France: Restructuring & Insolvency

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This country-specific Q&A provides an overview of the legal framework and key issues surrounding restructuring and insolvency in France.

This Q&A is part of the global guide to Restructuring & Insolvency.

For a full list of jurisdictional Q&As visit

  1. What forms of security can be granted over immovable and movable property? What formalities are required and what is the impact if such formalities are not complied with?

    • Security on real estate property

    The two most common types of security over real estate property are the mortgage (“hypothèque”) and the lender’s lien (“privilège du prêteur de deniers”). Both require a notarial deed and must be registered in order to take rank. A mortgage only takes rank upon the date of its registration, while a lender’s lien takes rank from the date of the acquisition provided that it is registered within two months (if not, it takes rank upon registration, like a mortgage). In either case, enforcement is effected by means of a court-supervised public auction or by court-ordered attribution of the property to the secured creditor (subject to the creditor paying the amount, if any, by which the value of the property as appraised independently exceeds the secured amount). In the case of a mortgage only, enforcement may also, if agreed in the mortgage deed (or at the time of enforcement), result from the direct appropriation of the secured property by the secured creditor (subject to payment of any excess as in the case of court-ordered attribution). Direct appropriation is seldom agreed by borrowers in normal financing circumstances, but may more likely be imposed in a restructuring context. A French trust arrangement (fiducie) may also be used for security purposes in relation to real estate. In a fiducie, one or several settlers transfer assets, rights or security interests to a trustee that manages those assets, according to the terms of the fiducie agreement, for the benefit of designated beneficiaries.
    The fiducie must be registered with the French tax authorities within one month of signing. Compliance with this filing obligation is necessary to ensure validity and perfection of the security.

    • Security on movable property

    One of the main types of security over movable property is the pledge (known as “gage” in respect of tangible assets and “nantissement” in respect of intangible assets). Failing performance of the secured obligation, the pledged assets may be sold. Enforcement of the pledge against third parties is subject to a written instrument so enabling the debtor to gain priority in insolvency proceedings. A “Dailly assignment of professional receivables” or a French trust arrangement may also be used to secure a payment.

    • Security on shares

    The most usual types of security are the pledge over shares (“nantissement de parts”) or over company’s securities accounts (“nantissement de comptes-titres”) depending on the corporate form of the company. As such, pledgors will fictitiously retain the shares/financial securities until they are fully paid up by the debtor.

  2. What practical issues do secured creditors face in enforcing their security (e.g. timing issues, requirement for court involvement)?

    Unlike amicable proceedings, insolvency proceedings trigger an automatic stay on claims which prevents creditors from suing the debtor and enforcing the securities. However, there are a few exceptions:

    • Claims secured by a security interest may confer a lien (droit de retention) over the collateral. During the observation period, at the request of the judicial administrator, the insolvency court may exceptionally authorise the payment of a pre-filing secured creditor to obtain the surrender of the retained pledged asset to the estate to the extent that the pledged asset may be necessary to the debtor’s pursuit of its business activity.
    • Claims assigned by way of Dailly assignment of professional receivables. The creditor to which the debtor's receivables have been assigned by way of Dailly assignment, can directly seek payment of those assigned receivables despite any filing.
    • Claims secured by a fiducie agreement. The creditor can enforce its rights over the assets transferred to the trust, except where the creditor initially agreed, at the time the fiducie agreement was executed, that those assets would remain in the debtor's possession.
  3. What is the test for insolvency? Is there any obligation on directors or officers of the debtor to open insolvency procedures upon the debtor becoming distressed or insolvent? Are there any consequences for failure to do so?

    The French insolvency test is a pure cash flow test, defined as the debtor’s inability to pay its debts as they fall due with its immediately available assets (cessation des paiements), taking into account available credit lines and moratoria. Within 45 days from the insolvency date, the legal representative of the insolvent company is required to file for reorganization proceedings or liquidation proceedings.
    In the event directors of the debtor knew of the insolvency and failed to file the appropriate proceeding within this required time period, they will be held personally liable in tort for an act of mismanagement (“faute de gestion”).

  4. What insolvency procedures are available in the jurisdiction? Does management continue to operate the business and/or is the debtor subject to supervision? What roles do the court and other stakeholders play? How long does the process usually take to complete?

