The law of May 22, 2019 relating to the action plan for the growth and transformation of companies, the “PACTE law”, covers many areas of application with the objective of giving companies the means to adapt to an increasingly competitive market by simplifying, clarifying and modernizing the standards relating to surety and insolvency proceedings.
This law authorized the government to transpose by ordinance, within the French legal system, the European directive 2019/1023 of June 20, 2019. This directive is the first step towards harmonization and eventually standardization at the European level regarding insolvency proceedings.
This transposition is a major event in insolvency proceedings for the end of 2021 and will reform three essential subjects: preventive restructuring frameworks, debt forgiveness and discharges and measures to improve the efficiency of these procedures.
The major contribution of this ordinance is the implementation of the creditor classification system. With the introduction of this new concept in French law the quality of the debt will be taken into account – whether it secured or unsecured – instead of the quality of the creditor.
The creditor committee, which will disappear shortly, used to propose specific plans to creditor assemblies, which members were chosen according to their status as credit institutions or main suppliers, in parallel with the “classic” plan submitted to the consultation of creditors who were not part of said creditor committees. It allowed to impose discounts to the refractory creditors by a vote binding on all the members of the said committee. There is a creditors’ committee in less than 1% of collective proceedings.
The replacement of the creditor committee by classes of creditors will be done while maintaining these essential principles such as the vote of the plan and a threshold of recourse to classes of creditors will be fixed by governmental decree according to the size of the companies concerned with a safeguard or judicial recovery procedure.
In addition to this innovation, the ordinance will take up certain measures put in place by the Covid-19 ordinances of 2020 (Ord. No. 2020-341, March 27, 2020; Ord. No. 2020-595, May 20, 2020), during the health crisis to respond to an emergency situation.
These measures include making the use of safeguard and professional recovery more flexible, the introduction of the safeguard and judicial recovery privilege and finally the extension of the scope of simplified judicial liquidation.
To conclude, the transposition of the Directive will bring a concrete renewal in the practice of collective procedures, while anticipating and facilitating the treatment of difficulties that a company may encounter. Moreover, this modernization of the law of companies in financial difficulty at European level will contribute strongly to the standardization of Member States of the European Union’s laws and regulations relating to the matter.
The future ordinance, which should come into force on October 1st 2021, is eagerly awaited.