23 juillet 2019
par Sarah Pople

Episode 2: Influence of the new European Directive on preventive restructuring frameworks…

The future transposition of the European Harmonisation Directive adopted by the European Parliament on the 28th March 2019, and published on the 26th June 2019 (that must be transposed into French law before the 20th June 2021) will undoubtedly help to restore a more balanced legal playing field:

  • According to the directive, the stay should not exceed four months. A judicial authority can renew the stay twice, bringing the maximum length of the stay to twelve months, currently shorter than the maximum period of the “gracious delays” stay and the automatic stay in judicial proceedings. 
  • The directive focuses on the implication of creditors in the process of drafting and deciding a scheme. The creditors must be organised by class (leaving a relative leeway to State Members on the creation of and the constitution of classes). It is possible that the transposition of the directive would generalise the sorting of creditors into classes, moving away from the individual consultation of creditors.

The directive is however silent as to the consequences of a refused scheme by the creditors. Can the debtor continue to appeal to the court to impose a scheme refused by the creditors? In the affirmative, it certainly is an incentive for creditors to try and negotiate a scheme with the debtor. However, if this be the case, such a practice seems to undermine the importance of the role of the creditors. 

  • The directive introduces the cross class cram down, enabling the “cram down” of an entire dissenting class,  
  • The scheme must take into account the subordination existing between creditors, leaving the discretion for State members to apply the absolute priority rule or the relative priority rule.

Excepting the claim of the super-privileged creditor that advances unpaid wages and other sums with a similar nature, (l’association de garantie des salaires), the debtor cannot pay one creditor in a preferential manor to another, in spite of securities taken by the creditor.

This rule seems to attack the French take on the equal treatment of creditors, that provides for an absolute equality, and not a subjective equality.

However, officialising a best interest test, similar to that of Chapter 11 in US Bankruptcy Law, harmonises the way creditors are treated in pre insolvency schemes with pure insolvency and liquidation procedures. 

  • Amongst other subjects touched by the directive could be the conditions of designating an Administrator, and the payment of their fees charged to a creditor when they are at the initiative of the designation.

To conclude, several important points of the directive seem incompatible with the current state of French law. By transposing the directive, it seems that creditors will gain a more important role in pre-insolvency proceedings, axed on active negotiations between debtor and creditor.

All that is left, is to patiently wait the action of the Governing and Legislative bodies (the government being able to, since the Law “PACTE”, transpose the European Directive into French law by an executive ordonnance).

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