How to Save a business

Verified 27 February 2024 - Directorate of Legal and Administrative Information (Prime Minister), Ministry of Justice

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. An accelerated safeguard procedure may be envisaged where the business has already obtained the opening of a conciliation procedure which has failed.

Ordinary backup procedure

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 form must be lodged at the Registry of the Commercial Court where the seat of the business is located.

Who shall I contact

The request to open is accompanied by the following documents:

  • Annual accounts for the last financial year
  • Unique identification number (Siren)
  • 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

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.

Who shall I contact

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 appoints the organs of the procedure and opens a period of observation during which the company continues its activity.

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.

Appointment of procedural bodies

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.

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.

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.

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 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.

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).

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.

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.

Contracts in progress at the time of initiation of proceedings (e.g. franchise or 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.

To prepare the company's backup plan, the manager prepares an inventory of assets and a list of creditors company.

The ruler continues to receive his remuneration unless the shareholders or members decide otherwise.

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.
  • 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.

Please note

Creditors must declare their claims to the judicial representative within two months of the publication of the opening judgment in the official gazette of the civil and commercial advertisements (bodacc).

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.

FYI  

Creditors have an obligation to report their claims to the judicial representative, within two months of the publication of the opening decision in the official gazette of the civil and commercial advertisements (bodacc).

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 safeguard proceedings improves and the court may terminate the safeguard proceedings. 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.

Accelerated backup procedure

Accelerated backup allows an observation period and a plan to be put in place very quickly. It is open to businesses who have obtained the opening of a conciliation procedure, but this has failed following the refusal of some creditors recalcitrant to participate.

The accelerated safeguard procedure may be opened when all of the following conditions the following shall be combined:

  • The business is engaged in a procedure of reconciliation still ongoing when the court is seised.
  • The business has developed a draft business continuity plan that can be agreed to by creditors.
  • Its accounts shall be certified by an auditor or drawn up by an accountant.

FYI  

The accelerated safeguard procedure may be initiated in respect of a company in a state of cessation of payments less than 45 days on the date of the request for the opening of proceedings.

An accelerated safeguard procedure may be requested only by the legal representative business (for example, manager of a SARL, President of a LOCK).

This request for initiation must be made to the commercial court or the court of justice according to the activity carried out:

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Commercial or craft activity

Once the conditions are met, the company must complete the following application form:

Request to open an accelerated safeguard procedure

It must be lodged at the Registry of the Commercial Court where the company's registered office is located.

Who shall I contact

The documents to be attached to the request for initiation are as follows:

  • 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 opening request
  • Quantified statement of claims and liabilities
  • Statement of assets and liabilities of collateral and statement of off-balance-sheet liabilities
  • Summary inventory of company assets
  • Name and address of the representatives of the staff delegation of the Social and Economic Committee (ESC) if they have already been appointed
  • Copy of the decision to initiate the procedure reconciliation
  • Financing statement and, where the debtor prepares consolidated accounts, cash flow statement
  • Cash flow budget for the next 3 months
  • Forecast financing plan
  • Draft backup plan

Liberal activity

Once the conditions are met, the company must complete the following application form:

Request to open an accelerated safeguard procedure

An application for the opening of an accelerated safeguard procedure shall be lodged at the Registry of the Court of Justice in which the head office of the business is situated.

Who shall I contact

The documents to be attached to the request for initiation are as follows:

  • Annual accounts for the last financial year
  • Unique identification number of the company (Siren number)
  • 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 statement of off-balance-sheet liabilities
  • Summary inventory of company assets
  • Name and address of the representatives of the staff delegation of the Social and Economic Committee (ESC) if they have already been appointed
  • Designation of the professional body or authority of the company exercising a regulated liberal profession
  • Copy of the decision to initiate the procedure reconciliation
  • Financing statement and, where the debtor prepares consolidated accounts, cash flow statement
  • Cash flow budget for the next 3 months
  • Forecast financing plan
  • Draft backup plan

The court shall rule on the opening of proceedings after a report by the conciliator on the progress of the conciliation and the prospects for adoption of the draft plan. He shall have the possibility of obtaining all documents and instruments relating to the conciliation procedure.

The judgment opening the accelerated safeguard procedure establishes a short observation period. The opening judgment shall designate the parties to the proceedings.

Designation of bodies

The court shall designate one or more court administrators. It is compulsory when the company has at least 20 employees and a turnover exceeding €3 million HT: titleContent.

The court shall assign him one of the following tasks:

  • Supervision of the company in difficulty in its management
  • Assistance with all or some management acts

The judgment initiating the accelerated safeguard procedure also allows affected party classes. The formation of affected party classes is mandatory in the following cases:

  • The company has more than 250 employees and a net annual turnover that exceeds €20 million.
  • Net annual turnover exceeds €40 million.

Establishment of an observation period

The purpose of the observation period is to arrive at a safeguard plan, under the control of the court and, in most cases, with the help of a court administrator.

Payment periods may be imposed on creditors.

The observation period lasts 2 months. However, at the request of the business in difficulty and the court administrator, the court may extend this period up to 4 months.

The Chief Executive and the Judicial Administrator shall submit the draft safeguard plan to the affected party classes.

Each affected party class must vote on the plan. For the plan to be accepted, the decision must be taken by each class of assigned parties by a 2/3 majority of the votes held by the members.

For creditors that are included in the accelerated backup plan, the indebted is frozen. This means that they cannot sue the company in difficulty to get their claims settled.

Creditors who did not participate in the draft plan drawn up during the conciliation procedure must to declare their claims within two months of the initiation of the procedure.

Warning  

Employees and maintenance creditors are not affected by the accelerated safeguard plan.

Either the procedure was successful and resulted in the adoption of a plan.

Either a plan could not be adopted. In this case, the court terminates the accelerated safeguard procedure.

FYI  

Accelerated backup cannot be converted to recovery or judicial liquidation.

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