At the beginning of 2021 the European directive on preventive restructuring frameworks of 20 June 2019 was transposed into Dutch and German law creating new schemes in the Netherlands and in Germany.
It is now the turn of France to introduce a new scheme, and the new French laws resulting from the transposition of the European Restructuring Directive apply to proceedings from 1 October 2021.
Among the main features of the new legislation are:
1) The creation of a new version of the accelerated safeguard proceedings called “sauvegarde accélérée” to replace the two existing proceedings. This tool is intended to serve as the key proceeding for implementing the European Restructuring Directive. These proceedings will last two months, with the ability to extend the proceedings by one further two-month term before they terminate automatically.
2) The introduction of a new class-based system for adopting restructuring plans in all accelerated safeguard proceedings, and in ordinary safeguard proceedings (“sauvegarde”) and administration proceedings (“redressement judiciaire”) for debtors whose size exceeds specified minimum thresholds. The creditor classes are to be constituted by the court-appointed administrator (“administrateur judiciaire”) based on certain defined criteria.
3) The approval of a restructuring plan by votes of the separate classes. These creditor classes replace the existing “creditor committees” system and each class (for example secured creditors, unsecured creditors, equity holders, etc.) can approve a plan by a two-thirds majority of votes cast. Dissenting creditors are protected by a “best interest of creditors” test, under which they must not be worse off than they would be under a liquidation or a court-ordered sale of the business as a going concern (“plan de cession”).
4) The introduction of a cross-class cram-down mechanism providing the possibility to cram down dissenting classes including equity holders in certain circumstances.
5) The right of a creditor to propose an alternative restructuring plan in administration proceedings where classes are constituted. This creates a clearer differentiation between on the one hand regular safeguard proceedings, which are only open to solvent companies and are debtor-driven, and on the other hand administration proceedings, which are available to insolvent companies still capable of operating and being rescued. Furthermore, a creditor will now be able to petition the court for a cross-class cram-down in administration proceedings where classes are constituted.
6) The protection of new money financing provided during restructuring by the creation of a “post money” privilege through the establishment of “super priority ranking”. This measure was originally introduced as a temporary measure to protect new funding provided to a debtor during the COVID-19 pandemic, and it has now been made permanent.
The overall effect of this new legislation, particularly in the new accelerated safeguard proceedings, is to shift the balance of power among the stakeholders away from the debtors and towards the creditors, creating a more balanced relationship between the stakeholders in a distressed or insolvent company.
The dynamics of the balance of power in safeguard and insolvency proceedings have thus been recalibrated towards the interests of the creditors. It is hoped that this will correct the historical perception of France among many foreign investors as a jurisdiction that is structurally biased against the interests of creditors, and that in this way this new legislation will create an environment more conducive to promoting investment in restructuring, in particular from new money.
Nevertheless the “amicable” preventive pre-insolvency proceedings (“conciliation” and “mandat ad hoc”), which are considered to be the main strength of the French system, have not been affected by these changes and these remain very much debtor-driven proceedings.
It is not expected that these reforms will affect cross-border recognition in any significant way, particularly within the EU.
In addition to these reforms the French government has introduced separate legislation to simplify and modernise the French law on securities, which will come into effect on 1 January 2022.
For more information, please speak to John Lloyd.