FRANCE Law and Practice Contributed by: Anne-Sophie Noury, Saam Golshani and Alicia Bali, White & Case
The goals of judicial reorganisation proceedings are the sustainability of the business, the preservation of employment and the payment of creditors, in that order. As it is a court-administered proceeding, the insol - vency judge opens a six-month “observation period”, renewable for up to 18 months (against a maximum of 12 months under safeguard proceedings), during which the debtor will negotiate a waiver of debt or rescheduling with its creditors. Unlike out-of-court proceedings, a judicial reorganisation is public, and pre-filing claims are automatically stayed against the company. At the end of the observation period, the judge will make an order for: • the continuation of the business through a reor - ganisation plan; • the sale of all or part of the debtor’s assets through a sale plan; or • if the latter fails, conversion into liquidation pro - ceedings. 4.2 Statutory Restructuring, Rehabilitation and Reorganisation Procedure Automatic Stay In court-administered proceedings, the automatic stay on claims prevents creditors from enforcing security (except for security interests relying on title transfer, such as a security trust or a Dailly security assign - ment). Adoption of a Restructuring Plan In court-administered proceedings, creditors (and, if applicable, equity holders) must be consulted regard - ing the manner in which the debtor’s liabilities will be settled under the safeguard or reorganisation plan (debt write-offs, payment terms or debt-for-equity swaps) prior to the plan being approved by the court. The rules governing consultation will vary depending on the size of the business. If a class-based consultation is mandatory in accel - erated safeguard proceedings, the creation of such classes will only be compulsory if the debtor is above
certain thresholds in safeguard or judicial reorganisa - tion proceedings (as described in the following). This applies to companies that meet or exceed either of the following thresholds on the date of the petition for the commencement of proceedings: • 250 employees and EUR20 million in net turnover; or • EUR40 million in net turnover (on a standalone basis or together with other entities that they hold or control, within the meaning of Articles L. 233-1 and L. 233-3 of the French Commercial Code). Classes can also be created upon the debtor’s request – and with the authorisation of the supervisory judge – if the debtor in possession does not meet such thresh - olds. Even if the debtor in accelerated proceedings does not meet the thresholds that require affected creditors’ classes to be formed (as mandated), the court must order such formation in the decision open - ing the proceedings. The judicial administrator is responsible for drawing up the classes and informing each affected party that it is a member of a class. On the basis of objective verifiable criteria, they must also allocate the affect - ed parties in classes representing a sufficient com - monality of economic interest ( communauté d’intérêt économique suffisante ) in compliance with the follow - ing conditions: • creditors whose claims are secured by security interests in rem ( sûretés réelle s) and other credi - tors (such as unsecured) shall belong to different classes; • the class formation shall comply with subordina - tion agreements entered into before the com - mencement of proceedings, which must have been brought to the attention of the judicial administrator within ten days of their notification to each affected party of its membership in a class; • equity holders shall be allocated to one or more classes; and • in respect of creditors secured by a security trust ( fiducie ) granted by the debtor, only the amount of their claims that are not secured by such security trust is taken into account.
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