After the "Dutch scheme"1 and the "German scheme"2 entered into force at the beginning of 2021, France has now published its much-anticipated transposition of the European directive of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt (the "Restructuring Directive").
The new French law contained in ordinance 2021-1193 published in the Official Journal (Journal Officiel) on 16 September 2021 (the "Ordinance") applies to proceedings from 1 October 2021.
Its main features are:
- the introduction of a new and unique version of the accelerated safeguard proceedings (sauvegarde accélérée) to serve as the key proceeding implementing the Restructuring Directive;
- the replacement of the existing "creditor-committees" system by a class-based system for adopting restructuring plans, and the possibility to cram down dissenting classes including equity holders (cross-class cram-down);
- the strengthening of the demarcation of regular safeguard proceedings (sauvegarde) and rehabilitation proceedings (redressement judiciaire);
- the permanent establishment of "super priority ranking" new money financing (also referred to as "post money" privilege) originally introduced as a temporary measure during the COVID-19 pandemic to protect new funding provided to a debtor in connection with safeguard or rehabilitation proceedings;
- a series of other, more minor reforms such as:
- (i) the strengthening of early warning systems and the confidential conciliation procedure; and
- (ii) the clarification of the interaction between certain types of security3 and insolvency proceedings.
Whilst the new voting classes and cross-class cram-down mechanism in safeguard and rehabilitation proceedings are expected to change stakeholder dynamics in French restructurings, the French pre-insolvency and preventive restructuring toolbox still remains primarily debtor-driven. As the reforms modify existing restructuring proceedings rather than add new proceedings, it is not expected that they will significantly affect cross-border recognition in the UK or the US.
New accelerated safeguard proceedings - mandatory classes to approve a plan
The new accelerated safeguard proceedings merge the two existing accelerated proceedings (i.e. the current accelerated safeguard and the accelerated financial safeguard). They offer a short, tailored process for implementing a pre-negotiated restructuring plan, if necessary over the objection of other classes.
As with the existing accelerated proceedings, the new accelerated safeguard proceedings can only be opened at the end of voluntary conciliation proceedings (conciliation) if there is likely to be sufficient support for the pre-negotiated safeguard plan to be approved despite dissenting creditors.
The scope of creditors or shareholders to be affected by the new accelerated proceedings can also be tailored by the debtor as necessary under the contemplated safeguard plan in order to limit the impact of the proceedings on the debtor's business operations.
Unlike ordinary safeguard proceedings, once commenced, accelerated safeguard proceedings are set to last two months, with the ability to extend the proceedings by another two months before they terminate automatically.
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Footnotes
1 Pursuant to Wet homologatie onderhands akkoord ter voorkoming van faillissement (WHOA), in force since 1 January 2021.
2 Unternehmensstabilisierungs- und restrukturierungsgesetz - StaRUG, in force from 1 January 2021.
3 In addition to the reforms in the Ordinance, the French government has published a separate ordinance, coming into effect on 1 January 2022, to simplify and modernise the French law on security interests.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
