Covid-19 | Adapting rules related to difficulties faced by companies and farms due to the state of public health emergency and amending some provisions of criminal procedure

Version updated on 27 May 2020

Pursuant to the authorization granted by Parliament in Law No. 2020-290 dated 23 March 2020, the Government adopted Ordinance No. 2020-341 on 27 March 2020 which modifies rules concerning companies and farms’ difficulties so as to adapt them to the state of public health emergency and to some modifications to the criminal procedure (“Ordinance No. 1“) and Ordinance No. 2020-596 of 20 May 2020 which modifies rules concerning companies and farms’ difficulties as a result of the Covid-19 epidemic (“Ordinance No. 2“) in order to adapt some provisions of Book VI of the French Commercial Code to the constraints imposed by the state of public health emergency.  

PART I: PROVISIONS OF ORDINANCE NO. 2020-341 OF 27 MARCH 2020

Ordinance No. 1 provisions apply to ongoing insolvency proceedings.

In this summary, we will only present provisions related to companies facing difficulties.

OPENING REQUIREMENT OF AMICABLE AND JUDICIAL PROCEEDINGS DUE TO A DEBTOR’S INSOLVENCY (Article 1, I, 1°)

Ordinance No. 1 provides that, until 23 August 2020 inclusive^[1], the debtor’s insolvency will be assessed as of existing at 12 March 2020.  

The assessment of the insolvency date (date de cessation des paiements), as provided for in Article 1(I)(1), has the following consequences:

• a debtor which was not insolvent on 12 March 2020 or had been insolvent for less than 45 days but which would be insolvent for more than 45 days during the period starting on 12 March and ending on 23 August inclusive may, during this period, file to start conciliation proceedings (even if it does not meet the required opening conditions, i.e. being insolvent for less than 45 days);
   
• a debtor which was not insolvent on 12 March 2020 but becomes so during the period starting on 12 March and finishing on 23 August 2020 inclusive could, during this period, file to start safeguard proceedings (even if it does not meet the required opening conditions, i.e. not being insolvent).

Nevertheless, Ordinance No. 1 specifies that a debtor may, if he is insolvent during the period starting on 12 March and finishing on 23 August 2020 inclusive, file for the opening of reorganization, liquidation proceedings or professional recovery proceedings (insolvency being a requirement for entering into such proceedings).

Since the opening of these proceedings is not stayed by Ordinance No. 1, employees’ salary claims fallen due on the start date of the said proceedings, could be borne by the competent insurance guarantee (AGS), within the limits set by law.  

Ordinance n°1 specifies that the assessment of the insolvency date on 12 March 2020 will not preclude the possibility of requesting the postponement of this date, as provided by Article L. 631-8 of the French Commercial Code or in the event of fraud.

EXTENSION OF AMICABLE AND JUDICIAL PROCEEDINGS DURATION

Extension of the duration of the conciliation proceedings (Article 1, II)

Ordinance No. 1 provides that conciliation proceedings, which duration are set in principle for a maximum period of 5 months, pursuant to provisions of Article L. 611-6 of the French Commercial Code, are automatically extended for a period of 5 months.

Ordinance No. 1 further provides that if conciliation proceedings fail (i.e. if no agreement has been reached within the prescribed period), the provisions imposing a 3 months waiting period for filing for a new conciliation proceedings do not apply.

The extension of the duration in judicial proceedings (Article 1, IV and Article 2, II)

Ordinance No. 1 provides that, until 23 June 2020 inclusive^[2], the following time periods are automatically extended for a period of three months:

• periods of observation, plan, simplified judicial liquidation and observation period set by the Court of Appeal pursuant to Article L. 661-9 if the French Commercial Code;
• employees’ claims coverage period by the AGS are extended in line with the extension time period of observation period, continuation of ongoing business in judicial liquidation and simplified judicial liquidation time period. Thus, the AGS guarantee periods for claims resulting from the termination of employment contracts and employees’ claims in the event of a judicial liquidation proceeding (provided for by Article L. 3253-8 2° b) to d) and 5° of the French Labor Code) are extended by a duration equivalent to that of Period 2.

Ordinance No. 1 also provides that, until 23 August 2020 inclusive, the court appointed trustee, the court appointed creditors’ representative, the judicial liquidator or the trustee in charge of the implementation of a plan may request to the President of the court the extension, for a period of 5 months, of all the deadlines imposed on them by Book VI of the French Commercial Code.

The extension of safeguard and reorganization plans (Article 1, III)

Ordinance No. 1 provides that the duration of ongoing safeguard or reorganization plan may be extended under the following conditions:

Until 23 August 2020 inclusive, (i) the trustee in charge of the implementation of the plan may request the President of the court to order the extension of the plan for 5 months or (ii) the Public Prosecutor’s Office may request this extension for a maximum period of one year.

