Among the many unsuspected consequences of the now famous "Time-limits" ordinance of 25 March 2020 (available here), some are of direct interest to companies of all sizes, and more specifically to the various restructuring processes employed by them.

Mergers, demergers, partial asset contributions, capital reductions not motivated by losses, dissolution-mergers - all these operations, which are extremely frequent in practice, have the common feature of offering the creditors of the companies concerned a right of opposition, to be exercised within a relatively short period of time (20 to 30 days depending on the case) before the operation in question is completed, the justification for which lies in the modification or even the cancellation of their initial lien. In concrete terms, if they consider that the prospects of payment of their claim are jeopardized, creditors must expressly apply to a judge to request immediate repayment or the provision of guarantees.

However, by extending a large number of legal time-limits in view of the practical difficulties caused by the epidemic in asserting their rights, the ordinance has undermined this mechanism. In that it covers any "legal action (…) prescribed by law (…) on pain of foreclosure", Article 2 of the Ordinance unquestionably applies to the right of opposition. The latter obviously takes the form of a legal action, imposed by various legal texts to protect the substance of the author's right, which can no longer be upheld after the time limit set by the said texts. The result is that, in accordance with Article 2 and in the case of restructuring operations implemented during the period legally protected under the health crisis^[1], creditors may validly file an opposition on two occasions. On the one hand, the opposition could have been lodged within the "normal" period of 20 or 30 days from the various starting points provided for by the texts. On the other hand - and this is the novelty - the opposition can still be received within the same time limit, but this time from 24 June, it being specified that, since its revision on 13 May 2020^[2], the Ordinance applies only to time-limits "which expired or will expire between 12 March 2020 and 23 June 2020 inclusive", so that it no longer applies to transactions decided during the 20 or 30 days preceding the latter date of 23 June 2020.

It remained to be seen whether the validation of this late action by the Ordinance would result in a corresponding postponement of the overall timetable of the operation. To the letter of the texts, this risk appeared to be particularly sensitive in cases of dissolution-merger and capital reduction not motivated by losses. In fact, Articles 1844-5 of the French Civil Code and L. 225-205 of the French Commercial Code expressly bind the effects or continuation of the transaction at the end of the opposition period or to the fate granted to the transaction by the court, whereas Article L. 236-14 of the French Commercial Code provides that such opposition "does not have the effect of prohibiting the continuation of the transactions" in the case of a merger, demerger or partial contribution of assets subject to the demerger regime. It could therefore have been deduced that, in the first case at least, the opening of a new deadline for creditors to file an objection postponed the final implementation of the transaction which also seemed in line with the opinion of the council of the national order of commercial court clerks^[3].

This was not, however, the approach proposed by the Chancellery in a position first given on dissolution-mergers (available here) and later transposed to capital reduction not motivated by losses (available here). For the Chancellery, the ordinance does not strictly speaking introduce a classical extension of the time limit, but only deems an opposition lodged within a later open time limit not to be late, so that it would not affect the date of completion of the transaction.

This position was finally endorsed by the public authorities by means of an ordinance of 3 June 2020^[4], which expressly provides the interpretation to be given to the provision under debate on the right of opposition. The ordinance states that, in respect of such a right, this provision does "not have the effect of postponing the date before which the act to expire at the end of this period cannot be lawfully performed or produce its effects". Consequently, there is no doubt that the timetable and the start of the restructuring operation, whatever its nature, will not be affected by the new deadline for creditors to object, which is confirmed in a particularly explicit manner by the report to the President of the Republic relating to the ordinance of 3 June 2020^[5].

The reasoning is undeniably appealing, in that it is based on the ordinance's original spirit, which aims to preserve individual rights without paralysing economic activity. Nevertheless, this position leads to the somewhat paradoxical result that the new opposition period offered by the Ordinance to creditors will no longer be of much use to them, because of the final completion of the transaction and the underlying risks that it would have been likely to cause for their right of lien.

It should probably then be considered that, as in the case of a merger where the company does not comply with the protective measures imposed by the court, the transaction would be unenforceable against the plaintiff creditor whose opposition would be accepted by the court within the new time limit. This would be tantamount to giving him a priority of payment over the company's assets, a priority that would itself be enforceable against all of the company's creditors.

Beyond that, one can more certainly be of the opinion that these debates confirm the notoriously inappropriate nature of the right of opposition as it is conceived today, in that it makes restructuring operations considerably more cumbersome while being practically never used by its beneficiaries.

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[1] That is to say, the period beginning on 12 March and ending on 23 June at midnight, pursuant to Article 4 of Law No. 2020-290 of 23 March 2020 and Article 1 of Ordinance No. 2020-306, in its version resulting from Ordinance No. 2020-560 of 13 May 2020.
[2] See Article 1 of Ordinance No. 2020-560 of 13 May 2020, which amended Article 1 of Ordinance No. 2020-306 on this point.
[3] See Ministerial letter 50G-2020 dated 16 April 2020.    
[4] See Ordinance No. 2020-666 of 3 June 2020 relating to the deadlines applicable in financial and agricultural matters during the state of health emergency.    
[5] See the report to the President of the Republic relating to the ordinance No. 2020-666 of 3 June 2020 relating to the deadlines applicable in financial and agricultural matters during the state of health emergency.

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Edmond Schlumberger is a member of Gide's Scientific Council and a professor at Université Paris 8 - Vincennes Saint-Denis. Head of the Master's degree in private law at this University, Edmond lectures on business law, in particular corporate law, distressed company law and contract law. He also leads seminars at Master's level in business law and international transaction law and corporate taxation at Université Paris I (Panthéon-Sorbonne). Edmond is a member of the editorial committee of Bulletin Joly Sociétés, and is the author of a number of articles on corporate law, including in its European section.

The partners of Gide's Mergers & Acquisitions / Corporate practice group are available to answer any questions you may have in this respect. You may also get in touch with your usual contact at the firm.

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