Judicial Reorganisation Lawyer in Paris (Redressement Judiciaire)

Judicial reorganisation (redressement judiciaire, sometimes loosely called receivership in English) allows a business in cessation of payments to continue trading. It opens an observation period designed to establish a diagnosis and prepare a solution. The procedure pursues three objectives: keeping the business going, preserving jobs and settling liabilities. It leads to a continuation plan or a sale plan, adopted by the court. Hashtag Avocats assists directors and creditors throughout this procedure. Every situation is different.

What is judicial reorganisation (redressement judiciaire) in France?

A procedure designed to keep the business going

Judicial reorganisation opens when a business can no longer meet its liabilities as they fall due with its available assets. Article L631-1 of the French Commercial Code (Code de commerce) makes this procedure available to a debtor in cessation of payments. It sets out its purpose: allowing the business to continue trading, maintaining employment and settling liabilities. Unlike liquidation, judicial reorganisation aims to rescue the business rather than wind it up.

Cessation of payments (insolvency test)

Cessation of payments means being unable to pay liabilities that have fallen due out of available assets. A debtor that shows that a credit facility or a moratorium enables it to meet them is not in cessation of payments. This concept determines whether the procedure can be opened. It also serves to set the date from which certain acts of the director may be challenged.

How are judicial reorganisation proceedings opened?

The 45-day deadline

The director must apply for judicial reorganisation within a set period after cessation of payments. Article L631-4 of the Commercial Code sets this period at forty-five days, unless the director has applied, within that same period, for conciliation proceedings to be opened. Meeting this deadline matters. Failing to do so exposes the director to a ban on managing a company (director disqualification), provided for by Article L653-8 of the Commercial Code.

The opening judgment

The court rules after hearing the debtor. If it finds cessation of payments and that recovery is possible, it opens the procedure. The judgment sets the length of the observation period and appoints the officers who will run it. It also sets, provisionally, the date of cessation of payments, which may be brought forward within statutory limits.

The observation period

The role of the court-appointed administrator

In principle, the court appoints an administrator (administrateur judiciaire). It is not required to do so where the company’s headcount and turnover remain below thresholds set by decree. The administrator supervises management or assists the director, depending on the task set by the court. The administrator prepares an economic and social report on the business. This report serves as the basis for building a solution. A creditors’ representative (mandataire judiciaire) also represents the creditors and verifies the claims filed.

Assessment and diagnosis

The observation period makes it possible to analyse the causes of the difficulties and assess the chances of recovery. The business continues trading under supervision. Creditors file their claims with the creditors’ representative within the statutory time limits, failing which they do not take part in distributions. The director cooperates with the officers of the procedure and provides the information needed for the diagnosis. This period of review results in a proposal: a continuation plan, a sale plan or, if this fails, conversion into judicial liquidation.

The reorganisation plan

The continuation plan

The continuation plan keeps the business under the management of its director. It sets a debt repayment schedule and the necessary reorganisation measures. Its duration is regulated by law. The court adopts it where there is a serious prospect of lasting recovery. This plan is the most favourable outcome, as it preserves the business and its director.

The sale plan

Where continuation under the director is not credible, the court may order the sale of the business to a buyer. A call for bids is organised during the observation period. Bidders submit an offer describing the scope taken over, the jobs maintained and the price. The court selects the offer that most durably secures employment and payment of creditors. Buying distressed assets (in French) is subject to precise rules.

Conversion into liquidation

Judicial reorganisation may fail. Where recovery becomes manifestly impossible, the court converts the procedure into judicial liquidation. This conversion may take place during the observation period or after a plan has failed. It marks the end of the rescue attempt. The director therefore has every interest in preparing each stage carefully, because the decisions taken beforehand weigh on the outcome of the procedure and on the director’s own position.

Reorganisation, liquidation or prevention?

Judicial reorganisation is only one of the responses to business difficulties. Where recovery is ruled out, judicial liquidation (in French) brings the business to an end. Earlier on, preventive mechanisms exist, such as the mandat ad hoc, which makes it possible to negotiate with creditors before cessation of payments. The earlier the diagnosis, the more solutions there are. Acting early preserves the chances of a rescue.

Why seek legal assistance in judicial reorganisation proceedings?

Judicial reorganisation puts at stake both the future of the business and its director’s liability. Each stage calls for strategic choices, from the declaration of cessation of payments to the adoption of the plan. A creditor must make sure to file its claim and defend its ranking. A buyer must secure its offer. Hashtag Avocats assists each of these parties and informs their decisions. Every situation is different.

FAQ

What is judicial reorganisation (redressement judiciaire)?
It is a collective insolvency procedure available to a debtor in cessation of payments. It aims to keep the business going, maintain employment and settle liabilities, through an observation period and a plan.

How long does a director have to declare cessation of payments?
The director has forty-five days from cessation of payments to apply for the procedure to be opened, unless conciliation has been requested within that period, under Article L631-4 of the Commercial Code.

What is the difference between a continuation plan and a sale plan?
The continuation plan keeps the business with its director and a debt repayment schedule. The sale plan transfers the business to a buyer.

What happens if judicial reorganisation fails?
The court may convert the procedure into judicial liquidation where recovery becomes manifestly impossible.

Does the director keep their powers during the observation period?
That depends on the task given to the administrator. The administrator may supervise management or assist the director, as set by the court.

Official sources

• Article L631-1 of the French Commercial Code (judicial reorganisation available to a debtor in cessation of payments; purpose: continuation of the business, maintenance of employment, settlement of liabilities) – Légifrance (in French)
• Article L631-4 of the French Commercial Code (obligation to apply for opening within forty-five days of cessation of payments, unless conciliation) – Légifrance (in French)
• Chapter I, Articles L631-1 to L631-22 of the French Commercial Code (opening and conduct of judicial reorganisation proceedings) – Légifrance (in French)

This article sets out the law for general information purposes. It does not constitute legal advice. Every situation is different and deserves its own analysis. Content compliant with the professional ethics rules of the legal profession.