How to Save a business
Verified 26 November 2024 - Directorate for Legal and Administrative Information (Prime Minister)
The safeguard procedure is aimed at a business with financial difficulties which it cannot overcome. It must not be in cessation of payments. Safeguarding allows economic activity to continue, employment to be maintained and debts to be paid.
The safeguard procedure concerns any business which justifies difficulties which it is unable to overcome. These difficulties can be legal (e.g., ongoing litigation), economic (e.g., decreasing orders) or financial (e.g., inability to pay invoices).
The business should not be in a state of cessation of payments.
FYI
The backup procedure also applies to thesole trader (IS), including micro-entrepreneurs, whatever the activity carried out: commercial, craft, liberal or agricultural.
Only the legal representative business (manager for a SARL, President for a LOCK) may request the opening of a backup procedure.
It's a purely voluntary request. It must be made before the commercial court or the court of justice according to the activity carried out:
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Commercial or craft activity
The legal representative must complete the following application form:
Request to open a backup procedure
The difficulties encountered by the business and the reasons why it is unable to overcome them must be indicated.
The request to open is accompanied by the following documents:
- Annual accounts for the last financial year
- Extract K-bis or certificate of registration in the National Register of companies (RNE)
- Cash flow situation
- Projected profit and loss account
- Number of employees employed
- Quantified statement of claims and liabilities
- Statement of assets and liabilities of collateral and off-balance sheet commitments
- Summary inventory of business assets
- Name and address of the representatives of the staff delegation of the Social and Economic Committee (ESC) if they have already been appointed
- Attestation on honor certifying the absence of ad hoc mandate or reconciliation within 18 months of the date of application
This application must be filed or sent in 2 copies :
- at the registry of the commercial court of the place where the business has its seat
- or online through the digital court
Liberal activity
The legal representative must complete the following application form:
Request to open a backup procedure
The difficulties encountered by the business and the reasons why it is unable to overcome them must be indicated.
The form must be lodged at the Registry of the Court of Justice in which the seat of the business is situated.
The request for initiation shall be accompanied by the following documents:
- Annual accounts for the last financial year
- Unique company identification number (Siren)
- Cash flow situation
- Projected profit and loss account
- Number of employees employed at the date of the request
- Quantified statement of claims and liabilities
- Statement of assets and liabilities of collateral and off-balance sheet commitments
- Summary inventory of the debtor's assets
- Name and address of the representatives of the staff delegation of the Social and Economic Committee (ESC) if they have already been appointed
- Attestation on honor certifying the absence of ad hoc mandate or reconciliation within 18 months of the date of application
- Designation of the professional body or authority on which the business depends
The court shall initiate the safeguard procedure if it considers, after hearing the legal representative of the business and the representatives of the ESC: titleContent, that the request for initiation is well founded.
The decision to open the safeguard is mentioned in the RNE: titleContent and the SCR: titleContent if it is a commercial business. The Registrar of the Court shall publish a notice of the opening judgment in the Bodacc. It shall publish the same notice in a legal listing support (Shal) the place where the company has its registered office. These advertisements are made within 15 days of the date of judgment.
The opening judgment has the following effects: it opens an observation period during which the company continues its activity and it appoints the bodies of the procedure.
FYI
Where the company is under the regulated liberal sector (e.g. architect, doctor), the court must hear the professional order or body to which it is subject.
1. Establishment of an observation period
The safeguard begins with an observation period which serves to carry out an economic and social assessment of the company. The duration of the observation period is Maximum 12 months (6 months renewable once for a maximum of 6 months at the request of the court administrator, the company in difficulty or the public prosecutor).
The objective of this period is to arrive at a safeguard plan under the control of the court and usually with the help of a court administrator.
To prepare the company's backup plan, the manager prepares an inventory of assets and a list of creditors company. The draft safeguard plan shall be voted by the affected party classes.
Please note
When it appears that the business was already in cessation of payments before the opening of the safeguard procedure, the court must convert the safeguard into a safeguard procedure judicial redress or judicial liquidation.
2. Appointment of the bodies of the procedure
In the judgment initiating the safeguard procedure, the court shall designate the different speakers to the proceedings:
- Judicial agent.
- Judicial administrator
- Judge-Commissioner
The court shall invite the Social and Economic Committee (ESC) where it exists, to appoint a representative from among the company's employees.
Judicial agent
The judicial representative shall be responsible for the verification of the indebted. In this capacity, he receives the statements of creditors and the statement of wage claims for verification.
He shall then draw up a list of the claims declared and make proposals for admission or rejection. The judge-commissioner decides the fate of the claim.
Please note
The judicial agent is paid by the company. This remuneration is fixed by a decree for each of its tasks (e.g. verification of claims). It depends on the number of employees and the turnover of the company.
Judicial administrator
The appointment of a judicial administrator shall be obligatory where the company has at least 20 employees and a turnover exceeding €3 millionHT: titleContent.
The court shall assign him one of the following tasks:
- Supervision of the company in difficulty in its management
- Support for all management acts or for some of them
The court may entrust him with assisting the officer or with the administration of the company, wholly or in part, by himself.
It establishes an economic and social balance sheet for the company.
Please note
The court administrator is paid by the company. This remuneration is fixed by a decree for each of its tasks (e.g. assistance tasks, preparation of the social and economic assessment). It depends on the number of employees and the turnover of the company.
