Judicial reorganisation (redressement judiciaire) opens when a company is in cessation of payments (cessation des paiements), meaning it can no longer meet its due liabilities out of its available assets, but its recovery is considered possible. It is a collective insolvency procedure that places the company under the supervision of the court and of appointed court officers (mandataires de justice), while seeking to maintain the business and jobs.
For a director, the opening of judicial reorganisation is a difficult step, but it is also a protective framework that gives the director time to find a solution. How the director prepares for it and acts during the proceedings largely determines the outcome.
Filing for cessation of payments: when must a director apply?
The director of a company in cessation of payments must apply to the competent court to open proceedings no later than 45 days after the cessation of payments, unless within that period they have applied to open conciliation proceedings (Article L. 631-4 of the French Commercial Code (Code de commerce) (in French)). This deadline is strict. Filing late can expose the director to personal sanctions, in particular director disqualification (interdiction de gérer) (Article L. 653-8 (in French)) and, in the event of judicial liquidation, a claim for a shortfall in assets if they committed a management error (Article L. 651-2 (in French)). Conversely, a company that is not yet in cessation of payments does not qualify for judicial reorganisation: its director may apply for safeguard proceedings (sauvegarde) if they can show difficulties they are unable to overcome (Article L. 620-1 (in French)).
Who is involved in the proceedings?
The judgment opening judicial reorganisation appoints court officers: a creditors’ representative (mandataire judiciaire) who represents the creditors and, where applicable, a court-appointed administrator (administrateur judiciaire) whose task is set by the court (assisting the debtor with all or some management acts, or running the company alone, in whole or in part, Article L. 631-12 of the Commercial Code (in French)). The court also appoints a supervising judge (juge-commissaire) who oversees the conduct of the proceedings.
In principle, the director remains in office, but their management powers may be limited by the tasks given to the court-appointed administrator. Major acts (asset sales, significant new commitments) may require the approval of the administrator or the supervising judge.
The observation period
The proceedings begin with an observation period during which the business continues, pre-existing claims are frozen and the court officers analyse the company’s situation. At the end of this period, several outcomes are possible: a reorganisation plan (the business continues and creditors are repaid on a set timetable), a sale plan (the business is transferred to a buyer) or, if neither option is viable, judicial liquidation.
How the director should act during the proceedings
The director’s conduct during the proceedings is decisive, both for the outcome of the proceedings and for their personal situation. Cooperation with the court officers, transparency about the company’s situation, active communication with customers and partners, and an active search for a continuation plan or a buyer all count in the director’s favour. Conversely, breaches of their obligations or questionable management acts during the proceedings can worsen their personal situation.
For assistance, see our dedicated pages: safeguard proceedings lawyer (in French), pre-pack sale lawyer and lawyer for director liability in insolvency proceedings.
