France

See Question 2, below, for details of the different types of insolvency proceedings available in France, which are safeguard, accelerated safeguard, receivership, and liquidation proceedings.

The most commonly used type of proceedings is liquidation, followed by receivership. Liquidation proceedings can be initiated immediately after an asset deal implemented in the course of a receivership. Liquidations represent approximately two-thirds of insolvency proceedings.

The concept of cessation of payments is central in France. A company is considered to be in cessation of payments when its available assets (cash balance and credit reserves) are less than its current due liabilities.

This concept determines which proceedings a debtor can opt for.

In France, there are two types of legal proceedings for restructuring a company.

The first is pre-insolvency proceedings: mandat ad hoc and conciliation. These are confidential proceedings opened by the president of the court upon the request of the debtor. Both allow the debtor to be assisted by an insolvency practitioner, with the aim of reaching an agreement with the company’s main creditors and partners with a view to its restructuring and avoiding an insolvency.

The mandat ad hoc is very flexible, with no specific criteria needing to be met to open such proceedings. The debtor determines the purpose of the assignment of the Mandataire ad hoc (the person appointed by the court to carry out the mission assigned by the court) (Article L. 611-3, Commercial Code).

The debtor must face legal, economic or financial difficulties and may be in a state of cessation of payments (but for no longer than 45 days) at the time of applying for a conciliation (Article L. 611-4 Commercial Code).

The mandat ad hoc is not restricted in terms of duration, while a conciliation proceeding cannot exceed five months.

Apart from special cases in conciliation, where the debtor may obtain payment schedules imposed on creditors by the president of the court, the principle is that these proceedings are based solely on the creditors’ determination to support or not the debtor. These proceedings are very efficient.

The second type of legal proceedings is public insolvency proceedings. These comprise safeguard, accelerated safeguard, judicial receivership, and judicial liquidation proceedings that are initiated by the court.

For safeguard proceedings, the debtor must not be in cessation of payment but must be experiencing difficulties that he/she will be unable to overcome (Article L. 621-1, Commercial Code). The duration of these proceedings may be 12 months maximum.

For accelerated safeguard proceedings, the debtor must have been in conciliation proceedings without having been able to reach an agreement with all the stakeholders involved and must prove that a draft debt repayment plan has been prepared that ensures the company’s long-term survival and can obtain the agreement of the creditor classes (Article L. 628-1, Commercial Code). The duration of accelerated safeguard proceedings is two months, with the possibility of renewal for a further two months. It is not necessary for all creditors to be affected by the proceedings; the debtor may decide to limit their scope to certain creditors.

For receivership proceedings, the debtor must be in a state of cessation of payment, but with a chance of recovery (Article L. 631-1, Commercial Code). The maximum duration of these proceedings is 12 months, with the possibility to obtain a six-month extension upon the approval of the public prosecutor. The proceedings may be initiated at the request of a debtor, creditor or public prosecutor.

Finally, in the case of judicial liquidation, the debtor must be in a state of cessation of payments, with no longer any chance of recovery (Article L. 640-1, Commercial Code).

The main protection offered by insolvency proceedings, with the exception of accelerated safeguard proceedings in which only some creditors may be affected, is that as soon they are opened creditors may no longer take individual actions against the debtor to recover their debts prior to the collective proceedings. Existing liabilities are frozen.

There are two pre-insolvency proceedings: the mandat ad hoc and conciliation.

3.1 What are the conditions to entry?

The mandat ad hoc is very flexible because there are no criteria to meet. Such proceedings may be initiated as a result of either financial or legal difficulties.

Conciliation proceedings may be justified by a company facing economic, financial or legal difficulties and the company may be in cessation of payments if it is less than 45 days

3.2 Can creditor claims be compromised “within a class”?

Although there is no requirement to divide creditors into classes for pre-insolvency proceedings, this is often considered part of the process.

Indeed, if an accelerated safeguard is to be initiated, a procedure for which the constitution of classes of creditors is compulsory and which will follow conciliation proceedings when no agreement has been reached, the division of creditors into classes must be anticipated, and this will take place during the collective proceedings.