From 24 August 2020 and for a period of 6 months, the trustee in charge of the implementation of the plan or the Public Prosecutor may request an extension of the duration of the plan for a maximum period of one year to the court.

It should be noted that, until 23 June 2020 inclusive, the plan duration is automatically extended for 3 months (cf. 1.2.2 above).

THE REDUCTION OF TIME PERIOD ALLOWING THE TAKE OVER OF EMPLOYEES CLAIMS BY THE AGS (Article 1, I, 2)

Ordinance No. 1 provides that court-appointed creditors’ representative must send to the AGS, without delay, the statements of employees claims so that these claims can be borne as quickly as possible.

Indeed, until 23 August 2020 inclusive, the court appointed creditors’ representative shall forward to the AGS the list of employees’ claims “without delay”, i.e. without sending it to the employees representative and the bankruptcy judge first. Nevertheless, the latter shall still be consulted, the case being, at a later stage.

THE ADAPTATION OF PROCEEDINGS AND COMMUNICATIONS DUE TO THE STATE OF PUBLIC HEALTH EMERGENCY (Article 2, I)

Ordinance No. 1 provides that, until 23 June 2020 inclusive:

• the “intermediate” hearing, scheduled two months after the opening of reorganization proceedings in order to assess the continuation of the observation period, is cancelled;
   
• the request presented to court by the debtor shall be communicated to the court registry (greffe) by any means;
   
• communications between the court registry, the court-appointed trustee, the court-appointed creditors’ representative, as well as between the other proceeding bodies shall be made by all means.

PROVISIONS RELATED TO FARMS (Article 3)

Ordinance No. 1 provides that for farms, until 23 August 2020 inclusive, in the context of out-of-court settlement proceedings (règlement amiable) under the Rural and Sea Fishing Code (Code rural et de la pêche maritime) (i) the worsening of a debtor’s situation, as from 12 March 2020, may not prevent the appointment of a conciliator and (ii) the financial insolvency, to which the agreement has not put an end to, must be assessed according to the debtor’s situation on 12 March 2020.

PART II: PROVISIONS OF ORDINANCE NO. 2020-596 OF 20 MAY 2020

ENHANCING THE PRESIDENT OF THE COURT AWARENESS FOR THE DETECTION OF COMPANIES DIFFICULTIES (Article) – these provisions are applicable until 31 December 2020 inclusive

As part of the preliminary warning procedure provided for under Articles L. 234-1, L. 234-2 and L. 612-3 of the French Commercial Code, the Statutory Auditors have the option, as soon as the first information is made available to the management, of notifying the President of the competent court of the insufficiency or lack of measures taken by the management.

The purpose of this measure is to provide the President of the court, as early as possible and as quickly as possible, information on the difficulties encountered by a company.

ENHANCING THE EFFECTIVENESS OF CONCILIATION PROCEEDINGS (Article 2) – these provisions are applicable to ongoing proceedings and until 31 December 2020 inclusive

Ordinance No. 2 puts in place measures aimed at considerably enhancing the efficiency of the conciliation proceedings.

Indeed, the debtor in conciliation may ask the President of the court, having opened the proceedings, to rule by ordinance on request:

• to interrupt or prohibit any legal proceedings from a creditor seeking an order against the debtor for the payment of a sum of money or the termination of a contract for a default of payment;
• to stop or prohibit any enforcement proceedings from a creditor on both movable and immovable property, as well as any distribution proceedings which did not have an allocating effect prior to the application;
• to postpone or defer the payment of due liabilities.

These measures may be combined with the request for grace periods, as already provided for in Article L. 611-7 of the French Commercial Code.

These new provisions allow the establishment of hybrid conciliation proceedings, close to the effects of the safeguard proceeding but without its drawbacks (it being specified that the duration of the conciliation is very largely extended, cf. below).

PROVISIONS AIMED AT FACILITATING THE USE OF ACCELERATED PROCEEDINGS (Article 3) – these provisions are applicable to proceedings initiated as from the entry into force of Ordinance No. 2 (21 May 2020) and at the latest until 17 July 2021 inclusive

Ordinance No. 2 facilitates recourse to the accelerated safeguard and accelerated financial safeguard proceedings, by removing the threshold conditions provided for under Article L. 628-1 of the Commercial Code.

If the accelerated safeguard or financial safeguard proceedings fail and no plan is drawn up within the period provided for in the first paragraph of Article L. 628-8 of the Commercial Code, the court may immediately, at the request of the debtor, the trustee, the creditors’ representative or the Public Prosecutor’s Office, open a reorganization proceeding or order a judicial liquidation.  

The aim is to give access to these proceedings to many companies as possible.

