The Insolvency Proceedings of Foreign Companies in French Law

21.10.2013

 

The Insolvency Proceedings of Foreign Companies in French Law

 

The possibility for a foreign company to demand an Insolvency proceeding by a French court.

An insolvency proceeding can be opened in France even if the insolvency proceeding has been opened abroad for a foreign company, but on the condition that the decision has not been enforced (not been subject to the "exequatur"). If the enforcement has been granted, an insolvency proceeding in France is not possible.

The competent court is the one of the place of the head office of the debtor. If there is no head office declared in France, the competent court is the one of the place where the company has its interests in France.

The insolvency proceeding can also be opened against a debtor that has no head office in France, according to the article 14 and 15 of the French Civil code regarding obligation involving his business in France or with a French entity or citizen, or for obligations contracted abroad with French entities or citizens.

The proceeding can also be opened in France even if there is no establishment in France and for the mere existence of a business in France.

The main criteria to be able to demand to a French Court an insolvency proceeding, is that the debtor/company has interests in France even if the head office is not stated there.

In case of decision, there will be a full right recognition of the decision by all the countries members of the European Union without need of enforcement or any other announcement formalities.

The recognition allows to act in all the Member States of the European Union with a certified copy of the judgment.

Proceeding and Arbitration

Competent Judge

The competent court is the court of place where the debtor/company's head office. If the debtor has head office in the French territory, the competent court is the court where the debtor has its main interests in France.

Then, the French law will be applicable, so we will follow the internal French law in terms of proceedings. The proceeding opened in France produces effects in all the countries where the debtor has properties or goods with the condition of the existence of international treaties or European agreements and acceptance of the legal systems concerned.

Conditions of the proceeding

In French law, we distinguish three kinds of insolvency proceedings.

-          The safeguard procedure or "procedure de sauvegarde": that is opened only if the company knows financial difficulties that it can't solve by itself.

 

-          The rehabilitation proceeding or "redressement judiciaire: if the debtor is unable to pay its debts anymore

 

-          The liquidation or "liquidation judiciaire: if the rehabilitation is not possible.

The judge shall apply the appropriate proceeding after analysis of the conditions.

The quality of debtor will be qualified under the French law. To open the proceeding, the debtor shall be unable to pay his debts. After the opening of the proceeding, the priority for the judge will be to allow the payment of the French debtors, and then the liquidation shall be more appropriate.

When the proceeding is opened in France and that neither the head office of the debtor nor any other establishment is in France, the judge will appreciate the cessation of payment as a mere default of payment observed in France.

Opening of the proceedings

The debtor that is in a situation where he is unable to pay any of his debt has the obligation to ask for the opening of an insolvency proceeding through the declaration of the inability to pay the debts.

The condition is that the declaration has to be done at least 45 days after the inability to pay the debts, by the representative of the company.

The declaration has to be done to the Registry of the commercial court of the place where the debtor has its interests that go with some accounting records to help the court to understand the situation.

The proceeding can be filed by any creditor or by the judge.

Content of the demand:

-          Statement of assets and liabilities of the company

-          A kbis extract

-          a cash position of the company (a financial document that content the debts and the credits of the company to allow to know its exact financial situation) from at least one month

-          the number of employees at the date of the demand to the court, their name and address and the amount of the turnover of the company at the closing date of the last financial/accounting year.

-          a turnover statement of the credits and the debts with the indication of the name and the address of the debtors et for the employees, the amount of the unpaid wages

-          the active and passive statement of the guarantees (the guarantees given to the creditors for their debt recovery and the commitments off balance sheet.

-          the inventory of the properties and goods of the company

-          if it is a legal person that includes members who are severally liable for the company debts, their list shall be established with the indication of their name and address

-          the name and address of the representative of the work council entitled to be heard by the court if they have already been designated

-          a sworn statement that certifies that there no designation of any ad hoc representative or for the last 18 months before the date of the demand

Those documents shall be date, signed and certified true by the representative of the company.  

Organization and functioning of the proceeding

The opening of the proceeding goes with the determination of the liabilities "determination du passif" or production of credits "production de créances". The French Court de cassation, considers that any creditor whatever his nationality or domiciliation, can declare its credit in an insolvency proceeding opened in France, even if he would have declared this credit in a proceeding abroad.

The declaration of credit is exclusively governed by French law regarding the form and term requirements.

According to the article 622.24 al. 2 of the French commercial code, the creditors that do have not domiciliation in France shall declare their credits within four months from the publication on the BODDAC of the court decision to open the insolvency proceeding.

The declaration of the creditor shall be written in French according to the article 2 of the French Constitution of the 2nd of October 1958, or shall go on with its official translation if written in another language.

Concerning the debt which currency is not expressed in Euros, the conversion shall correspond to the exchange rate at the moment of the court decision.

After the observation period or "periode d'observation decided by the Court", the Judge will give a decision about whether the companycan beneficiate from a safeguarding plan or if the company has to be liquidated.

If a plan is adopted, it will be subject to French law.

If there is a liquidation plan, the sale of assets will also be subject to French law but if real estate properties are located abroad, the law of that country would have to be taken into consideration.

The opening of the insolvency proceeding Judgment

The opening of the insolvency proceeding judgment marks the beginning of the proceeding and the Court shall verify if the company is unable to pay its debts.

 To open the proceeding, the Court has the obligation to interview the debtor, otherwise the opening of the insolvency proceeding judgment shall be null and void.

Publicity:

The Judgment shall produce effects from its date of publicity, its means at the date when it has been issued. All the agreements entered by the debtor at the day of the judgment of opening of the insolvency proceeding are deemed to be concluded after the opening of the proceeding and can be cancelled.

The publicity is necessary to inform the third parties and allow them to declare their credits in the terms fixed by the law. (2 months for French creditors and 4 months for foreign creditors).

The insolvency proceeding shall be mentioned in:

-          the Register of companies

-          the journal of legal notices

-          the Official Bulletin of Civil and Commercial announcement (BODDAC)

Designation of the proceedings bodies:

-          court's receiver or "juge commissaire"

-          a judicial representative and a legal administrator/liquidator designated by the court that will be entitled to manage the company during the "observation period" and prepare the liquidation plan.

-          a representative of the employees

Contestation of the decision

The entities or persons entitled to contest the opening of the insolvency proceeding judgment are:

-          the debtor

-          a creditor

-          the public prosecutor

within ten days from the notification of the opening of the insolvency proceeding judgment

-          third parties: within ten days from the publicity of the judgment in the  Official Bulletin of Civil and Commercial announcement, through a declaration to the register.

Effects of the insolvency decision of the court

-          Interdiction for the debtor to pay the credits arisen before the opening of the insolvency proceeding

-          Interdiction for the debtor to pay the credits arisen after the opening of the insolvency proceeding and that are not privileged

Operation of the liquidation

The company shall be totally or partially granted. The conditions of grant of the company are fixed by the court receiver.

Payment of the creditors:

The debts are due from the date of the judgment that pronounces the liquidation of the company and the assets resulting from the liquidation are shared in function of the rank of the creditors. (Privileged creditors, creditors that benefit from guarantees, creditors that do not benefit from any guarantee).

When there are no more liabilities, the closing of the liquidation is pronounced. The company can be granted or dissolved.

 

Att. Sophia BENAZOUZ

Legal Counsel