The Safeguard procedure, a preventive measure situating itself halfway between Conciliation and Receivership, came into effect 1 January 2006, and was twice reformed (2008 and 2010), since then

Intended for companies facing difficulties they are not able to overcome, this proceedings can only be launched at the initiative of the company chief executive officer.  Its raison d’être stems from the same logic as that of the other prevention measures, however it comes with stricter controls imposed by the Courts.  It provides extra tools such as an automatic stay on debt repayments during the observation period and the intervention of the AGS –Association pour la Gestion du régime de garantie des créances des Salariés (French Salary Insurance Scheme)- who can advance the funds for layoffs, , reimbursed at the confirmation of the safeguard plan.

The published procedure can result in a Company Safeguard Plan, blessed by the Court, and enforceable against all creditors.

The proceedings is opened for a 6-month period, renewable once.  In very exceptional circumstances, the Public Prosecutor may request a further extension of 6 months, therefore allowing a total Observation Period of 18 months.

COMPANY ISSUES

The Safeguard procedure is available to all company types (trade, business, retail, self-employed craftsman, farmer, professionals including controlled professions and all other bodies corporate/legal entities) having knowledge of difficulties the company is not able to overcome – without however already being in default.

The purpose of the procedure is:

–       to facilitate the obtaining of moratoria on payment with the creditors and the reorganisation of the company to permit operations to continue, to save jobs and to pay off the debt,

–      To induce the chief executive officer to place itself under the protection of the Court at the first sign of difficulties so that creditors’ claims would not be unbearable regarding foreseeable cash-flow.

LEGAL FRAMEWORK

Launching of proceedings: 

The proceedings is opened by the Court at the request of the company chief executive officer, once he has satisfied all requirements as to proof of difficulties that the company is not able to overcome.  In the opening judgment, the Court nominates a French Judicial Administrator (optional under certain thresholds) as well as a liquidator, who represents the creditors and compiles a statement of liabilities/ a list of claims against the debtor.

The Observation Period: 

The opening of the Observation Period automatically results in:

  • an immediate suspension on payments due prior to the opening of the proceedings
  • a stay on proceedings to recover past amounts due,
  •  an immediate payment of all debts incurred after the opening of the proceedings,
  • the protection of contracts in progress,
  • the establishment of “creditors’ committees” and a bondholders’ committee for companies reaching a total amount of 150 employees or a turnover of €20 Million where decision is made with majority of two-third of the voters.

To note:  Labour restructuring costs (layoffs) can be advanced by AGS (French Salary Insurance Scheme) during the Observation period. Having made advances against the claims of employees, AGS becomes a claimant of the defaulting company. These claims must be reimbursed within one month after the termination of the safeguard plan.

CONDUCT OF PROCEEDINGS

Financial, social and environmental report:

The administrator prepares a financial, social and environmental assessment report in order to identify areas of opportunity for the recovery of the company.

Drawing up of Company Safeguard Plan:

With the company chief executive officer, the administrator prepares the Safeguard Plan.  As in amicable procedures, he works alongside the chief executive officer in the negotiations with all concerned parties (creditors, labour, shareholders…).

This plan is enforceable against all creditors.

It can last up to 10 years, and concerns in particular:

  • the reimbursement, free of interest, of contract claims with original maturity of less than a year,
  • a debt restructuring of claims with original maturity of more than a year, over the plan duration,
  • a treatment of creditors’ committees’ claims,
  • a possible waiver for tax and social claims,
  • a possibility to offer an option for creditors to waive debts in exchange from prompt reimbursement.

Presentation of the Safeguard Plan: .

At the conclusion of the observation period the administrator presents the safeguard plan, which defines:

  • the terms of repayment of the debt (submitted to creditors),
  • the conditions necessary to the continuation of the business (mainly labour conditions),
  • the contribution of shareholders (new capital) or entry of new shareholders,
  • additions, sale or potential closure of certain branches of the  company,  

To note:  Safeguard cannot result in the sale of the complete company.  During the entire procedure, third parties are not allowed to make “hostile” takeover bids. Nevertheless, the debtor can ask for a conversion of the proceedings into reorganization so as to allow a total sale of the company. 