PROVISIONS TO FACILITATE THE ADOPTION OF SAFEGUARDING OR RECOVERY PLANS (Article 4) – these provisions are applicable to ongoing proceedings up to and including 31 December 2020

Ordinance No. 2 facilitates and accelerates the adoption of a safeguard or reorganization plan by :

• reducing the time limit for creditors consultation to 15 days where the presentation of a draft plan at at the creditors’ representative or the trustee’s request, subject to the authorization of the bankruptcy judge ;
• lightening the formalities for consulting creditors: proposals for the repayment of claims as well as any answers to these proposals may be communicated by any means enabling the creditors’ representative to establish with certainty the date of their receipt;
• the termination of the plan is exceptionally based on claims estimated on the basis of a certificate from the chartered accountant or statutory auditor, on admitted claims, uncontested claims and identifiable claims (those for which the deadline for reporting has not expired).

PROVISIONS TO FACILITATE THE IMPLEMENTATION OF THE SAFEGUARD AND RECOVERY PLANS (Article 5) – these provisions are applicable to ongoing proceedings and until 31 December 2020 inclusive, with the exception of the provisions on safeguard privilege applicable from the entry into force of the Ordinance (i.e. 21 May 2020) and at the latest until 17 July 2021 inclusive

Ordinance No. 2 contains provisions to facilitate the implementation of safeguard and reorganization plans:

• increase by a maximum of two years in the duration of safeguard or recovery plans (i.e. a maximum plan duration of 12 years and 17 years in the case of agriculture) ;
• failure to answer from creditors consulted for the adoption or modification of the plan shall be deemed to be an acceptance of the proposed new repayment proposals;
• introduction of a post-money privilege (new “safeguard or reorganization” privilege similar to the “new money” privilege), for those who make a new cash contribution to the debtor either during the observation period or as part of the safeguard or reorganization plan (these cash injections will be mentioned in the judgment which adopts or modifies the plan).

Creditors benefiting from this safeguard or recovery privilege are paid, for the amount of their contribution, in the order provided for in III of Article L. 622-17 and III of Article L. 641-13 of the French Commercial Code i.e. after wage claims.

Contributions made by the debtor’s shareholders in the context of a capital increase are excluded from the safeguard or recovery privilege.

PROCESSING OF COMPANIES IN SITUATIONS OF NO RETURN (Article 7) – these provisions apply to proceedings initiated as from the entry into force of Ordinance No. 2 (21 May 2020) and at the latest until 17 July 2021 inclusive

In order to facilitate and speed up proceedings concerning natural persons in an irretrievable compromised situation, Ordinance No. 2 lays down provisions to broaden the conditions of access to simplified judicial liquidation proceedings (no more threshold conditions: it is open to any natural person whose assets do not include real estate in particular) and professional reinstatement proceedings (the maximum threshold for access to professional reinstatement proceedings is raised from 5,000 to 15,000 euros).

PROVISIONS TO FACILITATE THE TRANSFER OF COMPANIES (Article 7) – these provisions are applicable to current proceedings up to and including 31 December 2020

Ordinance No. 2 provides for adjustments relating to the transfer of undertakings and in particular:

• a reduction in the time limit for the summon of contracting parties provided for under Article R. 642-7 of the French Commercial Code from 15 to 8 days in the event of a disposal plan (this time limit may however be modified by decree pursuant to Article 10 of Ordinance No. 2); and
• an authorization to sell to de jure or de facto directors, relatives of the directors (notwithstanding the prohibitions provided for in Article L. 642-3 of the French Commercial Code) by a specially grounded judgment, after seeking the opinion of the controllers creditors and provided that the proposed offer allows the activity to continue and employment to be safeguarded,

PROVISIONS AIMED AT FACILITATING COMPANIES REBOUND CAPACITY (Article 8) – these provisions apply to proceedings in progress and until the date of entry into force of the ordinance provided for under Article 196 of Law No. 2019-486 of 22 May 2019, and at the latest until 17 July 2021 inclusive.

Ordinance No. 2 reduces to one year the period at the end of which the mention in the RCS of a insolvency proceeding mentioned is struck off the register when the plan is still in force (this period may, however, be modified by decree pursuant to Article 10 of Ordinance No. 2).

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[1] This fixed date results from the amendments made by Ordinance No. 2020-596 and corresponds to the duration initially provided for by Order No. 2020-341 (expiry of a period of 3 months from the date of cessation of the state of public health emergency, before it is extended until 10 July).
[2] This fixed date results from the amendments made by Ordinance No. 2020-596 and corresponds to the duration initially provided for by Ordinance No. 2020-341 (expiry of a period of 1 month from the date of cessation of the state of public health emergency, before it is extended until 10 July).

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