The simplified judicial procedure for the health crisis management: a new temporary tool for dealing with distressed businesses01/06/2021
Last 31 May, the law n°2021-689 on the health crisis exit management, which introduces in its article 13 a new judicial procedure for the treatment of distressed companies, was adopted.
On the occasion of the draft law intended to set up a transitional regime organizing the end of the state of health emergency, which will end on the 1st of June 2021, a governmental amendment was incorporated into article 13 of the said draft law introducing a simplified judicial procedure for handling the end of the crisis.
This new procedure comes in addition, temporarily, to the eight existing preventive and insolvency proceedings for dealing with difficulties laid down in Book VI of the Commercial Code, and is part of the arsenal of measures implemented to support businesses in the context of the health crisis.
If the number of insolvency proceedings decreased significantly in the course of 2020, by around 40%, this does not mean that the number of distressed companies has been reduced accordingly. The progressive end of the various support measures that kept businesses floating could be the cause of many insolvencies in the months to come. Companies that have used debt to get through this period, notably the state-guaranted loan (PGE), or that do not have sufficient liquidity to finance the recovery, are also particularly exposed.
To preserve the survival of businesses in this context and avoid their bankruptcy, the legislator, inspired by certain existing procedures, in particular the accelerated safeguard, has decided to provide debtors a new tool whose aim is to promote fast restructuring by means of a liability settlement plan.
A temporary measure
The crisis exit management proceeding will apply to proceedings opened from the first day after the publication of the law. However, the enforcement decree that will specify several technical points, including eligibility thresholds, has not yet been published.
This procedure is only a temporary tool available to debtors as it can only be used for a period of 2 years after the entry into force of the law.
What is the purpose of the crisis exit procedure?
The aim is to enable a debtor who is in cessation of payments, and who can only initiate the process on its own, to restructure his debts within a very short period of time by adopting a plan for the settlement of its liabilities.
Article 13 is therefore aimed at debtors who are capable of drawing up a plan to ensure the continuity of their business. In other words, the exit plan is the only possible outcome and no takeover plan can be considered under this procedure.
The exit plan will be submitted to the court within 3 months of the opening of the procedure, which means that it will have to be prepared in advance.
Who are the eligible debtors?
The procedure will benefit debtors in cessation of payments who are already eligible for preventive and insolvency proceedings, i.e. any person engaged in a commercial, artisanal or agricultural activity, and any natural person engaged in a independent professional activity, including a liberal profession subject to a legislative or regulatory status or whose title is protected, as well as any legal person under private law.
It will not, however, benefit all of these actors, because it will be reserved for those who do not exceed the thresholds set by decree. The presentation of the bill referred to companies with fewer than 20 employees whose liabilities are less than €3,000,000, but Article 13 does not refer to a maximum liability because it mentions a balance sheet total below a certain amount. To know exactly which debtors will be eligible for this new procedure, it will therefore be necessary to wait for the implementing decree, but it is already certain that it will not be aimed at big companies.
In order to apply for this measure, the debtor must be up to date with his wage claims, so that the wage guarantee insurance (AGS) is not intended to be involved and advance wages in the context of this procedure. This concerns only the sums owed to employees and not social security contributions.
The debtor must have drawn up accounts that appear regular and sincere and capable of giving a true and fair view of the company’s situation. This requirement is linked to the fact that the settlement plan adopted by the court will be drawn up on the basis of the debtor’s accounts and not on the basis of the debtor’s declarations, which are not required in this procedure.
Drawing up the exit plan
The exit plan is drawn up under the same conditions as a safeguard or restructuring plan.
Thus, the plan cannot exceed 10 years and can provide for various proposals for the settlement of debts such as deadlines, remissions or conversions into securities granting rights to capital. However, as debt remissions must be accepted by the creditors, the latter must be asked about the repayment terms offered.
On the other hand, whereas under ordinary law the amount of the third annuity cannot be less than 5% of the liabilities, under this new procedure it will have to be at least 8% of the liabilities. It is reasonable to think that the first two years could benefit from an exemption.
Claims arising prior to the opening judgment that are declared by the debtor will be subject to the plan. The mechanism for statement of claims, which is incompatible with the time limit for adopting the plan, is therefore set aside, even though the court appointed receiver will inform the creditors on the debtor’s list, who will be able to challenge the statement of claims made by the debtor. Creditors not mentioned by the debtor will not be subject to the plan. The legislator also excludes claims relating to wages, claims relating to maintenance payments, claims arising from tort and claims below an amount set by a decree.
If a plan is not drawn up within the 3 months period, a judicial restructuring or judicial liquidation procedure may be opened if the legal conditions are met, thus ending the crisis management procedure.
This will be a new procedure, as there is no bridge. In this case, the 3 monthq observation period of the crisis management procedure will be added to the observation period of the receivership procedure that may be opened.
It is also foreseen that the procedure can be ended before the end of the 3-month observation period if it appears that the debtor will not be able to present a crisis management plan within this time limit. A meeting with the court is scheduled for this purpose within 2 months of the opening of the procedure.
What should we remember about this new temporary procedure ?
– a procedure for small and medium-sized debtors who are in cessation of payments but who are able to pay the wages of their employees;
– a procedure for companies that have prepared their exit plan in advance;
– a procedure for companies that have taken out loans or supplier liabilities that can be restructured over a maximum period of 10 years but do not need to implement a social restructuring.
– an ideal procedure for restructuring a state-guaranted loan (PGE) over 10 years.
The draft law on the health crisis management: http://www.senat.fr/petite-loi-ameli/2020-2021/622.html