#Insolvency Lawyer in Paris, France

Insolvency Lawyer in Paris, France

Insolvency proceedings (safeguard, judicial reorganisation, judicial liquidation, mandat ad hoc, conciliation) provide the legal framework for dealing with a company in difficulty. Each procedure follows its own regime, pursues its own objective and engages the rights of directors, creditors, employees and, where applicable, buyers. Our firm acts for debtors and creditors alike, in Paris and throughout France, at every stage of the difficulty.

This page gives an overview of the procedures set out in Book VI of the French Commercial Code (in French) (Code de commerce), the lawyer’s role at each stage, the director’s rights and obligations, continuation and sale mechanisms, and the consequences for contracts, employees and creditors. Each situation is examined in light of the rules in force and the economic circumstances of the case.

Overview of French insolvency proceedings

Out-of-court procedures usually come before insolvency proceedings: the mandat ad hoc (Article L. 611-3 of the Commercial Code) and conciliation (Articles L. 611-4 et seq.) are confidential, initiated at the request of the director, who remains in charge, and aim to negotiate a rescheduling or financial restructuring agreement with the main creditors. These procedures are particularly suited to difficulties that are real but not irreversible.

Court proceedings proper cover three levels. Safeguard (sauvegarde, Articles L. 620-1 et seq.) opens at the request of a debtor that shows difficulties it cannot overcome, without being in cessation of payments. Judicial reorganisation (redressement judiciaire, Articles L. 631-1 et seq.) applies when the company is in cessation of payments but its recovery appears possible. Judicial liquidation (liquidation judiciaire, Articles L. 640-1 et seq.) is required when recovery is manifestly impossible. Each procedure has its own effects on debts, contracts and business continuity.

When to open insolvency proceedings, and which ones

Cessation of payments (cessation des paiements) is defined as the inability to meet liabilities that are due with available assets (Article L. 631-1 of the Commercial Code). A director who finds that the company is in cessation of payments must file a declaration within forty-five days, unless they request the opening of conciliation within that period (Article L. 631-4). Failure to do so exposes the director to personal sanctions (director disqualification, personal bankruptcy, liability for shortfall in assets).

The choice between safeguard, reorganisation and liquidation depends on how serious the situation is and on the capacity for recovery. Safeguard, opened before cessation of payments, preserves the director’s room for manoeuvre. Judicial reorganisation freezes pre-existing liabilities, allows the business to continue provisionally and opens the way to a continuation plan or a sale plan. Judicial liquidation ends the business (save for temporary continuation) and organises the sale of the assets.

How French insolvency proceedings unfold

The opening judgment appoints a supervising judge (juge-commissaire), a creditors’ representative (mandataire judiciaire, who represents the collective interest of creditors), a court-appointed administrator (administrateur judiciaire, depending on the case) and, in reorganisation or liquidation, sets the date of cessation of payments. It opens an observation period of six months, renewable once; in reorganisation, it may exceptionally be extended by six months at the request of the public prosecutor (procureur de la République), up to a maximum of eighteen months. The business continues under supervision during this period. Pre-existing claims are frozen: the judgment prohibits their payment (Article L. 622-7 of the Commercial Code (in French)) and stays individual enforcement actions (Article L. 622-21).

Creditors must file their claims within two months of publication in the BODACC, the French official gazette of civil and commercial notices (Articles L. 622-24 and R. 622-24). Failure to file forfeits the right to a distribution unless relief from the time bar (relevé de forclusion) is granted. The creditors’ representative verifies the claims and draws up a schedule of liabilities, which the supervising judge approves. The proceedings end with a safeguard plan, a reorganisation plan, a sale plan or liquidation.

Continuation plan and sale plan

The continuation plan organises repayment of debts over a maximum of ten years (fifteen years for farming businesses), with instalments that the court may reduce. The court adopts the plan after consulting creditors. Companies that reach the regulatory thresholds fall within classes of affected parties, which vote on the draft plan (Articles L. 626-29 and L. 626-30). For other companies, the creditors’ representative obtains creditors’ consent individually or collectively (Article L. 626-5). The plan sets the time limits, the write-offs accepted and the terms of performance (Article L. 626-18).

The sale plan (plan de cession, Articles L. 642-1 et seq.) allows a third party to take over all or part of the business. Bidders submit offers, which the court examines with regard to preserving the business, maintaining jobs and paying creditors. The pre-pack sale (prépack cession) prepares the transaction during conciliation and then completes it quickly once insolvency proceedings open; it is governed by Article L. 642-2 I.

Our firm assists buyers in drafting offers, negotiating with the officers of the proceedings and structuring the takeover from a legal and tax perspective. For sales of a business (fonds de commerce) outside insolvency proceedings, see our page lawyer for buying and selling a business in France.

Employees, contracts and creditors’ rights

Employees enjoy special protection. Super-priority wage claims (pay for the last sixty days before the opening) are paid first. The AGS (Association pour la gestion du régime de garantie des créances des salariés, the French wage guarantee scheme) covers unpaid claims up to certain ceilings. Economic redundancies in insolvency proceedings follow an accelerated procedure, with consultation of the CSE (works council) and oversight by the DREETS (regional labour authority).

Ongoing contracts are not terminated merely because proceedings have opened (Article L. 622-13 I). The administrator or, failing that, the debtor with the assent of the creditors’ representative (Article L. 627-2), decides whether they continue. Termination clauses triggered by insolvency proceedings are unenforceable (Article L. 622-13 I). Post-opening creditors who contribute to continuing the business enjoy a priority (Article L. 622-17): their claims are paid ahead of pre-existing claims.

