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Confidentiality in the preventive conciliation procedure: at risk by the application of the “PACTE” Law?

November 14, 2019
by Sarah Pople

The treatment of distressed companies in France is divided into two realms : confidential preventive procedures (necessarily implying that the debtor company is in a pre-insolvent state, or has been insolvent for less than a 45 day period), and collective proceedings (pre-insolvent with financial difficulties ahead, or insolvent).

The latter are public proceedings (the main ones besides pure liquidation proceedings being “la sauvegarde judiciaire” and “le redressement judiciaire”), producing an automatic stay with regard to all creditors in order to permit a business to carry on its activity. In order for creditors to produce their claims, to be aware of the automatic stay and to respect the collective rules of the proceedings imposed on all creditors, it is quite obviously necessary that the information about the proceedings has a public nature.

The efficiency of preventive procedures resides in the opposite: only the creditors invited to Conciliation negotiations know about the existence of the preventive procedure, and they are bound by a duty of confidentiality. Indeed, article L. 611-15 of the French commercial code could not be clearer : any person that is called to Conciliation proceedings (or a Mandat Ad Hoc) is bound by a duty of confidentiality.

This principle has recently been reinforced, because even those not invited to the conciliation proceedings must abide by the rule of confidentiality if they come to know about the Conciliation procedure. This extension of the duty of confidentiality has been set by a judicial precedent made by the highest French commercial Court by decision dated 13th of June 2019 (Cass. Com., 13th June 2019 n°18-10.688). The High Court confirmed that, excepting a higher general interest, confidentiality of the Conciliation procedure primes freedom of expression (of the Article 10 of the European Convention of Human Rights), notably the right to publish the existence of the procedure in the press.

However, almost in contradiction with the tendency to reinforce confidentiality, the new PACTE law introduces a new dispositive, of which the consequences could be drastically public.

Historically, in virtue of the article L. 611-6 of the French commercial code, the President of the Commercial Court has the power to unilaterally question certain partners of the debtor company once the Conciliation procedure has been opened. They can do this without the consent of the debtor company, the consent of the designated Conciliator or the consent other creditors invited to the procedure.

This list includes the company accountant, public administrations or a company auditor for example. The PACTE law extends this list to include Credit Insurers. These Credit Insurers, who are by no means systematically invited to the Conciliation negotiations, could be tempted to cease or reduce the insurance provided, notably supplier or trade credit, as a response to such questioning. This would have an immediate impact on the working capital requirement of a company that already foresees financial short or long term difficulties. It could also indirectly infringe on the confidentiality of the procedure. Indeed, it seems logical that the debtor company should dictate which partners are invited to the Conciliation negotiations. Furthermore, the credit insurer could decide to subsequently modify the debtor company’s public credit rating, indicating to a very large public audience that the debtor company is in a difficult financial situation.

The possible consequences of this new text therefore seem to go against the fundamentals guaranteeing the efficiency and attractiveness of the Conciliation procedure.

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