Philippe Hameau, Paris-based partner at Norton Rose Fulbright, explains the effects of a new piece of French legislation on corporate insolvency.
| Philippe Hameau |
Partner, Norton Rose Fulbright
The recently adopted French Loi Macron, voted into law on July 10 in order to stimulate “growth, activity and equality of economic opportunity”, has been widely reported on for some of its more controversial features.
But it also has significant effects on French companies facing economic difficulties, notably by changing how the commercial courts deal with distressed companies, and reinforcing creditors’ rights.
The new Loi Macron provides that certain proceedings relating to distressed companies will be reserved to a limited number of French commercial courts (yet to be determined).
These specialised commercial courts will have sole jurisdiction for the relevant geographical area for judicial safeguard, reorganisation and liquidation proceedings concerning certain companies.
Criteria for such treatment include, for example, companies with at least 250 employees and total turnover of at least €20m, or firms subject to insolvency proceedings which require application of principles of international or EU law.
Ironically, though, this may mean that those companies that do not meet the qualifying criteria to be considered in a specialized court, could be handled by courts that may lack the depth of expertise necessary to judge complex cases.
The result is a “two-tiered” justice system, which may raise serious constitutional issues. Even though the principle of special jurisdiction already exists under French law for certain categories of disputes (for example with respect to disputes involving sudden termination of established commercial relations), no such distinction has previously existed based on the nature of the parties or the amount in issue. In this respect, the distinction created by the Loi Macron is open to criticism.
Since the Ordonnance of March 12, which attempted to reinforce the rights of creditors in judicial safeguard and judicial reorganisation procedures, creditors are entitled to present their own proposed reorganization plan to the court. This is undertaken in “competition” with the debtor’s proposals.
The creditors’ plan can incorporate a proposed increase in the share capital of the debtor by way of conversion of debts owed to the creditor, thereby diluting the holdings of existing shareholders.
The Loi Macron reinforces those rights, and enables creditors to have the final say on the issue and defines the circumstances in which the powers of shareholders can be limited, or even the expropriation of un-cooperative shareholders can occur.
If the plan proposed by the creditors includes a modification to the share capital of the debtor company, this will most often be by way of conversion of debts owed to the creditors, thereby enabling them to assume control of the debtor.
In such a case, if the existing shareholders of the debtor or some of them refuse to vote in favour of the modification to share capital, the court will have the ability, to intervene at the request of the insolvency administrator or the public prosecutor.
It is worth noting that the measures can be ordered only after the court has first considered the possibility of a total or partial transfer of the business in a transfer plan.
It is yet to be seen the level of impact that Loi Macron could have on future restructuring and insolvency proceedings. However there is currently uncertainty on how the provisions explained will be administered. We look forward to seeing the further detail on that.
Posted on 25th September 2015 by Marcel LeGouais
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