Judge-Commissioner
He is a member of the Commercial Court responsible for ensuring the protection of the interests of each party and the proper conduct of the proceedings.
In particular, the judge-commissioner may authorize the company in difficulty to:
- Perform acts of disposition. These are acts that commit the company's assets, for the present or the future (examples: sale of a building, conclusion of a loan, donation). They result in a transfer of rights that can diminish the value of the asset.
- Subscribe a safety real (e.g. a mortgage) as collateral for a claim after the opening of proceedings.
The opening of an observation period has consequences for the head of the business and for the creditors.
Situation of the business leader
The manager continues to administer the business and performs day-to-day management actions (e.g., ordering supplies). However, where a court administrator is appointed, the latter is responsible for supervising the manager in his management, or for assisting him in all or some of the management acts.
The ruler continues to receive his remuneration unless the shareholders or members decide otherwise.
The open contracts at the time of initiation of the proceedings (e.g. leasing) continue on the basis of a decision of the administrator.
The business must be able to pay its employees. Indeed, the wage guarantee scheme (AGS) does not support a company's salaries in the backup process.
Situation of creditors
The opening of a safeguard procedure affects all creditors. The consequences are different depending on whether their claim arose before or after the opening judgment.
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Claims existing before the opening judgment
Opening the backup has the following effects:
- ban for the company in difficulty to pay all claim prior to the opening judgment. In practice, this means that the company no longer pays its claims from the date of the opening of the safeguard judgment. Creditors must therefore make a declaration of their claims to the judicial representative.
- Suspension of individual proceedings : creditors who have not sued the company for the settlement of their claims before the opening judgment can no longer do so after. The guarantor may not be continued during the observation period.
- Discontinuation of proceedings : from the date of the judgment initiating the proceedings, the guarantor may not be sued. At the end of the observation period, the security may be continued again if a deadline in the safeguard plan is not paid.
- Interests price interruption (legal, conventional and late) and surcharges. The bonds (natural persons) of the company in difficulty may benefit from the cessation of interest rates. However, loans of one year or more are not affected by the interruption of interest rates.
FYI
For more information on the declaration of claim, see the dedicated card.
Claims arising after the opening judgment
In principle, the company in difficulty does not pay claims arising after the judgment initiating the safeguard procedure.
In practice, the cash contributions made after the opening judgment must be repaid before all other claims. It's called the backup privilege.
However, wage claims are an exception to this rule and are always paid first.
Others debts they shall also be paid when due:
- Claims necessary for the conduct of the procedure or observation period (e.g. payment of a delivery of goods necessary for the activity of the business)
- Consideration for a service provided to the company in difficulty during this period (e.g. payment for plumbing)
- Maintenance claims
To promote the continuation of the company's activity, the judge-commissioner may also authorize the payment of carriers' invoices.
Where there is a serious possibility of the business being saved, the court shall adopt a safeguard plan which shall terminate the period of observation.
If there is no possibility for the business to be safeguarded, the court converts the proceedings into recovery or judicial liquidation.
Warning
In very rare cases, the situation of the company during the observation period improves and the court may terminate the safeguard procedure. In this case, the creditors are settled and the company resumes its business normally.
Adoption of a backup plan
The safeguard plan allows the manager to take a set of measures to restructure the company and enable its safeguarding.
This plan shall be put to the vote of creditors and affected party classes if they exist.
Affected party classes must be formed in any of the following cases:
- Where the company has more than 250 employees and a net annual turnover exceeding €20 million
- Where the net annual turnover exceeds €40 million
The safeguard plan may not last more than 10 years and shall include, where appropriate, the cessation, addition or disposal of one or more activities.
The implementation of the plan imposes payment deadlines or debt forgiveness on creditors.
In the judgment adopting the plan or amending it, the court may decide that the goods which it considers essential for the continuation of the company may not be sold for a certain period of time.
Conversion to receivership or liquidation
If the adoption of a safeguard plan is manifestly impossible and the termination of the procedure would lead to the cessation of payments, the court may convert the safeguard proceedings into recovery or judicial winding-up.
Backup | Judicial Redress | Judicial winding-up | |
|---|---|---|---|
Termination of payments | No | Yes | Yes |
Compulsory nature of the procedure | No | Yes | Yes |
Who brings the matter before the court? | Only the leader | One of the following: | One of the following: |
When? | ‘Insuperable’ legal, economic or financial difficulties | Within 45 days of cessation of payments | Within 45 days of cessation of payments |
Bodies of procedure appointed by the court |
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Duration of observation period | Maximum 12 months | Maximum 18 months | No observation period |
Cost |
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| Fees of the liquidator paid by the Caisse des Dépôts et Consignations. |
Consequence of the opening judgment |
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Objectives |
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End of observation period | The observation period ends in one of the following ways: | The observation period ends in one of the following ways: | At the end of the winding-up operations, the court shall issue one of the following judgments: |
Warning
The post-crisis treatment procedure, the procedure for fast backup and the simplified bankruptcy are not covered in this table.
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Opening of the safeguard procedure, observation period, economic, social and environmental assessment
Development of the backup plan
Procedure for safeguarding and publicizing the opening judgment
Remuneration of the court administrator
Remuneration of the judicial representative and the liquidator
Document template
Form