FRANCE Law and Practice Contributed by: Arnaud Fromion, Frédéric Guilloux and Pierre-Benoît Pabot du Châtelard, Clifford Chance
7. Bankruptcy and Insolvency 7.1 Impact of Insolvency Processes The French legal system features (i) two out- of-court “prevention” proceedings ( mandat ad hoc and conciliation ) (ii) two in-court reorganisa - tion proceedings ( sauvegarde and sauvegarde accélérée ) and (iii) two in-court insolvency pro - ceedings ( redressement judiciaire and liquidation judiciaire ). All in-court proceedings include an automatic stay whereby, as from the date of the court deci - sion commencing the proceedings, the debtor is prohibited from paying debts that arose prior to such date, subject to specified exceptions that essentially cover the set-off of related debts (please see 7.7 Set-Off Rights ) and payments authorised by the bankruptcy judge or made to recover assets for which recovery is required for the continued operation of the business. Dur - ing this period, creditors are prevented from initiating any individual legal action against the debtor with respect to any claim arising prior to the court decision commencing the proceedings if the objective of such legal action is either (i) to obtain an order for payment of a sum of money by the debtor to the creditor (however, the credi - tor, provided it has filed its claim as stated above, may require that a court determines the amount due) or (ii) to terminate or cancel a contract for non-payment of amounts owed by the creditor. Creditors are also barred from taking any enforcement action against the debtor (includ - ing the enforcement of security interests), except where such enforcement is sought against assets that are located in another European Union member state, in which case the rights in rem of creditors would not be affected by the insolvency proceedings, in accordance with the
terms of Article 8 of Council Regulation (EC) No 2015/848 on insolvency proceedings. As regards guarantees, French insolvency law provides for the protection of the guarantors and co-obligors which benefit from the auto - matic stay on claims and actions. However, this protection is only applicable to natural persons not legal entities. No protection of guarantors or co-obligors should be available under liquidation proceedings. As regards out-of-court proceedings, there is no automatic stay, but such a stay may be granted by the court, as part of conciliation proceedings, upon request of the debtor which may file a peti - tion before the President of the Court to ask for (i) the rescheduling of accrued debt over a maxi - mum period of 24 months (“grace period”) and/ or (ii) the freezing or rescheduling of the debt to be accrued (ie, undue debt at the date of the petition) during the period of the conciliation pro - ceedings. A guarantor of the debtor may also benefit from any grace period granted by the judge to the debtor. The debtor remains in possession as part of in- court proceedings, save for liquidation proceed - ings. One or two judicial administrator(s) (JAs) are appointed by the court at the beginning of the proceedings and will supervise and assist management in preparing a restructuring plan. In rare circumstances, under insolvency pro - ceedings ( redressement judiciaire ), JAs can be granted with a representation mission and the debtor will not be in possession anymore, and the court-appointed liquidator will organise the disposal of assets. Debtor-in-possession (DIP) financing is possible subject to the prior approval of the supervisory
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