Director liability and sanctions

A director may be held liable on several grounds. Liability for shortfall in assets (Article L. 651-2 of the Commercial Code (in French)) allows the court, in liquidation, to order the director to bear all or part of the shortfall in assets where mismanagement contributed to it. Since Law No. 2016-1691 of 9 December 2016, known as “Sapin II”, mere negligence by the director in management is not enough to establish this liability.

Other sanctions exist: director disqualification (interdiction de gérer, Article L. 653-8), personal bankruptcy (faillite personnelle, Articles L. 653-3 to L. 653-5) and criminal prosecution for fraudulent bankruptcy (banqueroute, Article L. 654-2) where serious acts are established (fictitious accounting, misappropriation or concealment of assets, fraudulent increase in liabilities). Paying one creditor to the detriment of the others after cessation of payments exposes the director to personal bankruptcy or disqualification (Article L. 653-5). A defence prepared as soon as proceedings open allows you to put forward your arguments effectively.

Creditors: filing, disputes and appeals

Pre-existing creditors must file their claims within two months of publication in the BODACC, a period extended by two months for creditors not residing in mainland France (Article R. 622-24). The filing specifies the amount, the nature of the claim, any security and the supporting documents. Claims secured by a real security interest (mortgage, pledge over tangible assets, pledge over intangible assets) keep their rank. Post-opening claims with priority under Article L. 622-17 are paid before pre-existing creditors.

If a claim is disputed, the creditors’ representative notifies the creditor, who has thirty days to respond (Article L. 622-27). The supervising judge rules on admission; the decision may be appealed to the court of appeal (Article R. 624-7). Strict time limits apply. Our firm defends institutional creditors (banks, leasing companies, suppliers) and private creditors at every stage, from filing the claim to performance of the plan or distribution in liquidation.

How our firm assists you

Our teams act well upstream of difficulties: financial and legal diagnosis, advice on out-of-court procedures, preparation of filings to open proceedings, and representation before the court hearing the proceedings and before the employment courts. We also assist buyers (sale plan offers, pre-pack), creditors (claims, disputes, committees) and directors (personal defence, liability for shortfall in assets).

Our coordination with our tax, corporate and company law teams allows the restructuring, the tax treatment of the sale and any residual litigation to be handled in a single matter. To tell us about your situation, please contact us using the firm’s contact form.

Frequently asked questions

What are the three French insolvency proceedings?

Safeguard (before cessation of payments, at the debtor’s request), judicial reorganisation (after cessation of payments, recovery possible) and judicial liquidation (recovery manifestly impossible). In addition to these three proceedings, there are preventive out-of-court procedures (mandat ad hoc, conciliation), which may, if they fail, lead to insolvency proceedings.

What does a lawyer do in insolvency proceedings?

The lawyer advises the director or creditor on the appropriate procedure, prepares the opening filings, assists at each stage (hearings, classes of affected parties, negotiations), defends the director against personal liability where necessary, structures takeover offers and handles challenges to claims. The lawyer also coordinates the tax, employment and contractual aspects.

What is the difference between safeguard and judicial reorganisation?

Safeguard opens before cessation of payments, solely on the initiative of the director, who must show insurmountable difficulties. Judicial reorganisation opens after cessation of payments, at the debtor’s request, on a creditor’s summons or on application by the public prosecutor (Article L. 631-5). Safeguard preserves the director’s powers more fully and makes it easier to adopt a voluntary plan; reorganisation offers more levers (forced sale plan) but exposes the director more.

What is cessation of payments?

The inability to meet liabilities that are due with available assets (Article L. 631-1 of the French Commercial Code). It is assessed concretely, on the date of the analysis, with regard to debts that are due and undisputed and to immediately available cash. Mere cash-flow pressure, resolved by extra time or bank support, is not cessation of payments.

How long do French insolvency proceedings last?

The observation period lasts up to six months, renewable once; in reorganisation, it may exceptionally be extended by six months at the request of the public prosecutor (Articles L. 621-3 and L. 631-7). A continuation plan may run for up to ten years. A simplified judicial liquidation must in principle be closed within six months or one year depending on the size of the company (Article L. 644-5). In other cases, the court sets the time limit for considering closure (Article L. 643-9); a complex liquidation (numerous assets, litigation) lasts several years. The timetable depends on the assets, pending litigation and strategic choices.

Are my ongoing contracts terminated?

No, in principle. Article L. 622-13 of the French Commercial Code lays down the principle that ongoing contracts continue. Termination clauses triggered by insolvency proceedings are unenforceable. The administrator or, failing that, the debtor with the assent of the creditors’ representative may nevertheless decide not to continue certain contracts; the supervising judge may also order termination at the administrator’s request. The other contracting party may, for its part, serve formal notice on the administrator to take a position: if there is no response within one month, the contract is terminated automatically.

Are pre-existing debts frozen?

Yes. The opening judgment prohibits payment of pre-existing claims (Article L. 622-7 of the French Commercial Code) and stays individual enforcement actions by pre-existing creditors (Article L. 622-21). These claims must be filed by their holders and will be dealt with under the plan or the distribution in liquidation. Post-opening debts, arising lawfully for the needs of the proceedings or the observation period, enjoy priority (Article L. 622-17).

What are the consequences for the director?

The director keeps their role in safeguard and, in most cases, in reorganisation. In liquidation, the company is divested of the management and disposal of its assets, and these rights are exercised by the liquidator (Article L. 641-9). The director may be ordered to make good all or part of the shortfall in assets if mismanagement, other than mere negligence, contributed to that shortfall (Article L. 651-2). The director may also face sanctions (director disqualification, personal bankruptcy, criminal prosecution for fraudulent bankruptcy in the case of serious acts).

Every situation is different: the information on this page is general and does not replace legal advice tailored to your case. The firm makes no promise of outcome; it commits to the means it deploys.