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Coronavirus - Procedures for dealing with business difficulties – France

  • France
  • Coronavirus
  • Coronavirus - Country overview

07-04-2020

On 23 March 2020, a state of health emergency was declared and this state expires, as it stands, on 24 May 2020.

Several Orders of 25 and 27 March 2020, issued pursuant to this law, made temporary but substantial changes to the law on business difficulties. These orders were the subject of two circulars from the Ministry of Justice, one undated and relating to the functioning of the commercial courts, the other of 30 March 2020 and specific to the impact of the orders on the treatment of business difficulties.

1. Paralysis of default clauses

  • Penalty payments, penalty clauses, resolutory clauses and clauses providing for forfeiture, when their purpose is to punish failure to perform an obligation within a specified period, shall be deemed not to have commenced or to have taken effect, if this period has expired between 12 March 2020 and the expiry of a period of one month from the date of cessation of the state of public health emergency (i.e., to date, until 24 June 2020 and, hereafter, the Protected Period). Clauses which took effect before 12 March 2020 are suspended during the Protected Period.
  • These clauses take effect as from the expiry of a period of one month after the end of the Protected Period if the debtor has not fulfilled his obligation before this term (i.e., to date, 24 July 2020).
  • These provisions make it possible to protect companies by prohibiting their co-contractors from applying most of the contractual stipulations sanctioning a failure to perform, following the example of the existing regime following the opening of collective proceedings, under which “ipso facto clauses” are void by law as a matter of public policy.

2. Crystallization of the state of cessation of payments

  • The assessment of the situation of companies with regard to the possible state of suspension of payments (i.e. when they cease being able to pay their debts as they fall due) is frozen as of 12 March 2020, and until the end of the three-month state of health emergency (i.e. until 24 August 2020 as it stands).
  • This crystallisation of situations will enable companies to benefit from the preventive procedures (conciliation and safeguard) that would otherwise be excluded in the event of suspension of payments.
  • The crystallization on 12 March 2020 of the assessment of the solvency of companies allows their directors to avoid personal sanctions for delays in declaring the state of insolvency.
  • If the state of suspension of payments occurs during this period, the company remains in a position to request the opening of receivership or bankruptcy proceedings, which in particular allows the assumption of salaries by the competent guarantee institution.
  • Depending on the Commercial Court to which they are subject, debtors in difficulty may then file a declaration of suspension of payments on the website https://www.tribunaldigital.fr/.
  • In order to avoid the possibility of fraudulent evasion of creditors' rights, both on the part of the debtor and other creditors, the provisions of the Commercial Code relating to the nullity of the suspect period (transaction avoidance provisions) remain applicable. Thus, the state of suspension of payments may be set at its actual date for the application of this nullity regime.

3. Deadlines adjustments

  • All the periods, acts and formalities that should have been carried out at the latest during the Protected Period (i.e., as they stand, between 12 March and 24 June 2020) will be deemed valid if they are carried out within the double limit of the initial period and a period of 2 months following the end of the Protected Period, i.e., at the latest on 24 August 2020. On the other hand, all periods, acts and formalities whose deadline for completion occurs after the Protected Period are not affected by these changes (except for special provisions).
  • This deadlines adjustment benefits to the deadlines for lodging a proof of claim, proprietary interest claim or requests for relief from foreclosure, as long as these deadlines expire during the Protected Period.
  • The impossibility, for the legal representatives appointed by the court opening collective proceedings, to respect the usual and legal deadlines is handled as follows:

With regard to the so-called usual time limits (e.g., the time limit imposed on the liquidator for the realisation of the debtor's assets in the context of judicial liquidation proceedings), the order gives the president of the court the duty to assess, on a case-by-case basis, the extent to which exceptional circumstances justify an extension of these time limits, the power to extend these time limits and the duty to ensure their consistency.

With regard to the statutory time-limits, the order extends, as of right, without the need for a hearing or judgment, the duration of those time-limits. This mainly concerns the length of the observation period and the duration of the plan, as well as the deadlines for realising assets and drawing up the list of claims.

  • Safeguard and recovery plans are extended:

An automatic extension (without a hearing and judgment) of the plans is set out for the duration of the state of health emergency plus one month (i.e., as it stands, until 24 June 2020).

A judicial extension may be granted by the president of the court on the request of the administrator implementing the plan or the public prosecutor's office and submitted within 3 months after the end of the state of health emergency (i.e. until 24 August 2020). This extension may be for the duration of the state of emergency plus 3 months, or, as it stands, for a maximum of 5 months, if requested by the Commissioner for Plan Implementation, and for a maximum of 1 year if requested by the Public Prosecutor's Office.

