Key points
- Safeguard proceedings (sauvegarde) apply before the cessation of payments, to restructure the business, preserve jobs and protect the payment of creditors.
- They freeze debts arising before the opening judgment and can lead to a plan lasting up to ten years.
- Judicial reorganisation (redressement judiciaire) applies once payments have ceased; the opening of proceedings must be requested within 45 days, unless conciliation is requested within that period, failing which the corporate officer is exposed to a disqualification from managing a business (interdiction de gérer).
- In judicial reorganisation, the court appoints a supervising judge (juge-commissaire) and, where applicable, a court-appointed administrator (administrateur judiciaire), who prepares the draft plan with the debtor’s assistance; a sale of the business may also be considered.
- Judicial liquidation (liquidation judiciaire), the last resort when reorganisation is impossible, realises the assets to pay the debts in the order of priority set by law.
- Liquidation in principle brings the business to a halt, unless the court authorises it to continue temporarily; the liquidator may make employees redundant and sells the assets.
When financial difficulties threaten the survival of a business, you must act quickly and effectively. As an insolvency lawyer, my role is to guide and assist my clients throughout these complex steps. This article sets out in detail the different reorganisation procedures available, to clarify their specific features and to advise as effectively as possible.
Further reading: safeguard proceedings and judicial reorganisation (in French).
Safeguard proceedings: prevention before the crisis
Safeguard proceedings aim to help a business overcome its difficulties before it has ceased payments. The procedure therefore takes place upstream and helps prevent the business from being forced into bankruptcy. Its main objective is to support the restructuring of the business, so as to preserve jobs and the payment of creditors.
Certain conditions must be met to open safeguard proceedings. The debtor, which must not have ceased payments, must show difficulties that it is unable to overcome (Article L. 620-1 of the French Commercial Code (Code de commerce) (in French)). Once the competent court has opened the proceedings, a court-appointed administrator (administrateur judiciaire) may be appointed to assist the company in preparing a safeguard plan; this appointment is not mandatory for the smallest businesses.
The benefits of safeguard proceedings
This procedure offers several benefits. In particular, it freezes the debts arising before the date of the opening judgment (they may not be paid and individual enforcement actions are stayed) and allows the adoption of a plan lasting up to 10 years (Article L. 626-12 of the Commercial Code (in French)). Where one is appointed, the administrator supervises or assists the management, which continues to run the business: the administrator does not replace it.
At the end of the observation period, a safeguard plan is adopted, setting out the measures needed to turn the business around. The creditors are consulted (in the largest businesses, the classes of affected parties vote on the draft plan) and the court adopts the plan by judgment. This proactive approach can often avoid more drastic outcomes such as liquidation.
Judicial reorganisation (receivership): the response to the cessation of payments
Judicial reorganisation applies to businesses that have ceased payments. Unlike safeguard proceedings, this procedure takes place when the company can no longer pay its debts with its available assets. Its objective is likewise to preserve the business and jobs, and to settle its liabilities.
As soon as the business is in cessation of payments, it must apply to the court to open proceedings within 45 days, unless it has applied for conciliation within that period (Article L. 631-4 of the Commercial Code (in French)). Otherwise, the corporate officer is exposed, in particular, to a disqualification from managing a business, which puts considerable pressure on those running the business.
How judicial reorganisation proceeds
After the application, the court decides whether to open the proceedings. A supervising judge (juge-commissaire) is then appointed to ensure that the proceedings move swiftly and that the interests at stake are protected. Where applicable, a court-appointed administrator is designated to analyse the economic and social situation of the business.
The administrator, with the debtor’s assistance, then prepares the draft reorganisation plan; a total or partial sale of the business may also be considered. The creditors are consulted on the draft, and the court then adopts the plan by judgment. It is essential that the business cooperates fully with the administrator to maximise its chances of success.
Judicial liquidation: the last resort for businesses in serious difficulty
When it is established that judicial reorganisation cannot be envisaged, the business moves towards judicial liquidation. This process marks the end of the business’s activity and consists of realising its assets to pay its debts. It is therefore a radical measure, often seen as a last resort.
The court orders the opening of liquidation proceedings when there is no serious prospect of reorganisation. A liquidator is appointed to administer the business during the liquidation, selling the assets and distributing the proceeds to creditors in the order of priority set by law.
Consequences of judicial liquidation
The consequences of this procedure are severe. The business in principle ceases trading, unless the court authorises it to continue temporarily because a sale is possible or because the public interest or the creditors’ interest requires it (Article L. 641-10 of the Commercial Code (in French)). The liquidator may make employees redundant, and the assets are sold to repay the debts. This often leads to significant material and human losses for all stakeholders.
However, in some cases, parts of the business can be taken over by new investors through a court-approved takeover (reprise à la barre du tribunal). This sometimes makes it possible to keep some of the jobs and continue certain activities, thereby limiting the social impact of the liquidation.
The reorganisation plan: a key tool to get out of the crisis
The reorganisation plan, or safeguard plan, remains central in both procedures aimed at continuing the business. Whether safeguard proceedings or judicial reorganisation is chosen, a sound and viable plan is the backbone of any attempt to rescue a business. The plan sets out all the reorganisation measures needed to restore the company’s profitability.
To define such a plan, the administrator will carry out an in-depth review of the company’s finances, operational management and commercial strategy. Depending on the results of this review, various actions will be proposed, such as cost reductions, renegotiation of payment terms or the sale of certain non-strategic activities.
What a reorganisation plan includes
- A detailed analysis of the current financial situation
- Corrective measures to increase profitability
- Proposals to optimise cash flow
- Steps to reduce non-essential expenditure
- Implementation of organisational adjustments
Putting these elements into practice will depend heavily on the business’s ability to mobilise its internal resources and to work closely with the court-appointed administrator. The stronger the commitment, the greater the chances that the reorganisation plan will succeed.
Support from a lawyer: a decisive factor
Finding your way through the intricacies of insolvency proceedings can be an ordeal for any entrepreneur. This is why the involvement of a lawyer remains essential. My experience in insolvency proceedings shows that professional legal support not only saves time but, above all, helps you make the right choices at the right time.
Whether you are preparing an application for safeguard proceedings, dealing with a cessation of payments or negotiating with creditors during a judicial reorganisation, competent support can make all the difference. An outside perspective backed by specific skills helps you step back and identify the most suitable solutions to overcome the financial difficulties you face.
