A new reform of restructuring and insolvency law – Caractère magazine, December 2021
Although the economy is looking up, the government remains cautious, especially as it is winding down its support measures.
Therefore, in September 2021, French lawmakers passed legislation (an ordinance on September 15 and its implementing decree on September 23) to increase the efficiency of restructuring, insolvency and debt relief proceedings. In a column published in May 2021, we discussed the government’s efforts to make preventive “conciliation” proceedings more attractive, in particular by extending until December 2021 the right for debtors to petition the presiding judge of the court to stay or prohibit legal action by dissenting creditors.
A new reform of the right for distressed businesses to be shielded from legal action by dissenting creditors.
The incorporation into the Commercial Code of the possibility for the presiding judge to stay individual actions by creditors marks another milestone. The presiding judge has also been given the added power to order an inquiry into the debtor’s business and financial situation immediately upon summoning them to a hearing, instead of waiting until after the hearing. From now on, all relevant information must be provided to the judge within three months of the date of the summons. The purpose is to increase the efficiency of the distress detection process. Lawmakers also sought to increase transparency about the cost of out-of-court procedures, stopping short of capping the conciliator’s fee.
The decree of September 23 provides that the debtor, assisted by the conciliator, must draw up a statement of all costs incurred in the proceedings, specifically including the conciliator’s fee. Finally, the reform perpetuates article 1 of the ordinance of May 20, 2020, which allows the debtor’s independent auditor to alert the presiding judge to its client’s financial hardships, when the debtor fails to take appropriate action.
This early warning provision should prompt more businesses to use preventive proceedings, at least those that have independent auditors. Unfortunately, the reform did not give that power to CPAs, which a broader range of businesses have. It would have been useful to give CPAs a duty to alert the business owner, in order to encourage the use of conciliation proceedings, as recommended by the National Assembly’s select committee in its report of July 21, 2021.
Column by our Restructuring partner Numa Rengot, published in Caractère magazine in December 2021 (editor: Guillaume Prudent).