    • Reorganisation proceedings (redressement judiciaire)

    When a company is insolvent and its recovery appears possible, its management, any unpaid creditor or the public prosecutor may apply for the opening of a judicial reorganisation.
    The court opens a six-month “observation period” (which is renewable up to 12 months and exceptionally up to 18 months upon request of the public prosecutor) during which the debtor will negotiate with its creditors a waiver of debt or rescheduling. During the observation period, a judicial administrator will be in charge of assisting the management of the debtor’s business. The administrator may also be empowered by the court to take over the management and control of the debtor.
    At the end of the observation period, the judge will make an order for (a) the continuation of the business through a reorganisation plan which must be adopted by the creditors in the same conditions as for the safeguard; (b) the sale of all or part of the debtor’s assets through a sale plan; or (c) if the latter fails, the progression into a liquidation proceeding.

    • Judicial liquidation proceedings

    Liquidation is the appropriate remedy when the company is insolvent and its reorganization or rescue appears obviously impossible. It may be initiated by the debtor, any unpaid creditor or the public prosecutor. The purpose of such a proceeding is to liquidate a company by selling it as a whole or each branch of activities or asset one by one. In order to request the court to open an immediate liquidation proceeding, the debtor must show evidence that its recovery is hopeless and obviously impossible. The court may order the immediate liquidation of the debtor’s assets and will appoint a liquidator to replace the debtor in its management and proceed with the sale of the assets (private sale or auction). However, when it seems possible that all or part of the business has the chance to be sold to a third party, then the operation of the company will continue temporarily for up to four months.

  5. How do creditors and other stakeholders rank on an insolvency of a debtor? Do any stakeholders enjoy particular priority (e.g. employees, pension liabilities)? Could the claims of any class of creditor be subordinated (e.g. equitable subordination)?

    Insolvency proceedings are concluded with distribution of the company value to the different claimholders in the selected assets of the debtor. The value distribution follows a predetermined rank order. Creditors’ ranking is, however, very complex to describe since it will depend on many factors. However, the priority rules of claims payment are generally the following: (i) employee-related claims (AGS – Association pour la gestion du régime de garantie des créances de salariés) benefit from a preferential status (“superprivilège des salariés”); (ii) costs of the insolvency proceedings; (iii) post-petition claim benefit from a statutory privilege (“new money” priority); (iv) claims secured through security interests over immovable property, specific security interests over movable property, in particular security interests to which a lien (droit de retention) is attached; (v) claims that have arisen after the judgment opening the insolvency proceeding and which are necessary to conduct the proceeding, and all other claims according to existing priority rules.
    During liquidation proceedings, claims secured by a mortgage, by a pledge with retention of title or by a registered lien over property, plan or equipment, rank ahead of post-petition claim.

  6. Can a debtor’s pre-insolvency transactions be challenged? If so, by whom, when and on what grounds? What is the effect of a successful challenge and how are the rights of third parties impacted?

    French law provides for some rules which make it possible to declare certain transactions entered into by the company void or voidable during the so-called “hardening period” which is the period between the date of insolvency (which may be carried back up to 18 months prior to the judgement opening the insolvency proceeding) and the opening of insolvency proceedings.
    Some transaction entered into during the hardening period are automatically void and include in particular;

    • any deed entered into without consideration transferring title to movable or immovable property;
    • any bilateral contract in which the debtor’s obligations significantly exceed those of the other party;
    • any payment by whatever means, made for debts that had not fallen due on the date when payment was made;
    • all payments for outstanding debts, if not made by cash settlement or wire transfers, remittance of negotiable instruments, or “Daily assignment of receivables”;
    • any mortgage or pledge granted to secure a pre-existing debt.
    • In addition, any payment made or any transaction entered into during the hardening period may be at the discretion of the court, subject to two conditions: (i) the payment or transaction took place during the hardening period and (ii) at the time of the payment or transaction, the contracting party knew that the debtor was insolvent.
      The claw-back action is exercised by the administrator, the legal representative, the Commissioner in the implementation of the plan (juge-commissaire) or the prosecutor.

  7. What form of stay or moratorium applies in insolvency proceedings against the continuation of legal proceedings or the enforcement of creditors’ claims? Does that stay or moratorium have extraterritorial effect? In what circumstances may creditors benefit from any exceptions to such stay or moratorium?

    As seen previously, insolvency proceedings trigger an automatic stay (moratorium) on claims which prevents creditors from suing the debtor for payment and enforcing the securities.
    That stay or moratorium have extraterritorial effect if the French insolvency law appears applicable in accordance with European law (Regulation 2015/848) or International law because of the “universal” effect of the French insolvency law. However, Article 8 of Regulation 2015/848 provides a limit to that universal effect: the opening of insolvency proceedings in a European Member State shall not affect the rights in rem of creditors or third parties in respect of assets belonging to the debtor which are situated within the territory of another European Member State.