In any case, if the pre-insolvency proceedings would fail, and even if no accelerated safeguard would be open but rather a safeguard or a receivership, it may be useful to start thinking about classes for the insolvency process in the course of the pre-insolvency process because this will be part of the global strategy and could form the basis of the option to offer to the creditor. The stakeholder involved in the process can anticipate their treatment if the negotiations fail and appreciate the opportunity to avoid an insolvency or not.

3.3 Is there a “cross-class cramdown”?

The cross-class cramdown mechanism should not be considered in pre-insolvency proceedings.

The mechanism is mandatory, however, in any case in accelerated safeguard proceedings.

In safeguard and receivership proceedings, this is mandatory where the thresholds of: (1) 250 employees and EUR 20 million in turnover; or (2) EUR 40 million in turnover are reached. The mechanism may also be used when the thresholds are not met; however, the prior approval of the insolvency judge is then required.

In these cases, the application of the cross-class cramdown mechanism is possible provided that: (1) there is a majority vote of the classes; and (2) one of the classes approving the plan is a class of creditors holding security interests or that has a higher rank than the class of unsecured creditors (that is the vote of at least one class, provided that it is not a class of holders of capital, or another class “outside the money” (which means that in the event of liquidation, these creditors would not be entitled to get payment in accordance with the order of payment of creditors)).

Compliance with the principle of absolute priority rule is required.

Unless the plan is accepted by all classes, the existing hierarchy between classes must be respected, with creditors of a higher-ranking dissident class, in principle, having to be paid in full before those of a lower-ranking class can receive any payment.

However, it is possible to override this rule where such an exception is necessary, subject to two cumulative conditions:

• this must enable the objectives of the plan to be achieved; and
• the plan does not excessively prejudice the rights or interests of the parties affected.

3.4 Can shareholder claims be compromised?

As explained above, if one or more creditor classes rejects the plan, including the shareholder class, it is possible to impose the plan through the inter-class cramdown mechanism, subject to conditions.

This mechanism allows shareholder opposition to be overridden, provided that at least one creditor class in the money (where they have stakes in the plan being adopted, unlike those who will receive nothing under any scenario: plan or liquidation) has voted in favour.

In fact, as soon as a class within the money votes in favour of the plan, the shareholders lose any power of obstruction because if there is failure to approve the plan, a judicial liquidation will follow, which is a scenario in which shareholders will not be reimbursed, therefore, they are “out of the money” and therefore cannot block a plan voted by a class within the money (classes within the value means that they could perceive some amount in a liquidation scenario).

3.5 Can secured creditors’ claims be compromised? Are deficiency claims treated differently?

See Question 3.3, above, and the conditions of application of cross-class cramdown.

3.6 Can creditors propose competing plans?

Yes, but only in cases of receivership proceedings. However, in reality and in most of the cases, it will be difficult for a creditor to submit a competing plan because of the timing and the lack of information on the debtor, including financial data, that a creditor will have.

3.7 What level of court or other third-party supervision is there of the process(es)?

The court-appointed receiver is solely entitled to set up the classes. The composition of the classes may be the purpose of the dispute that the court will have to rule on.

As regards the terms and conditions of the plan, the court-appointed receiver assists the debtor in the case of safeguard, and it is the court-appointed receiver who takes over the leadership of the plan with the assistance of the debtor in a receivership. Even if the legislation (Article L. 626-30-2 of the French Commercial Code for safeguard proceedings and L.631-19 of the same code for receivership proceedings) differ on who is submitting the plan, this is necessarily a collaboration between the receiver and the debtor.

Once the classes have voted on the plan, it must be adopted by the court, which checks that all the criteria have been met, particularly in the event of a cross-class cramdown.

4.1 What is the applicable law that provides for clawback and/or antecedent transaction claims?

The applicable law is provided in Article L.632-1 and following articles of the Commercial Code.

Certain acts carried out during the so-called “suspect” period, namely, the period between the date of cessation of payments and the judgment initiating the receivership or liquidation proceedings, may be declared void by the court because it is considered that they breach the principle of equality of creditors. The action tends to reconstitute the debtor’s assets.

