Distressed business lawyer in Paris: protect cash flow and directors.

The ad hoc mandate is open to any company facing a difficulty that its director wishes to address under the aegis of the president of the commercial court, with no public formality. It can cover negotiating a payment schedule with a major creditor, restructuring bank debt, resolving a dispute between shareholders or finding a buyer. No financial threshold is required. The request is made by application to the president of the competent court, who appoints the mandate holder. The procedure remains strictly confidential.

Both tools are confidential and preventive. The ad hoc mandate is more flexible, is not limited in time and can be opened even if the cessation of payments is recent. Conciliation, provided for in Article L. 611-4 of the French Commercial Code, is more closely regulated: it requires a legal, economic or financial difficulty that is established or foreseeable, and is available only if the cessation of payments has not lasted more than forty-five days. Its maximum duration is four months, extendable by one month. Above all, it can lead to a court-approved agreement that gives new money a conciliation privilege, enforceable even in the event of subsequent proceedings.

Cessation of payments is defined in Article L. 631-1 of the French Commercial Code as the inability to meet liabilities that have fallen due with available assets. Available assets comprise cash and sums that can be mobilised immediately (credit reserves, moratoria granted by creditors). Liabilities due comprise debts that have matured and are certain, liquid and uncontested. Rescheduling that has been obtained suspends the due date. The diagnosis is made at a given point in time and is checked against the most recent accounts.

Article L. 631-4 of the French Commercial Code requires the director to apply for the opening of reorganisation proceedings within forty-five days of the cessation of payments, unless, within that period, the director has applied for the opening of conciliation proceedings. Exceeding the deadline is a fault that can found an action for liability for shortfall in assets (L. 651-2) and an application for personal bankruptcy or a management ban (L. 653-8).

A director who fails to declare the cessation of payments within the deadline faces several penalties that can be combined. Civil: an action for liability for shortfall in assets (Article L. 651-2 of the French Commercial Code). Personal: personal bankruptcy (Article L. 653-1) with a management ban of up to fifteen years. Criminal: fraudulent bankruptcy may be found in the most serious cases. The Court of Cassation nevertheless specifies that the fault cannot exist before the deadline has expired (Cass. com. 17 June 2020, No. 18-11.737).

Safeguard proceedings are available to a debtor who shows difficulties that it is unable to overcome, without being in cessation of payments (Article L. 620-1 of the French Commercial Code). They suspend individual proceedings, freeze prior liabilities and allow a continuation plan to be adopted after an observation period of six months, renewable. The director remains in place under the supervision of a court-appointed administrator. This public but protective procedure is underused out of mistrust, even though it buys time and allows restructuring before the situation deteriorates.

The boundary is one of timing. Safeguard is opened before the cessation of payments; reorganisation after it. Both procedures provide for an observation period, suspend individual proceedings and lead to a plan adopted by judgment. In safeguard, the director keeps management. In reorganisation, the administrator may be tasked with assisting or representing the debtor. The plan may be a continuation plan (the business continues under the debtor) or a sale plan (transfer to a buyer). Conversion into liquidation is possible if reorganisation becomes manifestly impossible.

Liquidation is opened when a debtor in cessation of payments can no longer recover (Article L. 640-1 of the French Commercial Code). The court appoints a liquidator, opens the period for verifying claims and organises the realisation of assets: sale as a whole, partial sales, sale of individual assets. Creditors are paid according to the ranking of privileges and security interests. At the end, the court closes the proceedings for insufficiency of assets or for extinction of the liabilities. Closure for insufficiency opens, where appropriate, litigation over the director's liability.

Article L. 651-2 of the French Commercial Code allows the court, where the judicial liquidation of a legal entity reveals a shortfall in assets, to place all or part of that shortfall on the director or directors who committed a contributory management fault. Mere negligence has been excluded since the law of 9 December 2016. The order may be made against one director or jointly and severally. The amount is assessed at the discretion of the trial courts, within the limit of the shortfall in assets and in accordance with the principle of proportionality (Cass. com. 9 May 2018, No. 16-26.684).

Case law mainly recognises: late declaration of the cessation of payments (beyond forty-five days), abusive continuation of a loss-making business, failure to keep proper accounts, manifestly excessive personal withdrawals, failure to pay social security and tax charges, transactions with no corporate interest, and making assets available without consideration. The fault must be proved and must have contributed to the shortfall. The director can be exonerated by showing that there is no causal link between the fault and the worsening of the liabilities.

