An end to the debate around the notion of “farmer” in French bankruptcy law
The French commercial code not only allows, but privileges the solution above all others, for businesses entering administration proceedings to propose a ten year payment plan of their debts. It is only if the financial documentation concerning the performance of the business shows that this payment plan isn’t possible that other solutions are pursued, such as the sale of the business sanctioned by the courts, or liquidation proceedings.
Exceptionally, the French commercial code favourably provides that farmers can ask for a payment plan lasting for up to fifteen years (Article L. 626-12 French commercial code).
Before November 2017, the French courts liberally applied this text, making no distinction between a farmer as an individual, or a company with a farming activity (EARL).
However, in November 2017, the High Court ruled that the favourable disposition of 15 year plans could only apply to a natural, physical person (Cour de cassation chambre commerciale 29 novembre 2017 n°: 16-21032).
The wording of the legal disposition referred to a “farmer”, without specifying if the farmer must be a physical person, or could also include any legal entity that had an activity of farming. Indeed, the societal and company types available to farmers in order to organize their activity whilst protecting their personal estate are large and varied, and well used. The company form also manages to associate several family members to a single farm.
Consequently, the High Court ruled out the possibility for farming companies to benefit from the 15 year plan. The spirit might have been to not permit large businesses to benefit from the legal dispositive. Unfortunately, the numerous families or couples, having organized their activity through a legal entity, suffered the same fate. Many held the position that this decision went against the spirit of the text when the French legislator created it.
Also, this reversal meant that the practice sanctioned by the courts for many years could be put into question. Were the ongoing payment plans, sanctioned for 15 years by the courts (often against the will of reticent creditors) legal? Could they be put into question? The decision also left incertitude as to the application of the text to all legal entities or to just some: did the new rule apply to just commercial forms of farming companies, or include also partnerships, even specific types of partnerships only available to farming businesses?
The “PACTE” Law, definitively adopted by the French Parliament the 11th of April 2019, finally puts an end to this incertitude. The law sees a return to the practice used before November 2017 and the High Court decision, allowing farming companies and partnerships to benefit from a 15 year plan, the vital criteria to exercise a farming activity, that is defined in the Rural and Maritime Fishing Code (Article L. 311-1).
The legislation is welcome, not only to put an end to the uncertainty around the scope of the law, but also to avoid penalising small farming businesses.