4.2 What are the relevant “look-back” periods for claims?

The look-back period is the period between the date of cessation of payments, which can be set at a maximum of 18 months before the opening judgment, and the opening judgment.

The date of cessation will only be set in the event of a receivership or liquidation because the safeguard is applicable to debtors that are not in cessation of payment.

Certain particularly serious acts may be cancelled six months before the date of cessation of payments (gratuitous deeds and declarations of unseizability).

4.3 Who can pursue the claims?

The court-appointed receiver, the creditor’s representative, the liquidator, the commissioner for the execution of the plan and the public prosecutor, depending on the type of insolvency proceedings begun, can pursue the claims (Article L. 632-4, Commercial Code).

4.4 What remedies are available and how do they operate in practice?

If the action succeeds, the act is declared void by the court. This means that the proceeds of the action will be back within the debtor’s assets and will be to the benefit of all the creditors.

4.5 What defences are available?

There are two types of nullity: automatic and facultative nullity.

For automatic nullities, once the acts are identified, the nullity shall be declared. The defence will therefore be related to whether or not the act was carried out and its qualification.

Facultative nullities are related to acts performed by the debtor for the benefit of a third party who was aware of the debtor’s state of cessation of payments. In addition to the qualification of the act, the defence may relate to the creditor’s lack of knowledge of the state of cessation of payments. The evidence of the knowledge of the state of cessation of payments shall be provided by the plaintiff, which can be difficult.

The date of insolvency decided by the court may also be challenged by a third party having an interest to do so. The date can be set at the initiation of the insolvency proceedings and can be modified within one year from the beginning of the insolvency. Because the legal deadline to challenge the date is very short, such a challenge by a third party will be more common when the date is modified after the initiation of the insolvency proceedings with the purpose of launching a clawback claim. Depending on the case, it may be appropriate to challenge the date such an action is expected.

4.6 Is there a general right of action in respect of transactions defrauding creditors or Actio Pauliana claims?

Actio Pauliana, governed by Article 1341-2 of the Civil Code, enables creditors to obtain a declaration that acts performed by their debtor in fraud of their rights are unenforceable against them. The action is not affected by the individual stay of proceedings against the debtor, which is the principle when insolvency proceedings are opened.

4.7 Who can pursue the claims?

Any creditor may act. The representative of creditors and the liquidator may act, as well as possibly a majority of controllers (more than half of the controllers).

4.8 What remedies are available and how do they operate in practice?

The act will not be enforceable against the creditor who would succeed but will not be declared void. The non-enforceability only benefits the plaintiff. The opportunity would be able to act in the event where the clawback claim would not be possible.

4.9 What defences are available?

One defence may be to show that the impugned act did not contribute to rendering the debtor insolvent or to increasing the insolvency. Another defence is to prove that the creditor did not have a right prior to or concomitant with the impugned act, since in order to exercise an Actio Pauliana, the creditor must have a principle of claim on the day of the fraudulent act.

Directors can be held liable for an insolvent legal entity, as well as a de facto director (a person who performs positive acts of management in total independence without hierarchical control). The directors that may be sued can be individual or corporate entities; there is no restriction.

The definition of director will depend on the type of company.

It must be noted on a general basis that chairmen and CEOs are directors that can be sued, as well as members of the board and individuals representing the legal entity that is the director, if such a position exists (représentants permanents).

5.1 What are the duties of directors and managers?

There is no specific list of duties but, generally speaking, the director shall comply with the legislation. In the event of financial difficulties, duties include:

• limiting the increase in liabilities by requesting the initiation of insolvency proceedings within the legal deadline (45 days);
• taking restructuring measures and not letting the difficulties increase without taking any action;
• not preserving their own interests prior to filing for insolvency;
• maintaining complete and regular accounting records; and
• after the date of cessation of payments, not diverting assets to the detriment of creditors, and not paying any creditor in preference to others.

