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Changes on the horizon for the role of French creditors in preventive and pre-insolvency procedures - Episode 1

July 22, 2019

Episode 1: the role of creditors in French pre- insolvency procedures

Far from the Greek and Roman eras when debt slavery or debt bondage was a feasible and legal means of debt collection, the pendulum has significantly swung in favour of the debtor in French law, especially since the legal reforms of 1985.

Indeed, the Legislative prioritised the continuation of the debtors activity, and in fine, saving employees jobs, over the satisfaction of creditors. In French out of court negotiations, such as the mandat ad’hoc or conciliation procedures, creditors can either agree, or not, to a debtors proposal. Nothing stops them from making a proposal of their own; however the power of decision and adoption of a plan lies solely with the debtor. What’s more, French law provides that the Courts can impose a stay (“gracious delays”) for up to a 24 month period on a, or several, reluctant creditors, especially if the other creditors called to the proceedings have given their avail on the out of court agreement.

In pre-insolvency judicial proceedings, such as the sauvegarde judiciaire, the creditors suffer the legal effects brought about by the judgment opening the proceedings : article L. 622-7 of the commercial code provides for an automatic and general stay (initially 6 months, the commercial court being able to renew the stay period once, and exceptionally a second time if the attorney general requests it, totalising a possible 18 month period all in all). The commercial court can also impose a scheme proposed by the debtor on creditors, permitting the payment of claims according to a new schedule that can be progressive and last up to ten years (fifteen in the agriculture sector).

Recent legislative advances have nuanced the powerful position of the debtor. In some cases, classes of creditors must be constituted during the sauvegarde judiciaire procedure, as opposed to the principally used system of individual consultation of creditors. New variations of this procedure were thought up to prevent an automatic stay on all types of creditors. However, these procedures remain little used.

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