What is a receivership?
A receivership is a procedure designed to enable a company to continue operating, maintain employment and pay off its debts. It is provided forin articles L.631-1 et seq and R.631-5 et seq. of the French Commercial Code..
What situations are covered by receivership?
The company is insolvent i.e. it is unable to meet its current liabilities with its available assets, subject to any credit reserves or moratoria from which the debtor may benefit from its creditors.
In practical terms, a company is insolvent
when it can no longer pay its debts that have fallen due with its available cash. However, the company must not be manifestly ineligible for receivership.
Who is involved in a receivership procedure?
The opening judgement appoints :
- a juge-commissaire (bankruptcy judge), who is responsible for ensuring that the proceedings are conducted swiftly and that the interests involved are protected. In particular, the role of the juge-commissaire is to monitor the bodies involved in the procedure, issue authorisations for the transfer of assets, for acts outside the scope of day-to-day management, for transactions/agreements, and to arbitrate difficulties relating to the verification of liabilities, claims and restitutions, and contracts in progress. He appoints the auditors and any technicians.
- an insolvency practitioner (administrateur judiciaire), whose appointment is compulsory for companies with at least 20 employees and a turnover of €3 million, and optional for companies with less. The debtor may propose the appointment of an insolvency practitioner of his choice. The same does not apply to a mandataire judiciaire. The administrateur judiciaire assists or represents the company. He or she draws up solutions for the company’s recovery by making a full diagnosis and doing everything possible to save the company and its employees. Together with the debtor, he draws up a draft plan. If it is not possible to continue the business, he may set a deadline for receiving takeover bids.
- a mandataire judiciaire is responsible for defending the collective interests of creditors. He is responsible for preserving the rights of creditors, by verifying declared claims and consulting creditors on repayment proposals (unless there are classes of affected parties). He is involved in the procedure at all stages.
- an auctioneer, court bailiff or notary is appointed to draw up an inventory of the assets held by the debtor on the day of the opening judgment.
- If necessary, one to five auditors appointed by the official receiver from among the creditors who so request. After the opening judgment, an additional body is appointed:
- an employee representative who is appointed or elected from among the employees to represent them during the proceedings. The employee representative is appointed by the Social and Economic Committee CSE- Comité économique et social). If no candidate is nominated, a statement of default must be drawn up.
When do receivership proceedings begin?
The company manager must request the opening of receivership proceedings within 45 days of insolvency, at the latest, if he has not requested the opening of conciliation proceedings within this period.
This is the legal representative of the legal entity or the individual debtor.
The documents to be attached to the application are listed in article R. 621-1 of the Commercial Code :
- Annual accounts
- Extract of registration in registers or directories
- Cash position
- Provisional profit and loss account
- Number of employees at the date of the application and turnover at the end of the last financial year
- Quantified statement of receivables and liabilities
- Statement of assets and liabilities, securities and off-balance sheet commitments
- Summary inventory of assets; contact details of the representatives of the Social and Economic Committee authorised to be heard by the court
- Sworn statement that there has been no ad hoc mandate or conciliation procedure in the 18 months preceding the date of the application.
- Professional order or authority to which the debtor may be affiliated
- Copy of authorisation to operate an environmentally classified facility, if applicable
- Identity and address of the insolvency practitioner proposed for appointment.
The matter may also be referred to the court at the request of the public prosecutor’s office or by summons from a creditor for the purpose of initiating receivership proceedings.
How do the receivership proceedings work?
The receivership ruling opens an observation period.
This period lasts for 6 months and may be renewed for the same period once by the court. In exceptional cases, it may be renewed again for a further 6 months, but only at the request of the public prosecutor. In the case of receivership, the case is always brought before the court within two months of the opening judgment.
During this period, the company manager remains in charge of his business, possibly under the supervision of an insolvency practitioner, except in the case of a representation mission entrusted to the insolvency practitioner.
An economic, social and environmental assessment of the company is drawn up, followed by a draft continuation plan (proposals for the repayment of company debts) on which the creditors and the company’s employees will be consulted.
In certain major procedures, classes of affected parties (companies with at least 250 employees and sales of at least €20 million or sales of at least €40 million, or with the authorisation of the bankruptcy judge) will be set up to vote on the proposed plans.
Creditors may also submit draft receivership plans.
The Order of 15 September 2021 abolished creditors’ committees and replaced them with classes of affected parties.
At the request of the insolvency practitioner, the court may also order the sale of all or part of the business if the proposed plan or plans appear manifestly unsuitable for the company’s recovery or if no such plan exists.
What are the effects of receivership?
To enable the company to undergo restructuring, the following rules apply to the debtor and its creditors during the observation period:
- A ban on payment of all claims arising prior to the opening judgment, with certain exceptions (French Commercial Code, L. 622-7);
- Suspension of individual proceedings and enforcement measures (French Commercial Code, L. 622-21);
- Suspension of legal and contractual interest, as well as all interest and additional charges, unless it concerns interest resulting from loan contracts concluded for a term equal to or greater than one year or contracts with a deferred payment of one year or more (French Commercial Code, L. 622-28);
- Prohibition on registration of security interests (mortgages, pledges and liens may no longer be registered after the opening judgment) (French Commercial Code, L. 622-30).
Creditors will have to declare their claims to the insolvency practitioner, who will verify them under the authority of the juge-commissaire, who will settle any disputes.
Creditors based in mainland France must declare their claims within two months of publication of the opening judgment in the BODACC
