Distressed companies: overview of the several reforms in 2014

Bankruptcy Law has been deeply reformed in 2014, mostly because of the Government Regulation (“Ordonnance”) of March 12th, its Decree of Implementation of June 30th, the Ministerial Ruling of July 25th and the Government Regulation of September 26th.

This field has actually become very complex, if not illegible, over the past 10 years, especially due to the proliferation of new proceedings (2 new proceedings in 2014 added to the 6 proceedings already implemented), numerous cross-references and exceptions confusing our certainties and founding principles. Besides, new tools have even been created to evade the former rules using as a guiding thread the affirmed will to set up plans to rescue companies within an amicable and confidential framework. Those plans should be able to be implemented quickly in a judicial and coercive context in case of failure of amicable settlements.

The reform of 2014 also breaks out the principle of safeguarding the business whatever the costs (protecting in the same time the shareholders) to the detriment of the creditors and induce a rebalancing to the benefit of the creditors that can now issue a different plan than the one presented by the shareholders, and in the same time, takeover control of the distressed companies by converting their claims into share capital.

Besides, the boundary of suspension of payments does not offer the possibility to draw out all the tools for handling company difficulties anymore. As a matter of fact, amicable settlements interweave with judicial settlements and, in doing so, become hybrid. Also, the obligation to pay in cash the suppliers during the observation period partially disappears with the reform. As well, the obligation of declaration of claim has been significantly loosened and the automatic dissolution of the company does not occur anymore in case of judicial liquidation. Things that were once seen as obvious and immutable, at least understood and identified and therefore clearly usable, are now questioned with one small stroke after another by successive reforms, complicating massively the reading, and so the comprehension of bankruptcy law.

This wave of complexity and legal insecurity may discourage more than one director to use prevention tools, which are nonetheless efficient, available to handle the difficulties upstream and only way to hope for a newborn or a restructuration. This legislative engineering, as creative as it may be, has a serious need of simplicity and readability. Otherwise, it is doomed to failure.

The risk is clear that the “Macron” Law, currently being discussed in Parliament, could go on with that reform; especially by accelerating the rebalancing of creditors’ rights to the detriment of shareholders: To be followed carefully!

Stéphanie Chatelon

Stéphanie Chatelon, Partner, heads the Business Law department. She advises her clients on restructuring and insolvency matters. Stéphanie assists French and foreign companies in connection with restructuring transactions, disposals and […]

Pedron-Arnaud-1
Arnaud Pédron

Arnaud is Director at Taj, a Deloitte network entity, in the Restructuring service line. He has more than 15 years of experience at Taj and Deloitte, being fully dedicated to […]