Personal bankruptcy (Articles L. 653-1 et seq. of the French Commercial Code) penalises serious breaches: continuing a loss-making business for personal interest, misappropriation of assets, fictitious accounting, preferential payments. It entails a ban on directing, managing, administering or controlling any commercial or craft business and any legal entity, for a maximum of fifteen years. Entry in the criminal record is mandatory. The penalty may be limited to a simple management ban.

The merger of estates is an extension procedure provided for in Article L. 621-2 of the French Commercial Code that allows the insolvency proceedings of one debtor to be extended to another person such as a landlord property holding company (SCI), a de facto director or a sister company. It requires either the intermingling of accounts or abnormal financial relationships, characterised by transfers of assets without consideration and resulting from a systematic intent. The Court of Cassation upheld an extension to a landlord SCI that had refrained from claiming rent for seven years (Cass. com. 8 January 2013, No. 11-30.640).

Article L. 622-24 of the French Commercial Code requires every creditor whose claim arose before the opening judgment to send its declaration to the creditors' representative. The standard time limit is two months from publication of the judgment in the BODACC (extended to four months for creditors domiciled abroad). A creditor holding a registered security interest is notified personally and the time limit runs from that notification. The declaration must state the amount, nature and ranking of the claim. Failure to file makes the claim unenforceable.

A creditor that has not filed within the time limit may apply for relief from the time bar (Article L. 622-26 of the French Commercial Code), provided it proves that its default is not its own doing or that it is due to a deliberate omission by the debtor when drawing up the list. The application is made to the supervising judge within six months of publication of the judgment. If relief is granted, the creditor has a shortened period in which to file.

Contracts in progress are not terminated by operation of law when proceedings are opened (Article L. 622-13 of the French Commercial Code). The administrator (in safeguard and reorganisation) or the liquidator (in liquidation) has an option: to require performance of the contract or to renounce it. The other party may seek termination if non-payment persists. Clauses providing for automatic termination on the opening of proceedings are deemed unwritten.

The commercial lease is a contract in progress subject to Article L. 622-13. The administrator or the liquidator may continue it or terminate it. Rent that fell due before the opening is filed as a claim. Later rent is a post-judgment claim that must be paid when due to preserve the lease. During the observation period, the landlord cannot take eviction measures based on non-payment predating the judgment.

In safeguard and reorganisation, the director's remuneration is set by the supervising judge (Article L. 631-11 of the French Commercial Code), on the proposal of the administrator if one has been appointed. Remuneration may be maintained if the business continues, but at a reasonable amount. Benefits in kind and business expenses generally continue. In liquidation, the director is no longer paid for the corporate office, unless retained for interim management.

The Paris commercial court has jurisdiction over proceedings concerning commercial companies and individual traders whose registered office or main establishment is in Paris. For the liberal professions and farmers, the judicial court has jurisdiction in principle (Article L. 621-2 of the Commercial Code). However, on an experimental basis, for proceedings opened from 1 January 2025 and for four years, the Paris commercial court, renamed the economic activities court (tribunal des activités économiques), hears amicable and collective proceedings whatever the debtor's status and activity; for lawyers, notaries, huissiers de justice, commissaires-priseurs judiciaires, commercial court clerks, court-appointed administrators and mandataires judiciaires, the Paris judicial court rules. The application for an ad hoc mandate and the request for conciliation are addressed to the president of the competent court. The declaration of cessation of payments and the opening of reorganisation or liquidation are brought before the full bench.

Fees vary according to the procedure and its complexity. An advisory assignment on an ad hoc mandate is generally priced between €4,500 and €12,000 incl. VAT depending on the scale of the negotiations. The application for safeguard or the declaration of cessation of payments, followed by the opening hearing, falls between €3,500 and €8,000 incl. VAT. A defence against an Article L. 651-2 action or personal bankruptcy is priced according to complexity, from €6,000 incl. VAT. The firm always draws up a written fee agreement before acting.

The creditors' representative and the administrator are officers of the court appointed by the court to conduct the proceedings in the collective interest of the creditors. The lawyer defends the individual interest of the director or creditor represented. The two are complementary but their roles differ. Consulting a lawyer is recommended as soon as the first signs of strain appear, before any choice of procedure, and for any action challenging the director's personal liability.