Request for opening of a reorganisation proceeding
The Procedures guide allows entrepreneurs and decision-makers to have a reliable, precise and up to date overview of legal procedures and measures concerning commercial formalities to be undertaken. It is broken down into 6 sections in which you can find information and documentation required for formalities with Registry Offices at the Commercial Courts.
Request for opening of a reorganisation proceeding
Following the example of the ad hoc mandate and of conciliation, only the business owner may request implementation; by contrast, it relates to a bankruptcy proceeding to the extent that its opening halts pursuit by prior creditors and is the subject of measures for legal publication. It is a form of early receivership, as it requires that the company NOT BE IN A STATE OF CESSATION OF PAYMENTS (however, for accelerated protection and accelerated financial protection: the company cannot have ceased payments during the prior 45 days; Art. L. 628-1 al. 4 and, where applicable, L. 628-9 of the Commercial Code).
To encourage the business owner to act before the situation is jeopardised, the legislature established new regulations in 2005, thereafter notably amended by Orders No. 2008-1345 of 18 December 2008 and No. 2014-326 of 12 March 2014.
The interest in requesting the advantage of protection
The director remains master of his business
The company's administration rests assured by its director (Article L. 622-1, paragraph 1 of the Commercial Code), the remuneration of which is destined to be maintained, he may transfer his shares in the company, securities . . . , keep his mail.
If a manager is appointed, he can only oversee or assist the debtor, but this latter will never be removed from his management. The above-cited Order of 18 December 2008 introduced to the debtor the possibility of proposing to the court the appointment of an administrator of his choosing (Article L. 621-4 of the Commercial Code), and of proceeding himself with inventory of his assets (on the condition that it is certified by an external auditor or certified by a chartered accountant; Art. L. 622-6-1 of the Commercial Code).
Also note two other provisions stemming from the 2008 Order: first, the possibility for the debtor to prepare, with the cooperation of the administrator, a draft of the protection plan and to propose such to the creditors (Articles L. 626-2 and L. 626-8 of the Commercial Code); then, elimination of the power of the court to condition the protection plan on expulsions of the directors (repeal of Art. L. 626-4 of the Commercial Code). From then on, the director is therefore assured to remain at the head of his company if the protection plan is halted.
The Order of 12 March 2014 completed these amendments in eliminating the obligation for payment without delay of co-contracting parties, the contract of which continues during the comment period (Art. L. 622-13 Com. C. as amended).
This text has additionally expanded the links between reorganisation and: receivership: from then on, in the absence of a plan adopted by the creditors committees and when the closing of the procedure would lead to a brief delay in cessation of payments, the court may convert the reorganisation procedure into receivership at the request of not only the debtor, but also of the judicial representatives or of the public ministry.
Moreover, the 2014 Order anticipates that, while the debtor would only intervene to this point in the selection of judicial administrator, he may formulate comments when the appointment of several judicial representatives or judicial administrators is contemplated, as well when the public ministry proposes appointment of one or several justice representatives.
The director remains master of the procedure
The director may request that the protection procedure be ended as soon as the difficulties meriting opening of the procedure have disappeared.
Only he may request partial cessation of the business activity.
He may even request conversion of the protection proceeding to a receivership proceeding in the absence of cessation of payments, which could allow him in practice to contemplate, upon his own initiative, a transfer plan.
Another important benefit with the business owner
If such proceeding allows the company to put itself under the protection of the justice system, the same is true for the business owner and his associates should they have made guarantees on behalf of the company: individuals guarantees cannot be pursued either during the comment period nor at any time during implementation of the protection plan (Article L. 626-11 of the Commercial Code as opposed to receivership - Article L. 631-20 of the Commercial Code - where the same persons cannot take advantage of a judgement freezing the receivership plan).
Moreover, the interests cease to run in their respect from the opening judgement of the protection.
Conditions for opening
In order for a protection procedure for a company to be pronounced, it is necessary that the company not be in a state of cessation of payments and, simultaneously, that it has the quality required, jurisdiction established before ruling taking into account the circumstances existing on the date when the decision is pronounced.
In the absence of a state of cessation of payments
The protection procedure may be opened upon the request of debtor who, without having ceased payments, demonstrates difficulties which he is not able to overcome (Article L. 620-1 of the Commercial Code). The Order of 18 December 2008 eliminated the proof, provided by the debtor, of a link between such insurmountable difficulties and cessation of unavoidable payments.
Cessation of payments is the impossibility of meeting current liabilities with available assets (Article L. 631-1 of the Commercial Code).
It is necessary to note whether or not the texts provide clarification on the nature of the difficulties, however they must be recognised and not only foreseeable, seeing as such must be justified by the legislature.
With the Order of 12 March 2014, a procedure of accelerate protection was instituted (the principals of which were inspired by the accelerated financial procedure anticipated by Law No. 2010-1249 of 22 October 2010, of the banking and financial regulations), which can only be opened if the debtor has previously obtained the opening of a conciliation proceeding, in effective on the date of establishment of jurisdiction by the court.
Yet, as this conciliation proceeding is compatible with the state of cessation of payments, if such is not more than 45 days before the request, Article L. 628-1 clarifies that, contrary to the general provisions for the protection proceeding, the accelerated protection proceeding may be open even if the debtor is in a state of payment cessation.
The cessation of payments is not, to any extent, a condition for opening an accelerated protection proceeding, contrary to such which was established for receivership and mandatory liquidation.
Capacity required of the debtor
In addition to the absence of a state of cessation of payments, the law requires as a condition to the opening of the proceedings that the debtor have the quality of merchant, artisan, non-profit organisation, agriculturalist, self employed professional, de facto business owner or artisan (Article L. 620-2 of the Commercial Code).
Under the terms of Article L. 621-2 of the Commercial Code, it is the commercial court which is competent when the debtor is a merchant or artisan, and the regional court (tribunal de grande instance) in other cases.
Referral to the court
The request for the opening of a protection is made by the legal representative of the legal entity or by the debtor, individual, clerk of the Commercial Court having territorial competence.
For individuals, the competent court is that of the principal establishment. If the merchant does not have a fixed establishment, the competent court is that for its registration with the Trade and Companies Register, for lack of domicile or residence.
For legal entities, the rule is the same as for individuals (Article R. 600-1 of the Commercial Code): the competent tribunal is that of the registered office of the company, on condition that it is not fictitious, the tribunal reserves the right to reclassify the registered office on the grounds that it is not located in the declared location but rather in another jurisdiction. To avoid the practices of transfer of the head office, the court for the previous office remains competent in the event of a change of the office of a legal entity with the six months preceding filing with the court. The period runs from registration in the Trade and Companies Register.
Finally, if the debtor has not have a head office in French territory, the competent court is that for the centre of its principal interests in France.
Only the legal representative (or the individual debtor) of the company is authorised to undertake the request for opening of a protection proceeding. Any request coming from a de facto manager, partner or joint collaborator will be denied. However, the legal representative has the possibility of being represented by the person of his choice if such hold a power of attorney.
The request sets out the difficulties encountered and the reasons for which the debtor is unable to overcome them. The request may be in the form of a petition addressed to the court. Attached to it are the documents set forth in Article R. 621-1 of the Commercial Code.
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