in receivership, and the judicial liquidators represent the global interests of the creditors to realize the assets of the wound-up company. 4

5 The commercial court, a French exception Commercial courts, numbering 141, form a special court. The origin of consular jurisdictions can be found in the development of the medieval fairs of Saint-Denis, Champagne or Lyonnais. Fairground guards were responsible for settling disputes of a commercial nature that arose between merchants at the fair. Their origin is first manifested at the national level, they have survived since the 16th century and even throughout the revolutionary reforms. They are composed of judges elected from among business men and practice exclusively as volunteers. The jurisdiction of this Consular justice is at the junction between the interest of the Public service and business life, between the goal of justice and the search for pragmatism. 5

6 Overview of the judicial mandate status in France A closer look at the status of the judicial liquidator A judicial liquidator is a person or entity charged by the court to represent the global interests of the creditors and eventually proceed with the liquidation of a company. Judicial liquidators are independent professionals responsible for public service obligations by court order. They are responsible for defending the collective interest of creditors by ensuring their representation and winding up the company when the liquidation is pronounced. A national list of judicial liquidators is updated by a national commission. 6

7 Mission of the judicial liquidator The judicial liquidator s mission Overall mission of running the company for the purpose of liquidating it. Creditor representation: sole authority to act on behalf of and in the collective interest of creditors. Conducts the verification of claims and establishes a list (this list is the basis for his or her remuneration). The judicial liquidator: can instigate legal action to recover assets, litigation for voidance acts, liability of the managing director. is responsible for consulting with creditors on debt settlement proposals under the draft plan. has an obligation to inform the judge and the prosecution of the comments it receives at any time during the procedure by controllers. 7

8 Overview of the judicial mandate status in France The status of the judicial administrator They are primarily responsible by court authority to administer the company itself, and to assist and supervise the managing director or others in the management of the assets of the company. Very rarely, he can represent the company. Nowadays, court administrators are involved, in most cases, in the administration of companies that are insolvent or already in a very difficult financial situation that they cannot solve by themselves. Therefore, this is why prevention has been developed in order to provide real support and the best chance to distressed companies. For 95% of operations resulting in bankruptcy liquidation in the short to medium term, the role of the administrator often resembles that of a doctor putting a patient on life support until his last breath. 8

Overview continued The reality of the judicial administrator's profession When appointed by the courts in reorganization proceedings, Judicial Administrators come at a time when the company is

9 Overview continued The reality of the judicial administrator's profession When appointed by the courts in reorganization proceedings, Judicial Administrators come at a time when the company is already in a very advanced stage of difficulty: - the company has already been restructured at a forced march, by the wiping out of debts, the operation ends up being reduced to ashes - a liquidation proceedings soon appears as the only solution - except for preventive Mandat ad hoc procedure, but this may have a negative effect and increase liquidations 9

On admission to the profession of judicial mandate Training, exams Judicial administrators and judicial liquidators are not civil servants,

10 On admission to the profession of judicial mandate Training, exams Judicial administrators and judicial liquidators are not civil servants, since they are paid by the businesses they assist In reorganization proceedings In mandat ad hoc or conciliation proceedings Competition 10

11 The appointment of the judicial administrator and liquidator appointment in France Judicial liquidators & administrators may be appointed only if they are on a list compiled by a national commission which also rules the discipline of the profession. The court may appoint as judicial liquidator or administrator: - a person who is not on this list but eligible to join. - justifying experience or special qualifications with respect to the nature of the case. This very rarely happens, and in Paris, almost never. The list is divided into sections: corresponding to the regional jurisdiction of each Court of Appeal, but it is here, a simple presentation to avoid the formation of large offices in Paris that would have been tempted to assert a dominant global position. Those listed are intended to perform their duties throughout the whole of French territory. In practice, there are as many lists as courts, no free access, major lack of transparency. 11

12 Difficulties in the system of appointment in France According to a judgment of the Court of Cassation, any judicial liquidator, registered on a regional list, may be appointed. The failure to designate a judicial liquidator as acollaborating public service implicates the responsibility of the State (Court of Cassation, First Civil Chamber, 30 January 1996). 12

