Key points
- A sale plan (plan de cession) organises the takeover of a business in difficulty by a third party.
- It pursues three objectives: maintaining the business activity, preserving jobs and settling liabilities.
- The court adopts it on the basis of the takeover bids filed, under Article L642-1 of the French Commercial Code (Code de commerce).
- The sale may be total or partial, covering a complete and autonomous business division.
- The court selects the bid offering the strongest guarantees of employment and payment.
- The takeover bid describes the scope taken over, the price, the jobs and the guarantees provided.
A sale plan (plan de cession) organises the takeover of a business in difficulty by a third party. It has three objectives: maintaining the business activity, preserving jobs and settling liabilities. Decided by the court in the course of insolvency proceedings (procédure collective), it allows all or part of the business to be transferred. This page explains what it is, how it works and its effects. Every situation is different.
What is a sale plan (plan de cession) in France?
Definition
A sale plan consists in transferring the business, or an autonomous part of it, to a buyer. It is used when a recovery led by the directors alone is no longer feasible. The court adopts the plan on the basis of the takeover bids filed.
The three objectives: business activity, jobs, settlement of liabilities
Article L642-1 of the Commercial Code gives the sale a threefold purpose: ensuring the continuation of activities capable of being operated autonomously, preserving all or part of the related jobs and settling liabilities. The sale may be total or partial. In the latter case, it covers a set of operating assets forming one or more complete and autonomous business divisions.
When is a sale plan used?
A sale plan is mainly used in judicial reorganisation (redressement judiciaire) and in judicial liquidation (liquidation judiciaire) with continued trading. It assumes that the business still has economic value and takeover potential. The aim remains to avoid the sudden disappearance of the business activity and jobs.
Sale plan versus continuation plan
The court chooses between two routes. The reorganisation plan (plan de redressement), often called a “continuation plan” (plan de continuation), keeps the company under the management of its director, with a schedule for repaying its debts. The sale plan transfers the business to a third-party buyer. The choice depends on the viability of the business and the quality of the bids received. Where continuation is not credible, the sale becomes the rescue solution.
How does a sale plan work?
The call for bids and the takeover bid
A call for bids is organised during the observation period. Candidates file a takeover bid describing the scope taken over, the jobs maintained, the price offered and the guarantees provided. The bid binds its author under the conditions set by law.
The role of the court
The court selects the bid that, under the most favourable conditions, ensures lasting employment and payment of creditors. It assesses all the parameters, beyond price alone. Its decision adopts the plan and designates the buyer.
How does the court choose the winning bid?
Article L642-5 of the Commercial Code governs this choice. The court rules after obtaining the opinion of the public prosecutor (ministère public) and hearing, or duly summoning, the debtor, the liquidator, the administrator, the person or persons designated by the social and economic committee (comité social et économique) and the creditor controllers (contrôleurs). It selects the bid that, under the most favourable conditions, ensures the most lasting employment attached to the business transferred and payment of creditors, and that offers the strongest guarantees of performance. Price is therefore not the only criterion. The durability of jobs and the reliability of the buyer carry as much weight.
What must a takeover bid contain?
The bid describes the scope taken over, the business and financing forecasts, and the price and its payment terms. It specifies the level and prospects of employment justified by the business activity. It indicates the guarantees provided to ensure its performance and the duration of the commitments. Once filed, the bid cannot be withdrawn, nor amended except in a way more favourable to maintaining the business activity and jobs and to settling liabilities. It binds its author until the court’s decision adopting the plan (Article L642-2 of the Commercial Code (in French)). Candidates should therefore prepare their file with care.
The effects of the sale plan
The buyer acquires the assets included in the scope without, in principle, taking over the prior liabilities, subject to statutory exceptions such as certain security interests. The contracts needed to continue the business activity can be transferred. The sale proceeds are distributed among creditors according to their ranking. This mechanism differs from the continuation plan, which keeps the company in the hands of its director.
The buyer’s commitments
The buyer must comply with the commitments made in its bid. The court may also prohibit it from disposing of the acquired assets without authorisation, for a period that the court sets. This restriction aims to ensure the continuity of the business activity and the maintenance of the jobs announced. A breach may give rise to liability. A takeover bid must therefore be prepared rigorously, as it binds its author for a long time.
Temporary inalienability of the assets taken over
Article L642-10 of the Commercial Code is the basis for this obligation. The court may provide, in the judgment adopting the plan, that all or part of the assets transferred may not be disposed of without its authorisation. The court itself sets the duration of this inalienability. The measure is publicised under the conditions laid down by decree. A buyer who wishes to resell a protected asset must therefore seek the court’s approval. This rule prevents the rapid break-up of the business taken over.
The transfer of ongoing contracts
The court determines which contracts are necessary to maintain the business activity, in light of the observations of the co-contracting parties, and the judgment adopting the plan entails their transfer. These include, in particular, finance leases (crédit-bail), rental agreements and contracts for the supply of goods or services. The co-contracting party must continue performance on the terms in force on the date the proceedings were opened, notwithstanding any clause to the contrary. This transfer is binding on the co-contracting party. It protects the takeover of a business activity that depends on key contracts.
Why seek legal assistance?
A sale plan brings together divergent interests: directors, employees, creditors and buyers. Each party needs advice suited to its position. The director seeks to limit his or her liability. The buyer wants to make its bid and the scope taken over legally sound. Legal assistance informs decisions at each stage, from the observation period to the adoption of the plan. Every situation is different.
Frequently asked questions about the sale plan
What is a sale plan?
It is the court-ordered transfer of all or part of a business in difficulty to a buyer, in order to save the business activity and jobs and to settle liabilities.
How does it differ from a continuation plan?
A continuation plan keeps the company with its director. A sale plan transfers it to a third party.
How do you file a takeover bid?
By responding to the call for bids during the observation period, with a file specifying the scope, jobs, price and guarantees.
Does the buyer take over the debts?
In principle, no. The buyer acquires the assets, excluding prior liabilities, subject to exceptions provided for by law.
What criteria does the court use to choose the bid?
The most lasting maintenance of employment, payment of creditors and the strongest guarantees of performance, under Article L642-5 of the Commercial Code. Price is not the only criterion.
Can the buyer resell the assets taken over?
Not freely. The court may declare all or part of the assets inalienable without its authorisation, for a period that it sets, under Article L642-10.
Are ongoing contracts transferred to the buyer?
The court may order the transfer of the leasing, rental or supply contracts needed for the business activity. They continue on the terms in force on the date the proceedings were opened, notwithstanding any clause to the contrary.
Official sources on the sale plan
- Article L642-1 of the Commercial Code (purpose of the sale plan: maintaining the business activity and jobs and settling liabilities; total or partial sale) – Légifrance (in French)
- Section 1 (“De la cession de l’entreprise”, Transfer of the business), Articles L642-1 to L642-17 of the Commercial Code – Légifrance (in French)
- Article L642-5 of the Commercial Code (court’s choice of the bid ensuring the most lasting employment, payment of creditors and the strongest guarantees of performance) – Légifrance (in French)
- Article L642-7 of the Commercial Code (transfer of leasing, rental or supply contracts; performance on the terms in force on the date of opening notwithstanding any clause to the contrary) – Légifrance (in French)
- Article L642-10 of the Commercial Code (temporary inalienability of all or part of the assets transferred, for a period set by the court) – Légifrance (in French)
This article presents the current state of the law for general information purposes. It does not constitute legal advice. Every situation is different and deserves specific analysis. Content compliant with the professional conduct rules of the legal profession (avocats).
For assistance: pre-pack sale lawyer.