5.2 What claims can be brought against directors and managers arising from breaches of those duties?

Failure to comply with legal obligations is constitutive of a mismanagement, which can be sanctioned in various ways:

• Financial sanction (action en responsibilité pour insuffisance d’actif). The directors who contributed to the mismanagement to pay all or part of the amount of the lack of assets; only simple negligence is excluded (Article L. 651-2, Commercial Code). The amount at stake is always quite important because the lack of assets represents the difference between the liabilities that exist prior to the insolvency and the proceeds of the assets.
• Professional sanction (interdiction de gérer or faillite personnelle). The directors may also be subject to professional sanctions, such as a ban on managing the company for a duration that cannot exceed 15 years (Article L. 652-1, Commercial Code).
• Criminal sanction. The director in particular may be prosecuted for bankruptcy (banqueroute), which includes acts such as using ruinous means to obtain funds, concealing assets, or fraudulently increasing liabilities (Article L. 653-1, Commercial Code).

Usually, when an action is launched, the plaintiff is invoking financial and professional sanctions simultaneously.

5.3 Who can pursue the claims?

The liquidator, the public prosecutor or the majority of creditors appointed as controllers of the proceedings in the event of the liquidator’s failure to act (Article L. 651-3, Commercial Code) can pursue the claims.

5.4 Do directors have, at any time, a strict obligation to file for insolvency and, if so, when does that arise?

If the company remains in cessation of payments for more than 45 days, the director has a duty to file a petition for insolvency or to apply for a conciliation if the criteria are met.

Failure to comply with the legal obligation may constitute:

• a management fault that contributed to the company’s insolvency and may result in liability for the increase in amounts owed to creditors; and
• a fault that can lead to a prohibition from, directly or indirectly, running, managing, administrating or controlling any company or legal entity for the duration defined by the court, which may be less than or greater than 15 years.

5.5 Can directors and managers be found liable for the increase in sums owed to creditors after a company becomes insolvent?

Yes, as mentioned below.

5.6 In what other circumstances can directors and managers be found liable directly to creditors of the company?

Only the liquidator, the prosecutor or a majority of controllers (if the liquidator doesn’t introduce any action despite a formal request of the majority of controllers) may act. A creditor cannot act against the director in the event of a liquidation unless the plaintiff demonstrates that he/she has suffered personal and specific damage compared to the other creditors, which is quite restrictive. In such a case, the action will be based on civil tort law.

6.1 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

The office holder will have access to the elements gathered during the insolvency proceedings and to the public data (e.g. real estate, intellectual property (IP)/information technology (IT) registrar). The office holder will also have access to the accounts where the assets should be identified. At the initiation of the insolvency proceedings, the office holder requests various documents and information from the director.

The situation will differ depending on the type of director, that is, whether this is a company or natural person.

When an insurance company covers director’s liability, the office holder can also obtain the information if the insurance is paid by the company’s directors itself.

6.2 How is that information obtained in practice?

The information is obtained from the archives of the company and public registrars in most cases. A detective may be employed if necessary. Otherwise, it is obtained through the usual judicial tools.

6.3 Can the court assist in obtaining that information and how does that work in practice?

The regular procedural tools can be used to obtain the information but this is not very common practice as it increases the cost.

7.1 Is the UNCITRAL Model Law on Cross-Border Insolvency adopted in the jurisdiction.

France has not adopted the UNCITRAL Model Law on Cross-Border Insolvency.

7.2 Is it possible to recognise office holders from other jurisdictions?

For European Union (EU) Member States subject to EU Regulation 2015/848, this is possible as soon as the opening judgment is effective.

Outside the scope of EU Regulation 2015/848, the case law agrees that foreign insolvency judgments without prior recognition have limited authority to enable office holders to assert their status in France and carry out legal acts on French territory on behalf of the foreign legal entity, including taking precautionary measures or taking legal action against third parties, provided that this does not imply any recourse to the enforceability of the foreign decision.

In order to be fully recognised, and in particular to be able to carry out enforcement measures, the judgment in which the office holder was appointed must be subject to the recognition procedure explained below.