13 Application in the time of new fee rules The rate is fixed by Decree of 23rd December, Rules for setting up the rate of remuneration: Definition of claim within the meaning of the fee: some rights allocated to the Creditor s Representatives have to be calculated based on the number of claims apprehended by the insolvency proceedings, the new regulations specificity, by category of creditors and by the scale that should be used to constitute a claim within the meaning of the fee. Common elements of remuneration: The Judicial liquidator receives a fixed fee at the beginning of the procedure. Then, he receives a further court order, a fixed fee amount, as appropriate, uniform or graduated under the following procedures: - For registration of claims reported and unverified, and claims which enter on the list provided for in Article R of the Commercial Code. - For the verification of claims other than salary - To establish records of wage claims. - For some disputes that led to the completion of due diligence by the Creditor s representatives. 13

14 Some very profitable methods of remuneration Concerning the remuneration of judicial liquidators and administrators, the conclusion is that the scale is designed in a way that the solutions used is not neutral. As an example, in a case handled by a judicial administrator which could result in a liquidation or a continuation plan following a receivership for a period of one year, the price in both cases would remain the same. Under these conditions, why should he try to save jobs? If he makes the sale and sells the plant to a competitor, it is better paid than if it leads to a continuation plan and save jobs. These are distortions, which could be filled by scales that would ensure the neutrality of the judicial administrator with respect to the solutions used. 14

15 Liabilities and sanctions The judicial liquidator s liability intervening before the commercial courts follows the principle established by section 1992 of the Civil Code: "the judicial liquidator responds not only to fraud, but also from mistakes he made during the management and recovery of the company. The judicial liquidator has an obligation of means, but his fault has to be assessed with some rigor. An action for damages may be lodged within the jurisdiction of the High Court. The administrator, in turn, incurs the criminal responsibility of the manager of the company, without being able to free himsel by a delegation given to the debtor who is not his servant or agent. Regarding penalties, it should be noted that the National Registration and Discipline may sit in chambers and play the role of the secular arm of the prosecution in its supervisory role. 15

16 Commercial courts swallowed up networks and interests The Commercial Court does not seem able to resist the lobbying and the protection of corporatist interests practiced for decades by professionals in commercial courts. 16

17 Judges too close to the litigants : from neighborhood to family ties and alliances One of the arguments of the advocates of commercial courts is that they provide local justice. Judged by their peers engaged in the same markets, commercial judges benefit from both geographical and sociological proximity. However, as noted by a former President of the Commercial Court of Nanterre: "we should not exaggerate too much in the sense of the local justice, so that it would not become a neighborhood justice, or even a family ties justice or that it gives that impression. 17

18 The lack of capacity of expertise It is common knowledge that prosecutors are intellectually dependent on information contained in the reports of judicial liquidators. These reports are: reports reflecting the progress of the bankruptcy proceedings or liquidation: reports on the progress of the proceedings and the situation of the company, specific reports on liquidation (going concern, fails to perform to plan). The Commercial Court should be able to verify the credibility of some of the solutions proposed by the judicial liquidator or administrator but it does not have enough well-trained judges, or experts at its disposal. 18

19 Overview of consular judges by practitioners, are they independent and impartial? A professional judge can generally quite simply draw a screen between his professional life and personal life, and neither one nor the other have to suffer from it. The situation of the consular officer is much more difficult, insofar as he is appointed, precisely because of his own experience. Directly or indirectly, there must be interpenetration of these interests, then we must prevent any confusion of interests. As a consequence, the control of this context shall be demanding and must lead the consular judge to prepare artificial but unavoidable barriers between these two phases of its activity. Some poorly lit or malicious minds could think that exercise is impossible... 19

20 Outside contributions and assistance, independence jeopardized, lack of transparency Threats to their independence. The amounts involved are so high that they create a habituation. Permanent lack of transparency in the funding of commercial courts. Payments made by the auxiliaries (judicial liquidator and administrator) and companies: are objectionable and dangerous. Costs are largely borne by litigants, via thetribunal Registry. 20

21 Quotation from a 17th century French magistrate «Les fautes des Magistrats ou gens de justice doivent estre moins tollerees, qu en tous les autres estats.» La Roche Flavin, Treize Livres des Parlements de France,

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

Overview of the French insolvency system By Isabelle DIDIER Judicial Administrator Partner, Smith Violet February 2012 Isabelle Didier Law degree Past president of INSOL Europe (in 2000) President of GRIP21