A judicial extension may be granted by the court seized upon request by the Administrator implementing the plan or the Public Prosecutor's Office and submitted once the 3-month period after the end of the state of health emergency has passed (i.e., as it stands, after 24 August 2020, the president of the court having sole jurisdiction before that date) and within 6 months (i.e., as it stands, until 24 February 2020). This extension may be for a maximum of 1 year.

  • Instalments plans may be rescheduled (for those due after 12 March).
  • Jurisdictional conciliation or mediation measures whose term expires during the Protected Period are automatically extended until the end of a period of two months following the end of this period (i.e., to date, until 24 August 2020). More specifically, conciliation procedures provided for in Article L. 611-6 of the French Commercial Code (normally capped at 5 months) can be extended for the duration of the state of health emergency, plus 3 months (i.e., as it stands, an extension of 5 months). This extension applies to the conciliations in progress during the Protected Period and to the conciliations opened during the same period.
  • Still on the subject of conciliation, the Order No. 2020-341 allows, in the event of failure of a first search for agreement, an immediate resumption of negotiations (for example by calling in other creditors) by opening new proceedings without having to respect the legal waiting period of 3 months.
  • Ad hoc mandates (which are presented by the Ministry of justice as preferable in order to deal with the difficulties of enterprises during the period of health emergency) are not covered by the abovementioned deadline adjustments.
  • A more rapid assumption of wage claims by the association for the management of the employees' claims guarantee scheme (AGS) is allowed.

4. Easing of formalities

  • During the period corresponding to the state of emergency extended by one month (i.e., as it stands, until 24 June 2020), referral to the court are simplified by dispensing with the formality of filing at the registry and by allowing the debtor to refer the matter to the court by deed delivered to the registry by any means. The debtor may insert a request for authorisation to formulate his claims and means in writing, pursuant to the second paragraph of Article 446-1 of the Code of Civil Procedure.
  • The parties may also exchange their writings and exhibits by any means, provided that the court can ensure that the adversarial process is respected. Here again, these provisions are applicable to proceedings before the Commercial Court in the absence of derogations. Order 2020-341 extends this flexibility to other communications, e.g. those between the court registry, the court administrator and the judicial representative as well as those between the procedural bodies, for the period corresponding to the state of emergency extended by one month (i.e., as it stands, until 24 June 2020).
  • Where the proceedings fall within his jurisdiction, the president of the court may obtain the debtor's observations by any means.
  • Hearings may be held either in a single judge or, in the case of the Commercial Court, before a judge responsible for reporting the case. The decision is taken by the president of the court. The circular of 30 March 2020 specifies that this provision is applicable "even in matters of collective proceedings".
  • Hearing may also be held without the parties being present and therefore without the presence of the debtor who requests the opening of collective proceedings, under the conditions specified by Article 446-1 of the Code of Civil Procedure. The Order in particular precludes the provisions of Article L. 662-3 of the Commercial Code which allow an application to be made for the hearing to be held in public. The circular on the operation of the commercial courts also recommends that the debtor be encouraged to request his non-appearance before the commercial court.
  • Provision requiring the systematic holding of an interim hearing, which must normally be held two months after the opening judgment to rule on the continuation of the observation period, are set aside. The observation period will therefore continue until its end, it being specified that this adaptation does not preclude the court from being seized, if necessary, of an application for conversion of the procedure.
  • Hearings may be held by any audio-visual means of communication and, where appropriate, by any electronic means of communication. This rule applies to hearings in collective proceedings.
  • In order to enable the courts to (i) approve conciliation agreements and (ii) rule on disposal plans, in receivership or judicial liquidation, where these may have a significant impact on employment, the presidents of the courts shall identify the procedures that justify a rapid decision, after having approached, in particular, the judicial representative(s) appointed in these proceedings so that these procedures can be dealt with.

5. State guarantee

  • A State guarantee to credit institutions and finance companies has been set up, it aims to guarantee the loans granted (principal, interest and accessories) to certain companies, and in particular companies that are legal entities or individuals including craftsmen, merchants, farmers, liberal professions and micro-entrepreneurs, as well as certain associations and foundations.
  • Are excluded from its benefit undertakings under a safeguard or recovery plan.
  • Companies under conciliation or ad hoc mandate should be able to benefit from it.

This publication is for general information purposes only and is not exhaustive. It does not constitute or be construed as legal advice from Eversheds Sutherland (France) LLP.