Evolutions of French Insolvency normative framework : impact of the “Action plan for growth and transformation of businesses” Law, commonly known as the “PACTE” Law

The spirit of the “PACTE” Law, definitively adopted by the French Parliament the 11th of April 2019, aims to facilitate the turn around and rebound of entrepreneurs and businesses having filed for administration proceedings.

It briefly touches the pre-insolvency proceedings, by stretching the investigative prerogatives of the President of the French Commercial Court to Credit-Insurers, in order to get a vision of the debtors credit history and score.

However the main evolutions lie in the judicial administration proceedings :

• maintaining the company directors’ salary now becomes the norm (before, its was necessary to obtain the Commercial Judges authorisation to pay the directors salary), any modification or opposition to this rule becomes the exception,
• associating the director of the company to the choice of insolvency professionals appointed by the Court (which in reality, is a simple formalisation of the existing custom),
• reinforcement of the use of beneficial rebound frameworks (obligation for the Commercial Court to assess if the debtor or director is eligible for the professional reestablishment procedure, simplified liquidation procedure becomes obligatory for any business that meets the opening conditions),
• modification of the regime concerning the fiscal administrations’ claims in order to shorten procedure length and delays,
• legislative expansion of the definition of “farmer”, allowing agricultural businesses to fix a payment plan on a scale of 15 years, as opposed to the classic 10 years offered to other businesses,
• neutralisation of solidarity clauses in commercial leases when the business is sold in Court proceedings, improving chances of a sale by exempting the buyer to have to answer for unpaid rent by the debtor company.

The “PACTE” law also habilitates the government to emit executive orders to transpose the content of the new European Directive on preventive restructuring frameworks into French law.

Between these two new pieces of legislation, French restructuring frameworks are being tweaked to reduce the length of procedures (in favour of both creditors and debtors, notably to harmonise with similar European frameworks), to de-stigmatise the French vision of bankruptcy, and facilitate the turn around or rebound of businesses and entrepreneurs.