File : Judicial administration
Request to open judicial administration
The main reason for the legislation behind judicial administration proceedings is to allow a business in difficulty to continue its activity in the framework of legal processing, while at the same time allowing it to repay its debts and maintain its jobs.
Any physical person or business exercising a commercial, craftsmen, professional and independent or agricultural activity, in suspension of payments and whose situation is not irretrievably compromised, must mandatorily make known that situation to the competent tribunal.
This mandatory procedure is aimed at setting up, by the tribunal, an observation period, followed (if possible) by a recovery plan for the business. The observation phase is characterised by a protective legal arrangement for the business as well as the other interests concerned, represented by several players. The arrangement is also aimed at creating the possibility of recovery by means of a recovery plan, drawn up on the basis of an economic and social balance sheet. The recovery phase properly speaking, corresponds to the performance of the solution or solutions recommended by the plan adopted by the tribunal.
Field of application
The judicial administration proceedings applies essentially to the following persons:
- any physical person practising an activity that is either commercial (a trader registered or not with the RCS; auto-entrepreneur (self-employed entrepreneur) performing this type of activity); or artisanal (craftsman who may or may not be registered in the directory of trades); auto-entrepreneur performing this type of activity); either liberal or agricultural;
- any physical person with the status of limited liability individual entrepreneur (EIRL);
- any legal person under private law, mainly: commercial companies (whether single person or multiperson); civil companies; economic interest groupings; credit establishments.
In addition to the status as a debtor person, the status of suspension of payments is also a crucial criterion for instituting judicial administration. In other words, the business must be unable to settle its liabilities to creditors solely by means of its available assets, without however its situation being irretrievably compromised i.e. with no prospect of a solution. The difficulties must only be temporary or transitory (contrary to the criterion for instigating judicial liquidation).
The competent tribunal
It is the commercial court that is competent when the business in question operates a commercial or craftsman activity, while the tribunal of Grande Instance is competent in all other cases (agricultural holdings, liberal professions, civil companies).
For physical persons, the territorially competent tribunal is that located in the same geographical territory as the main establishment.
Good to know: if the trader does not have an establishment, or failing this a fixed domicile or residence, the competent jurisdiction may be that in which his local government is situated.
For legal persons, the rule is the same as for physical persons: the competent tribunal is that in which the company's headquarters are situated, on condition that it is not a fictitious company (the tribunal reserves the right to requalify the head offices if it deems they are not situated in the declared locality, but in a different jurisdiction).
Good to know: for purposes of reducing the number of spurious transfers of head offices, in cases where the legal entity's head offices have been transferred, it is the tribunal of the previous head offices locality that remain competent for a period of six months after enrolment with the RCS.
Should the debtor not have head offices on French soil, the competent tribunal is that of the centre of his main interests in France.
Who may request judicial administration?
Judicial administration proceedings (receivership) can be requested by:
- either by the business (if a physical person is concerned; the declaration may be made by the debtor himself or by a representative who must be in possession of a special power of attorney; for legal entities, only legal representatives have the power to make the request directly or through legal counsel in possession of a special power of attorney) by the latest within 45 days after suspension of payments; failure to observe this mandatory time period shall not make the request inadmissible, but does expose the debtor to sanctions (except in cases where conciliation proceedings are in progress, corresponding to one of the preventative channels open to businesses in difficulty) the main sanction being the prohibition to manage a business.
- or through a summons from a creditor or at the request of the public prosecutor.
Content of the request filed by the debtor
The request to instigate judicial administration proceedings is filed at the Registry office of the competent tribunal; it must set out the type of difficulties encountered by the debtor and the reasons for which he is not able to surmount these difficulties.
In addition to the annual accounts of the previous fiscal year, the request must be accompanied by a certain number of documents (each of which must be dated, signed and certified, by the debtor as sincere and genuine); the main document is the declaration of suspension of payments, and a list of the other documents. Should it not be possible to provide or to fully provide, any of the documents listed below, the request shall be inadmissible unless reasons are given for the inability to provide such documents:
- list of current liabilities and available assets; declaration of suspension of payments;
- extract of the debtor's registration in the relevant registry (mainly the RCS or the directory of trades);
- cash flow situation less than one month old (in other words an accounting document comprising the business's debts and payables, with the balance);
- headcount status (number of workers employed on the date of the declaration, with identity and address of each of them) and turnover figure (understood as the net amount equal to sales of products and services of the company, from which is subtracted sales reductions, VAT and similar taxes) of the preceding fiscal year;
- statement of receivables and payables, along with the identity and domicile or head offices of the creditors, and for co-workers, the overall amount of unpaid sums;
- statement of secured debts (i.e. of guarantees that may be invoked by creditors in order to collect their receivables) and off-balance sheet commitments;
- summary inventory of the debtor's property, including fixed assets (real estate, goodwill, movable assets, equipment, vehicles, financial fixed assets etc), operating values (stocks, work in progress), receivables (accounts receivable, other receivables) and liquid assets (bank and cash);
- list of co-liable members with regard to company debts, with indication of their identity and domicile, where applicable (in cases where the debtor is a legal entity comprising members carrying this type of liability);
- list of the names and addresses of works councils representatives or personnel delegates authorised to be heard by the tribunal if they have already been appointed;
- sworn affidavit certifying that there have been no ad hoc mandates or conciliation procedures in the 18 months prior to the date of the request, or if so, mentioning the date on which the ad hocrepresentative was appointed or the date on which the conciliation began, as well as the authority performing it;
- document designating the professional order or authority under which the debtor falls should he practice a liberal profession subject to legislative or regulatory statutes, or which has a protected title;
- copy of the authorisation for registration, or declaration regarding operation by the debtor of one or more installations classified in the meaning of the legislation pertaining to environmental protection.
Good to know: even when it is the creditor who files with the tribunal, the debtor is not relieved of the burden of declaring suspension of payments.