To note: The debtor’s guarantors and co-obligators shall avail themselves of the deadlines and write-offs granted under the safeguard plan 

Tax authorities and social security administrations can allow partial or total debt remission…

ADMINISTRATOR CONTRIBUTION

Knowledge of existing procedures and tools

The administrator guides the company chief executive officer in management’s decisions.  His perfect knowledge of the French legal and financial measures available to distressed companies allows him to  (i) quickly solve problems, particularly those concerning short term cash flow , and (ii) conduct the ordinary course of the business (contracts in progress, creditors’ claims, labour restructurings, the set-up of creditors’ committees) .

Prompt handling of cases

His experience in dealing with crisis situations allows him to quickly diagnose problems and rapidly orient company management in making the right decisions to the recovery of the business.

A legal and judicial endorsement, paramount to all parties

The administrator brings an element of comfort in the negotiations. He guarantees the transparency of the negotiations to seek a fair solution to all parties.   He ensures cash-flow control.

ROLE OF CHIEF EXECUTIVE OFFICER

The chief executive officer remains at the head of the company and ensures the day-to-day management.  As described in the opening judgment, the Administrator exerts either a mission of:

  • “Supervision” (checks and controls / oversight function) or of
  • « Assistance” to management.  Except in the case of fraud, the Safeguard procedure protects the chief executive officer from any legal action in bankruptcy or personal insolvency, as well as any ban on managing.

OUTCOME OF MISSION

The procedure results in a court order confirming the Safeguard Plan, which cannot exceed 10 years.A judicial auxiliary officer, usually the administrator appointed by the Court at the opening of the proceedings, is appointed to oversee the execution of the Safeguard Plan. He ensures creditors payments on due date, as set out in the schedule blessed by the Court.

In case of default payment during the period of the Safeguard Plan, the proceedings is automatically converted to reorganization or winding-up proceedings.

The chief executive officer may,at any moment, put an end to the Safeguard Pproceedings if the difficulties responsible for the launching of the procedure disappear. 

FHB MAIN REFERENCES

Eurotunnel (2006),
ARFEO / Ebénisterie (Cabinetmaker) de Chinon (2007),
DULAC (2008)
EBREX (2008)
THOMSON (2010)

Refer text: Art. L620-1 & followed by the Company Safeguard Law of 26 July 2005. (next click on Enforcement Decree and Safeguard Law)

FINANCIAL FAST-TRACK SAFEGUARD

Refer text: art. L. 628-1 à L. 628-7 

AIM OF THE PROCEEDINGS

The new fast-track proceedings requires the opening of a preliminary conciliation. It is only enforceable against financial creditors and leads to a safeguard plan blessed by the court within a maximum of two months following the opening of the proceedings.

Its main purpose is to give birth to a pre agreed financial restructuring supported by a majority of creditors without putting a strain on its business activity.

An agreement reached under Conciliation benefits from certain legal advantages if blessed by a Court, but this requires creditor unanimity. The fast-track proceedings enables such an agreement to be implemented, even if a minority opposes it or is unidentified (market debts). 

ELIGIBILITY

In addition to the traditional criteria required to open a safeguard proceedings (no default payment (i), demonstration of difficulties the debtor is not able to overcome), the safeguard proceedings requires:

  • the opening of a preliminary conciliation,
  • a pre-agreed restructuring plan with broad support of the creditors,
  • the reaching of certain size thresholds, i.e. a total amount of 150 employees or a turnover of €20 Millions

ADMINISTRATOR CONTRIBUTION

Knowledge of existing procedures and tools
The administrator guides the company chief executive officer in management’s decisions.  His perfect knowledge of the French legal and financial measures available to distressed companies allows him to (i) quickly solve problems, particularly those concerning short term cash flow, and (ii) conduct the ordinary course of the business (contracts in progress, creditors’ claims, labour restructurings, the set-up of creditors’ committees).

Prompt handling of cases
His experience in dealing with crisis situations allows him to quickly diagnose problems and rapidly orient company management in making the right decisions to the recovery of the business.

A legal and judicial endorsement, paramount to all parties
The administrator brings an element of comfort in the negotiations. He guarantees the transparency of the negotiations to seek a fair solution to all parties.   He ensures cash-flow control.