  8. What restructuring and rescue procedures are available in the jurisdiction, what are the entry requirements and how is a restructuring plan approved and implemented? Does management continue to operate the business and/or is the debtor subject to supervision? What roles do the court and other stakeholders play?

    • Mandat ad hoc proceedings
      Mandat ad hoc are confidential proceedings which are not limited in time. The management continues to operate the business. The only role of the court-appointed officer (mandataire ad hoc) is to help the debtor negotiate with its main creditors and find the most suitable solution. Approval by creditors, being on a voluntary basis, is based on a unanimous vote. If an agreement is reached between the company and its creditors, the mandataire ad hoc’s duties end. Otherwise, the agreement is terminated.
    • Conciliation proceedings
      Conciliation proceedings are available to debtors that face difficulties that are actual or foreseeable. They are confidential proceedings which may last up to five months. They are initiated by the debtor in its sole discretion. Management continues to operate the business. The agreement reached between the debtor and its creditors is negotiated on a purely consensual and voluntary basis and can be either acknowledged by the judge (“accord constaté”) or formally approved by the court (“accord homologué”) in which case, the insolvency date cannot backdated before the court order approving the conciliation agreement.
      If parties do not manage to reach an agreement, the conciliation proceeding fails and will be deemed as terminated.
    • Safeguard proceedings
      Safeguard proceedings are judicial proceedings available to debtors that are solvent and that face difficulties that cannot be overcome. The management of the debtor will continue the daily management of the business. The judicial administrator will only exercise ex post facto control over decisions of the management or assist it to make all or some of the management decision.
      The safeguard plan is voted either by creditors’ committees at a 2/3 majority if the debtor meets certain thresholds or by creditors on an individual basis. If the creditors consulted individually refuse to approve the plan, the court can impose a ten-year maximum term-out to dissenting creditors, but cannot impose any debt write-off or any debt to equity swap.
    • Fast-track financial safeguard (sauvegarde financière accélérée)
      The purpose of this proceedings is to restructure financial debt in a very short time frame (maximum two months), assuming the consent of at least two-thirds of financial creditors and, as the case may be, of bondholders is obtained.

      Fast-track financial safeguard are only available to debtors which meet certain thresholds and provided that a conciliation procedure is pending in which at least a majority in value of financial creditors and, as the case may be, bondholders are likely to approve the restructuring proposals prepared by the company. The opening of such proceedings only has effects in relation to financial creditors and, as the case may be, bondholders (excluding therefore suppliers from the process).

    • Fast-track safeguard (sauvegarde accélérée)
      This proceeding is a variant of the fast-track financial safeguard proceedings. It is governed by the same rules, with two major exceptions: (i) it can last up to three months and (ii) suppliers will be able to vote on the plan.

      It is intended to facilitate the negotiation of pre-packaged plans with the ability to eventually cram-down dissenting minority creditors through the vote of creditor classes, including trade creditors.

  9. Can a debtor in restructuring proceedings obtain new financing and are any special priorities afforded to such financing (if available)?

    When a conciliation agreement is approved (homologué) by the court, creditors that have provided new money, goods or services during the conciliation proceeding to ensure the continuation of the business will benefit from a “new money” priority (“privilège de conciliation”) which will allow them to enjoy priority of payment over all pre-petition claims (except for certain employee-related liabilities) and post-filing claims (except for post-filing procedural fees) in the event of subsequent insolvency proceedings. Such creditors cannot be subject to rescheduling or waiver provided by a safeguard or reorganisation plan, unless they accept it.

    In conciliation proceedings, guarantors may claim rescheduling or waiver of debt contained in the agreement against creditors.
    In safeguard proceedings, only guarantors who are natural persons benefit from favorable rules: an automatic stay on claims against during the observation period, a halt to interest rates and the possibility to claim rescheduling or waiver of debt contained in the safeguard plan.

  10. Is it common for creditor committees to be formed in restructuring proceedings and what powers or responsibilities to they have? Are they permitted to retain advisers and, if so, how are they funded?

    Creditor committees are formed in order to adopt the safeguard (or restructuring) plan for companies whose annual turnover is superior to €20M or whose number of employees is superior to 150 or upon request of the debtor for smaller companies. Creditor committees are of 2 types: committee of the main suppliers and committee of credit institutions. The bondholders if any are also grouped into a single assembly to be consulted on the plan. Unlike creditors' committees, the bondholders cannot propose an alternative plan.
    They are permitted to retain advisers but only at their own expense.

