[BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS IN FRANCE] 34
KEY FACTS OF BANKRUPTCY, INSOLVENCY & REHABILITATION PROCEEDINGS UNDER FRENCH LAW Under French law, companies are protected by several procedures to overcome financial difficulties. This legal protection aims to help companies facing financial difficulties and protect the overall business economy from the risks of cascading bankruptcies.
These procedures are under the control of the president of the court. The main purpose of these procedures is to quickly renegotiate the debts of the company and keep discussions confidential between the company and its creditors. In this context, the parties are bound by an obligation of confidentiality towards third parties. The conditions depend on the procedure:
French bankruptcy law is based on the concept of insolvency (Cessation des paiements), which determines the appropriate procedure. Insolvency, or inability to pay, means that the company does not have enough liquidity to pay its debts. In practice, this is the case when the cashflow of the company is insufficient to cover immediate debts, and its creditors do not want to extend the payment terms. Also, French bankruptcy law provides a mechanism which protects the creditor of a debtor experiencing financial difficulties without being unable to pay its debts. We will analyse the procedures of a company facing financial difficulties from the perspective of both the company ( 1 ) and its creditors ( 2 ). 1. From the perspective of a company facing difficulties There are two types of procedures to remedy financial difficulties of companies: - Prior and confidential procedures (1.1) - And public and judicial (official) procedures (1.2) 1.1. The prior and confidential procedures French bankruptcy law provides two preliminaries and optional procedures for renegotiatingthe existing agreements with creditors: - Ad hoc Mandate (Mandat ad hoc) - Conciliation.
The Ad Hoc Mandate may be initiated as soon as the company encounter difficulties, but it must not be “Insolvent.” The Conciliation procedure can be initiated when the company faces financial difficulties likely to compromise its ability to continue its business.
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Nonetheless, the company must not have been “Insolvent” for more than 45 days. An Ad Hoc Representative or a Conciliator (which could be proposed by the company) shall be appointed by the Commercial Court to facilitate negotiations, restructure debts, and amend existing agreements. The Ad Hoc Representative or the Conciliator has a significant authority and influence in the negotiation of new favourable terms with the company’s creditors. Indeed, these professionals work under the control of the Court, and the risk of bankruptcy is high if no agreement is reached. The appointment of an Ad Hoc Representative or a Conciliator does
ILN Restructuring & Insolvency Group – Bankruptcy, Insolvency & Rehabilitation Series
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