Judicial Recovery: The Bankruptcy Procedure

Bankruptcy procedure to an enterprise

Bankruptcy procedure to an enterprise

The bankruptcy procedure may apply to an enterprise in a state of cessation of payments. This deposit may give rise to judicial reorganization or judicial liquidation. These two procedures must be distinguished, the objective of a judicial reorganization being to correct the situation of the company without putting an end to its legal existence.

The bankruptcy proceedings are mainly based on the preparation of a recovery plan decided by judgment at the end of a period of observation of the company. But before that, different formalities must be completed.

Terms

bankruptcy

Debtors concerned

The judicial reorganization procedure is applicable to any person who carries on a craft or commercial activity, to any farmer, to any other natural person exercising an independent professional activity as well as to companies and associations.

The state of cessation of payments

In order to open a bankruptcy proceeding, the enterprise concerned must necessarily be in a state of cessation of payments, that is, unable to meet its due liability with its available assets.

Application and opening judgment

Application and opening judgment

The opening request

The court competent for a receivership is the commercial court if the debtor is a merchant or registered in the directory of trades or the tribunal de grande instance in other cases.

The request to open a bankruptcy can be initiated by:

  • a request from the debtor himself no later than 45 days after the cessation of payments when no conciliation procedure has been initiated within that period;
  • an assignment of the debtor by one or more of his creditors;
  • a seizure of the court at the request of the public prosecutor.

When the court is seized by the debtor, the debtor must address to the registry a declaration of cessation of payments: the filing of a bankruptcy. It must attach all the documents listed in Article R631-1 of the Commercial Code.

Previously, the court had the power to take up the case ex officio for the opening of a judicial reorganization procedure when no conciliation procedure was in progress. This possibility was considered contrary to the Constitution by a decision of the Constitutional Council of December 7, 2012. This decision is applicable to all opening judgments that have occurred since December 8, 2012.

It is from the documents submitted by the company that the court will assess the state of the company and the proper procedure: recovery or liquidation.

Opening judgment and procedure

The procedure applicable to receivership is similar to that applicable in case of safeguard.

The court rules after conducting the same hearings as those provided for the safeguard procedure. Depending on the debtor’s situation, the court may either initiate the reorganization proceedings, dismiss the claim, or take legal action to open a liquidation if the recovery is clearly impossible.

In the event of the opening of the reorganization proceedings, the judgment designates the same bodies as those provided in the event of the opening of a safeguard procedure. The insolvency administrator is therefore appointed under the same conditions.

During the observation period, the court may always order the partial termination of the activity or liquidation. It should be noted that during the recovery procedure, the payment of the employees’ claims is guaranteed by the AGS. Employees continue to receive their salaries during the liquidation.

The recovery plan

In principle, the observation period must lead to a recovery plan drawn up by the administrator (if he has been appointed) with the assistance of the debtor. The plan provides for the continuation or the partial or total transfer of the business. Overall, its content is close to that of a backup plan but the Commercial Code nevertheless provides some peculiarities.

The plan is stopped by the court. When it provides for redundancies, the judgment must mention the number of employees whose dismissal is authorized and the activities and occupational categories concerned. The procedure is then subject to special rules because of the situation of the company.

Director’s remuneration

Director

The remuneration of the natural person entrepreneur or company executives during the bankruptcy proceedings was set by the judge-commissioner. The Panc provides for the maintenance of the remuneration received at the opening of the procedure. The judge-commissioner may, however, always oppose it after a request from the insolvency administrator to that effect.