7.3 What is the process and what are the conditions for recognition?

According to Articles 19 and 20 of EU Regulation 2015/848, any decision that orders insolvency proceedings pursuant to Article 3.1 (main insolvency proceedings) is recognised with no formality in all EU Member States as soon as it is effective in the country that initiated the insolvency proceedings and as long as no subsidiary insolvency proceedings are begun. Pre-insolvency proceedings that are not mentioned in Exhibit A of the Regulation are not within the scope of such decisions.

Outside the scope of EU Regulation 2015/828, in the absence of an international treaty providing for the mutual recognition of insolvency proceedings in force between France and the foreign state concerned, the foreign insolvency proceedings will only be able to extend their effects in France after having been recognised. In addition to the absence of insolvency proceedings begun in France, three conditions must be met:

• the foreign court that rendered the decision must have jurisdiction;
• the foreign decision must not be contrary to French international public policy; and
• there must be no fraud on the law in the foreign decision (the French judge must verify that the debtor has not decided to transfer the registered office of his/her company from one country to another in order to influence the rule of jurisdiction (forum shopping) and, consequently, the rule of applicable law (law shopping) to his/her advantage).

7.4 What information can be obtained by office holders in respect of a debtor’s property, information and affairs?

Public registrars are accessible, which means that real estate, and IP/IT rights in particular, can be identified. The accounts can also be used. Otherwise, the regular actions will need to be followed, with no specific rights granted to the office holder.

7.5 What steps can a foreign office holder take to recover assets belonging to the debtor?

For Member States subject to EU Regulation 2015/848, in the absence of proceedings opened in the state where the assets are located and as long as any conservatory measures are taken with regard to those assets, the office holder may exercise all the powers conferred to him/her by the law of the state in which the insolvency proceedings are initiated, enabling him/her in particular to remove the debtor’s assets from the territory of the Member State in which they are located. If the office holder would like to use constraining measures, he/she will need to obtain a court order.

Outside the EU, the office holder shall first obtain recognition, and for realisation of the assets, a French court order will need to be obtained.

7.6 Is a foreign office holder able to bring clawback claims or fraudulent transaction claims?

EU Regulation 2015/848 provides that the opening law determines the rules relating to the clawback claim (Article 7, paragraph 2 (m)). Assuming that such an action would be possible in the country where the office holder is appointed, the office holder would be able to launch the action in France on the basis of its legislation. However, if the challenged act is governed by another legislation and if this specific legislation does not allow the act to be reconsidered, the action cannot succeed (Article 16).

The French courts must recognise the foreign order opening the insolvency proceedings before a clawback action can be brought.

8.1 Can a foreign office holder take appointments?

No. Only those listed in the French national registry, overseen by the National Council of Receivers and Creditor’s representative (CNAJMJ), are authorised to take appointments.

8.2 What are the conditions for becoming an office holder?

This is a specific profession that is regulated.

Office holders include two separate professions: receivers (administrateurs judiciaires) and representatives of creditors (mandataires judiciaires). The representative of creditors is the one appointed as liquidator when a liquidation is declared.

In contrast to most countries, in France, office holders are neither lawyers nor accountants. This is seen as a way to ensure independence and to avoid any conflict of interests.

Except for those with a specific diploma, who only have to show they have done a 30-month internship with an office holder, other people seeking to become office holders have to:

• pass a national examination after obtaining a four-year diploma (in law, economics or management);
• demonstrate a three-year internship with an office holder; and
• at the end of this internship, pass another examination.

Prior to acting as office holders, such individuals must take an oath.

8.3 What are the main rules of professional conduct?

Dignity, independence, integrity, humanity, loyalty, and fraternity are the principles of professional conduct. These are enforced through rules that govern relationships among professionals and with the judicial authority, defining their responsibilities in both private and professional contexts.

Insolvency practitioners must not engage in other economic activities that could compromise their independence and must withdraw from any conflicts of interest. They are bound by professional secrecy and must join the guarantee fund for receivers and creditor representatives, ensuring protection against civil liabilities and mismanagement of funds.