  11. How are existing contracts treated in restructuring and insolvency processes? Are the parties obliged to continue to perform their obligations? Will termination, retention of title and set-off provisions in these contracts remain enforceable? Is there any an ability for either party to disclaim the contract?

    In safeguard or judicial reorganisation proceedings, the judicial administrator has the exclusive power to continue or terminate the debtor’s contracts. The judicial administrator may request the termination of a contract which is deemed necessary to the safeguard of the debtor and if the contract involved does not excessively prejudice the other party’s rights. If contracts are continued, all its provisions remain the same as prior to the opening of the proceeding. The creditor shall continue to honor its commitments despite the default of payment by the debtor prior to the proceedings. If the contract is rejected, the effect may also be favorable to the debtor since the burden will be reduced. The creditor will have to file its claim (stemming from the rejection of the contract). In liquidation proceedings opened with an observation period, the same provisions will apply.

  12. What conditions apply to the sale of assets/the entire business in a restructuring or insolvency process? Does the purchaser acquire the assets “free and clear” of claims and liabilities? Can security be released without creditor consent? Is credit bidding permitted? Are pre-packaged sales possible?

    In amicable proceedings, if the debtor intends to use or sell its assets, there will be no permissions required other than contractual consents of creditors.
    During safeguard proceedings, however, if the observation period has started, the debtor is allowed to carry out day-to-day transactions and any transaction that would entail the sale of an important asset of the business would be subject to the insolvency judge’s authorisation. The judge may indeed authorise the sale of certain assets on a piecemeal basis if the situation so requires.
    In judicial reorganisation, the same rules as for safeguard proceedings apply. If the court orders the liquidation of the debtor’s assets, a liquidator is appointed. The liquidator will liquidate all the assets of the company in order to best distribute proceeds among the creditors. Either the debtor’s business can be sold as a whole in the framework of a sale plan or its assets can be sold on a piecemeal basis either through a public auction or by mutual agreement.

  13. What duties and liabilities should directors and officers be mindful of when managing a distressed debtor? What are the consequences of breach of duty? Is there any scope for other parties (e.g. director, partner, shareholder, lender) to incur liability for the debts of an insolvent debtor?

    Directors, while managing the distressed business, need to act in the ordinary course of business.
    As a matter of corporate law, directors have fiduciary duties towards the company first and as such need to preserve it as a going concern and act in accordance with its corporate interest.
    Within the scope of a liquidation proceeding, directors may be personally liable in committing an act of mismanagement that would contribute to an insufficiency of assets in accordance with Article L. 651-2 of the French Commercial Code. Therefore, the liability of directors is only retained for having increased the financial difficulties of the company.
    Directors may also incur criminal liability for criminal bankruptcy (“banqueroute”) or other criminal offences set out in Articles L. 654-8 et seq. of the French Commercial Code.
    Under French law, the concept of shadow directorship or de facto mangers (gestion de fait) targets any person who interferes or has interfered with the management decisions of the company and which has contributed to an inefficiency of assets. Creditors, but also shareholders or more generally anyone, can become a shadow director. A de facto manger has the same responsibilities as a de jure manager of the company.

    In limited cases, creditors may also incur liabilities for abusive support in cases of fraud, indisputable interference in the management of the debtor or if the guarantees obtained for the loans or credits are disproportionate.

  14. Do restructuring or insolvency proceedings have the effect of releasing directors and other stakeholders from liability for previous actions and decisions?

    Restructuring or insolvency proceedings do not have the effect of releasing directors and other stakeholders from liability for previous actions and decisions.

  15. Will a local court recognise concurrent foreign restructuring or insolvency proceedings over a local debtor? What is the process and test for achieving such recognition? Has the UNCITRAL Model Law on Cross Border Insolvency been adopted or is it under consideration in your country?

    • Companies incorporated in a EU Member State

      Regulation (EC) 1346/2000 on insolvency proceedings (Insolvency Regulation) allows insolvency procedures in different EU Member States to be automatically recognized if the company's center of main interests (COMI) is in France. A company's COMI is presumed to be the place of its registered office.
      Regulation (EU) 2015/848 of the European Parliament and of the Council of 20 May 2015 on insolvency proceedings (Recast) replacing the Regulation 1346/2000 provides for the same rules, except that the presumption that COMI is the place of the registered office will not apply if the registered office has been transferred in the preceding three months.

    • Companies incorporated outside an EU Member State

      A decision opening insolvency proceedings in a country outside of the European Union would have no effect in France, except after having obtained “exequatur” which is intended to verify that the foreign court had proper jurisdiction, international public policy has been complied with and no fraud has taken place or by virtue of an international treaty.

