French Insolvency Law
Overview of French Insolvency Law
French insolvency law is codified in Book VI of the Code de commerce (Articles L.610-1 through L.670-8), supplemented by the Code de procédure civile and the Code du travail. The regime was substantially reformed by Ordinance No. 2021-1193 of 15 September 2021, which transposed EU Directive 2019/1023 (the Preventive Restructuring Directive) and introduced the procédure de restructuration. French law is distinctive for its pronounced preventive orientation: the system provides a graduated continuum of procedures, from consensual out-of-court negotiation to formal judicial liquidation, designed to detect and address financial difficulty at the earliest possible stage.
Early Warning and Preventive Procedures
The alerte procedure (early warning) under Article L.611-1 et seq. enables the président du tribunal de commerce to summon the directors of a company that shows signs of financial difficulty based on information provided by the company’s statutory auditors or obtained from public records. The goal is to prompt corrective measures before insolvency crystallizes.
The mandat ad hoc — an entirely consensual procedure — permits a debtor to request the court to appoint a mandataire ad hoc whose mission is to facilitate negotiations with creditors. The mandataire has no statutory powers to impose a solution; effectiveness depends on the debtor’s willingness to cooperate and creditors’ consent. The procedure is confidential and does not appear on public registers, making it attractive for listed companies and groups seeking discreet restructuring.
Conciliation (Procédure de Conciliation)
The conciliation procedure (Articles L.611-4 to L.611-15) is available to a debtor that is not en cessation des paiements — generally defined as unable to meet its current liabilities with its available assets — or has been in that state for fewer than 45 days. The debtor applies to the président du tribunal, who appoints a conciliateur to help reach an agreement with creditors. The resulting concordat — whether a moratorium, a composition, or a debt write-down — requires creditor consent and, if involving debt write-offs exceeding 15%, must be approved by the court in an homologation hearing.
A key advantage of conciliation is its confidentiality: neither the procedure nor the resulting agreement is made public. The privilège de l’argent frais (new money privilege) under Article L.611-11 provides that sums advanced during the conciliation by creditors who are parties to the agreement rank ahead of pre-application claims in any subsequent insolvency proceedings, encouraging lenders to extend emergency financing.
Safeguard (Sauvegarde)
The sauvegarde (safeguard procedure) under Articles L.620-1 to L.628-9 is a court-supervised reorganization procedure designed for debtors that are not yet en cessation des paiements. The debtor remains in control of the business and proposes a safeguard plan (plan de sauvegarde), which may provide for debt rescheduling, write-downs, and conversion of debt into equity. Creditors vote in classes, and a plan adopted by the requisite majorities binds all dissenting creditors within each class. The court may approve the plan even over the opposition of an entire class through cross-class cram-down (imposition du plan), provided the plan satisfies the best-interests test and respects the absolute priority rule.
The sauvegarde has been widely used by large corporate groups, including the Groupe Casino restructuring. The sauvegarde accélérée — introduced by Ordinance 2014-326 — streamlines the procedure for debtors that have already obtained a pre-negotiated agreement with a significant majority of creditors.
Judicial Reorganization (Redressement Judiciaire)
The redressement judiciaire (judicial reorganization) under Articles L.631-1 to L.640-5 is triggered by a debtor that is en cessation des paiements but whose business is not manifestly beyond recovery. The court appoints an administrator (administrateur judiciaire) who may exercise all or part of the management powers, and a creditors’ representative (mandataire judiciaire). A observation period (période d’observation) — initially six months, renewable up to eighteen months — allows the administrator to assess the debtor’s prospects.
During the observation period, the automatic stay (interdiction des poursuites) prevents creditors from enforcing their claims, while the debtor must continue performing contracts that are executory. The court may authorize asset sales (cession d’activité) as part of a plan. The final reorganization plan (plan de redressement) may provide for debt restructuring over a period of up to ten years (or longer for agricultural enterprises) and must be approved by the court after consideration of creditor interests and procedural fairness.
Judicial Liquidation (Liquidation Judiciaire)
Where the debtor is en cessation des paiements and recovery is manifestly impossible, the court opens liquidation judiciaire under Articles L.640-1 to L.670-8. A liquidator (liquidateur judiciaire) is appointed to realize assets and distribute proceeds according to the statutory priority order: secured creditors with privilèges, employees (super-priority under Article L.625-7), the tax authority, and unsecured creditors. The procedure is subject to periodic review by the court, which may convert the liquidation to a redressement judiciaire if recovery becomes feasible.
Ordinance 2021-1193 and the Procédure de Restructuration
Ordinance 2021-1193 introduced the procédure de restructuration (Articles L.611-40 to L.611-46) to transpose the Preventive Restructuring Directive. This procedure is available to debtors facing a likelihood of insolvency (probabilité de cessation des paiements) — a threshold lower than actual cessation des paiements — thereby enabling earlier intervention. The procedure provides for a stay of individual enforcement actions of up to six months (renewable to twelve), and permits cross-class cram-down where dissenting classes receive at least as much as they would under the next-best alternative scenario. The ordinance also introduced electronic voting and virtual creditors’ meetings, modernizing procedural infrastructure.
Role of the Tribunal de Commerce
The tribunal de commerce — a specialized commercial court composed of elected judges from the business community (juges consulaires) — plays a central role in French insolvency law. Its judges bring practical commercial experience to matters such as the assessment of whether a debtor is en cessation des paiements, the appointment of administrators and liquidators, and the approval of safeguard and conciliation agreements. The tribunal’s jurisdiction extends to all commercial debtors and its procedural flexibility is a hallmark of the French approach.
Conclusion
French insolvency law is characterized by its early intervention philosophy, the graduated spectrum of preventive and curative procedures, and the centrality of the tribunal de commerce. The sauvegarde and conciliation provide flexible tools for solvent and near-insolvent debtors, while redressement judiciaire and liquidation judiciaire address more advanced distress. Ordinance 2021-1193 has modernized the framework, aligning it with EU standards while preserving the distinctive features that have made French restructuring practice a reference point in civil-law jurisdictions.