What is a safeguard procedure?
A safeguard procedure is designed to facilitate the reorganisation of a company in order to allow it to maintain its economic activity, preserve jobs and pay off its debts.
It is provided for in articles L.620-1 et seq. and R.621-1 et seq. of the French Commercial Code.
What situations are covered by the safeguard procedure?
The debtor must not be insolvent and must have difficulties which he is unable to overcome.
Who is involved in the safeguard 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 coordinate 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 auditors and technicians.
- an insolvency practitioner, 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 insolvency practitioner monitors or assists the business alongside the company manager. He draws up a full diagnosis of the business. With his assistance, the debtor offers solutions for safeguarding the business.
- an insolvency practitioner is responsible for defending the collective interests of creditors. He safeguards the rights of creditors, by verifying declared claims and consulting them on repayment proposals (unless there are classes of affected parties). He is involved in the procedure at all stages.
- f necessary, one to five auditors appointed by the juge-commissaire 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 does the safeguard procedure begin?
Only the company manager may submit an application for a safeguard procedure. This may be the legal representative of the legal entity or the individual debtor.
The application must set out the nature of the difficulties encountered and the reasons why the company is unable to overcome them.
The documents to be attached to the application are listed in article R. 621-1 of the French 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.
How does the safeguard procedure work?
The safeguard judgment opens an observation period of 6 months, renewable once by the court for the same duration.
During this period, the company manager continues to run the business, assisted, if necessary, by an insolvency practitioner.
An economic, social and environmental assessment of the company is drawn up, followed by a draft safeguard plan (proposals for repaying the company’s 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 with 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.
The Order of 15 September 2021 abolished creditors’ committees and replaced them with classes of affected parties.
Eventually, the debtor may request the partial sale of the business.
What are the effects of the safeguard procedure?
To enable the company to undergo restructuring, the following rules apply to the debtor and 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