  16. Can debtors incorporated elsewhere enter into restructuring or insolvency proceedings in the jurisdiction?

    • Companies incorporated in a EU member state
    • As stated above, a company incorporated in another Member State could enter into insolvency proceedings if its COMI is in France.
      However, if such debtor has only an “establishment” in another EU Member State, the courts of that State only have jurisdiction to open “secondary proceedings”, restricted to the debtor’s assets located in that state.

    • Companies incorporated outside an EU Member State
    • When a company has a mere branch or establishment in France (which is not necessarily the COMI), French courts have jurisdiction insolvency proceedings to its benefit.
      French courts even have jurisdiction when the company has business relationships in France or of a “real commercial presence” in France.

    • UNCITRAL Model Law on Cross Border Insolvency
    • The UNCITRAL Model Law on Cross Border Insolvency has not been adopted in France.

  17. How are groups of companies treated on the restructuring or insolvency of one of more members of that group? Is there scope for cooperation between office holders?

    The French insolvency regime did not include specific rules tailored for corporate groups until Law No. 2015-990 dated 6 August 2015. Before that, insolvent corporate groups were obliged to initiate separate plenary insolvency proceedings for individual companies. This new law created specialised commercial courts which have jurisdiction in case of large insolvency cases. If a specialised commercial court has jurisdiction over the parent company, it will also have jurisdiction over its subsidiaries.
    In addition, the corporate veil may be lifted and insolvency proceedings initiated against a company may be extended to another company on the ground either that (i) the debtor is held to be a fictitious legal entity, or (ii) that the assets and liabilities of the parent company and those of its subsidiary are so intertwined that they should be deemed to be one single entity.
    Finally, European law tends to take into consideration the existence of a corporate group. EU Regulation 2015/848 of the European Parliament and of the Council dated 20 May 2015 has introduced a group co-ordination proceeding between all courts before which an insolvency proceeding is opened by an entity of a group.

  18. Is it a debtor or creditor friendly jurisdiction?

    Historically, the French restructuring system has always been perceived as a debtor-friendly system. More recently, however, French legislation has rather favoured creditors’ interests and the courts have favoured a number of lender-led restructurings enabling lenders or a group of lenders to take control of the debtor out of the hands of its existing shareholders (mainly financial sponsors). Furthermore, a number of alternative funds have increased their focus on the French market and as such have provided liquidity to French banks willing to sell their claims on the secondary market.
    The Order dated 12 March 2014 readjusted the balance of powers between creditors and debtors with for example the possibility for creditors to propose competing plan.
    More recently, the law dated 6 August 2015 has introduced a system of shareholder squeeze-out under which shareholders may be forced to sell their shares if they do not consent to share capital increases required to redress the distressed business.

  19. Do sociopolitical factors give additional influence to certain stakeholders in restructurings or insolvencies in the jurisdiction (e.g. pressure around employees or pensions)? What role does the state play in relation to a distressed business (e.g. availability of state support)?

    French trade unions tend to adopt fairly aggressive behaviors. This applies also in the context of restructuring proceedings where trade unions usually are very vocal when jobs are at risk.

    The state may play a relevant role in relation to distressed businesses. Thus the CIRI (comité interministériel de restructuration industrielle) aims at helping distressed businesses turn around. The CIRI is competent for companies with more than 400 employees.

    Companies with less than 400 employees can be assisted by the CODEFI (comités départementaux d’examen des problème de financement des entreprise) which are the local equivalent to the CIRI.

  20. What are the greatest barriers to efficient and effective restructurings and insolvencies in the jurisdiction? Are there any proposals for reform to counter any such barriers?

    Squeeze out of shareholders through a forced sale of their shares or a forced dilution of their equity stake is viewed as essential by most practitioners to enforce a debt-equity-swap against dissenting shareholders when the equity has lost all value and conversion of debt is the only solution to preserve the business as a going concern.
    The law dated 6 August 2015 sought to address this issue and provided for a limited squeeze-out of the shareholders in reorganization proceedings.
    However, several authors emphasize that such reform is not audacious enough and think that the conditions to such squeeze-out are so restrictive that it will only be enforced exceptionally. They are in favour of a reform similar to the reform which was recently adopted in Germany, which provides for the possibility to evict shareholders on the sole and sufficient condition that the restructuring plan, accepted by the majority of creditors’ committees, offer them better position than the position they would have had in a liquidation proceeding.