Key points
- Safeguard proceedings (sauvegarde), provided for by Article L620-1 of the French Commercial Code (Code de commerce), are aimed at companies in serious difficulty but not yet insolvent (en cessation des paiements).
- They make it possible to restructure debts while continuing to trade, with a temporary freeze shielding the company from creditor enforcement.
- The director keeps the management of the company; in judicial reorganisation (redressement judiciaire), by contrast, the court may instruct the administrator to manage the company alone.
- The director proposes the safeguard plan with the assistance of the court-appointed administrator; the plan is then submitted to the creditors and adopted by the court.
- The director must cooperate and provide all financial documents; if the company becomes insolvent, the safeguard proceedings may be converted into judicial reorganisation or judicial liquidation (liquidation judiciaire).
When your company is going through financial difficulties, safeguard proceedings can be the solution to avoid insolvency (cessation des paiements). Provided for by Article L620-1 of the Commercial Code (in French), this procedure allows companies that are not yet insolvent but face serious difficulties to restructure their debts while continuing to trade.
Eligibility conditions for safeguard proceedings
Under Article L620-1, a company may benefit from safeguard proceedings if it faces difficulties it is unable to overcome, without being insolvent. This means that your company must still be able to meet its liabilities that have fallen due out of its available assets at the time of the application.
The aim is to allow you to restructure existing debts and preserve the business while finding a long-term way out of the difficulties. You need to understand that this procedure is preventive, not curative, unlike judicial liquidation or judicial reorganisation.
Advantages of safeguard proceedings
The main advantage of safeguard proceedings lies in the possibility of keeping the business running while obtaining a temporary freeze on debts. This lets you continue operating normally without fear of creditor enforcement during this period. In addition, the procedure gives you the opportunity to restructure the debt under the authority of the court and with the assistance of a court-appointed administrator (administrateur judiciaire).
Where one is appointed, the court-appointed administrator supervises your management or assists you with all or some management acts; the appointment is only mandatory above certain thresholds of employees and turnover. The administrator helps you conduct negotiations with creditors and prepare a viable draft safeguard plan. You nevertheless keep the management of your company, whereas in judicial reorganisation the court may instruct the administrator to manage the company alone.
The role of the court-appointed administrator
The court-appointed administrator plays a key role in the success of safeguard proceedings. Their aim is to support you in managing the company while protecting the creditors’ rights. They oversee the financial situation and advise you on the measures to take to improve management and cash flow.
The safeguard plan is proposed by the director, with the assistance of the administrator (Article L. 626-2 of the Commercial Code (in French)), and then submitted to the creditors. The plan sets out how the liabilities will be settled, the repayment periods and the actions to put in place to ensure the business remains viable. It is then for the court to adopt it.
The director’s legal obligations
As a director, you have several legal obligations in these proceedings. You must cooperate fully with the court-appointed administrator and provide all the necessary financial documents. Transparency is essential for the safeguard proceedings to lead to an acceptable restructuring plan.
You must also involve the employee representatives: where one exists, the social and economic committee (comité social et économique, CSE) is informed and consulted in the cases provided for by Article L. 2312-53 of the French Labour Code (Code du travail). Insolvency proceedings (procédure collective) such as safeguard require clear and structured communication to avoid misunderstandings and maintain a stable working environment.
If you fail to meet your obligations or conceal essential information, the proceedings could fail, which could have serious consequences for you and your company.
Possible consequences if the proceedings fail
If the safeguard proceedings fail, in particular because the company becomes insolvent, the court may convert them into judicial reorganisation, or even order judicial liquidation if reorganisation is manifestly impossible (Article L. 622-10 of the Commercial Code (in French)). In judicial reorganisation, the court may instruct the administrator to assist you or to manage the company alone. A sale of the business may then be considered, and liquidation follows if no viable reorganisation plan is found.
In the event of subsequent judicial reorganisation or liquidation, the director faces personal sanctions, such as personal bankruptcy (faillite personnelle) or a management ban (interdiction de gérer); in liquidation, the director may also be held liable for a shortfall of assets (insuffisance d’actif) if they committed a management error that contributed to that shortfall. It is therefore vital to cooperate with the administrator and comply with all your legal obligations.
The role of the insolvency lawyer
An insolvency lawyer assists you throughout the safeguard proceedings. The lawyer plays a decisive role in protecting your rights as a director, in particular by helping you prepare the application to be filed with the court. The lawyer also makes sure that creditors do not take measures that harm your company during the proceedings.
Your lawyer can also negotiate with creditors to obtain more favourable payment terms or write-offs on certain debts. The lawyer checks that the safeguard plan, which you propose with the assistance of the administrator, matches your needs and the reality of the company. In the event of disputes with creditors or other parties, the lawyer represents you before the court.
What the lawyer actually does to protect your rights
One of the first things your lawyer does is analyse the company’s financial situation to determine whether safeguard proceedings are appropriate. The lawyer then helps you build a solid application to convince the court that the procedure is necessary.
During the observation period, your lawyer monitors the actions of the court-appointed administrator and makes sure your interests are respected at every stage. The lawyer also advises you on the measures to take to improve the management of the company and support the success of the safeguard plan.
If creditors try to challenge the proceedings or put pressure on the company, your lawyer steps in to block them and assert your rights before the court. The lawyer makes sure that the decisions taken comply with the legal framework and the director’s rights.
Act early to keep your company going
Safeguard proceedings are a powerful tool for companies in difficulty, provided they are put in place early enough and managed rigorously. As a director, it is your responsibility to act at the first signs of financial difficulty. Planning ahead, with the support of an insolvency lawyer, can help you overcome the obstacles and keep your business running.
Using safeguard proceedings gives you the opportunity to restructure your debt while continuing to trade, without fear of pressure from creditors. With suitable legal support, you maximise your chances of success and protect both your company and your interests as a director.
For assistance: insolvency lawyer in Paris.
