Stabilisation and restructuring law in France

French Government has announced several economic and financial measures the purpose of which is to help and assist French companies in the context of the COVID-19 crisis.

The main set of mandatory measures are provided by:

• an emergency law (the "Emergency Law to face Covid-19 Epidemic") adopted on 22 March 2020 which authorises the French government to issue measures by ordinance; on the basis of this Emergency Law to face Covid-19 Epidemic, French Government has issued several ordinances in many fields (labour, tax, administrative procedures, public contracts, …) and in particular, regarding contractual provisions, an ordinance n°2020-306 of 25 March 2020 on the extension of time limits and adaptation of procedures during the health emergency period, supplemented by ordinance n°2020-427 dated 15 April 2020 and by ordinance n°2020-560 dated 13 May 2020 (all together, the "Ordinance"); and
• a Loi de Finances Rectificative (as amended) creating a state guarantee adopted on 20 March 2020 and its implementing decree (arrêté) dated 23 March 2020 (as amended) granting the state guarantee to credit institutions, finance companies and crowdfunding intermediaries (the "Covid-19 State Guarantee").

In addition, voluntary measures have been announced by (i) the French Banking Federation (FBF) (issued from a press release dated 15 March 2020) and (ii) BPI (French public banking group) (issued from a press release dated 16 March 2020).

The main mandatory measures are the followings:

1. Emergency Law to face Covid-19 Epidemic and Ordinance

The Ordinance provides that the effects of any penalty, termination or forfeiture clause due to a default of a counterparty (including a borrower) will not take effect if such default has occurred during a legal protection period defined by the Ordinance. Such legal protection period (the "Legal Protection Period") starts on 12 March 2020 and ends on 23 June 2020 (included)).

Following the end of the Legal Protection Period, penalty, acceleration or termination clauses the effects of which have been suspended during the Legal Protection Period shall take effect once again at the end of a period starting at the end of the Legal Protection Period and equal to the number of days elapsed between (i) 12 March 2020 (or, if later, the date on which the defaulted obligation has arisen) and (ii) the date on which such defaulted obligation should have been executed, except if, at the end of such period, the relevant debtor has properly performed the relevant defaulted obligation.

With respect to any obligation whose term expires after the end of the Legal Protection Period, penalty, acceleration or termination clauses – the effects of which have been suspended during the Legal Protection Period – shall take effect once again at the end of a period equal to the number of days elapsed between 12 March 2020 (or, if later, the date on which the defaulted obligation has arisen) and the end of the Legal Protection Period. The provisions described in the present paragraph do not apply to payment obligations.

The Ordinance also provides that, for contracts that (i) may be terminated only during a specified delay, or (ii) are renewed if no denunciation is made within a specified period, this delay or period shall be extended, if it expires during the Legal Protection Period, by two months after the end of the Legal Protection Period.

In practice, all type of contracts are covered by these measures and the Ordinance may apply to loans for which a default occurs during the Legal Protection Period or with respect to obligations the term of which ends or passes during the Legal Protection Period (whether the default of payment relates to principal, interest or fees). In addition, the course of periodic penalty payments (astreintes) and the application of penalty clauses which took effect before the beginning of the Legal Protection Period shall be suspended during the Legal Protection Period.

Despite those measures, lenders may initiate execution/enforcement proceedings based on existing mortgages/security only for the amounts which have become due and payable under the relevant contract before the beginning of the Legal Protection Period.

It has been discussed whether the provisions of the Ordinance are of public order (d'ordre public) or overriding mandatory provisions (loi de police) within the meaning of article 9 of the Rome I Regulation.

The report presenting the Ordinance n° 2020-427 (amending the Ordinance) has indicated that the parties may exclude the application of the provisions of the Ordinance described above and that, as a consequence, these are not considered of public order (d'ordre public). However, this statement remains disputed by scholarships and practitioners. If the provisions of the Ordinance were overriding mandatory provisions (loi de police) within the meaning of article 9 of the Rome I Regulation, it would be arguable that they could apply to non-French law governed loan agreements entered into with French borrowers or guarantors or having effects in France. An official circular dated 17 April 2020 commenting the Ordinance n° 2020-427 has indicated that those provisions should be considered as overriding mandatory provisions (loi de police) within the meaning of article 9 of the Rome I Regulation, which is not consistent with the affirmation that the provisions of the Ordinance are of public (d'ordre public).

2. Covid-19 State Guarantee

The French parliament has adopted the Loi de Finances Rectificative according to which (article 6) French State will grant, on request and under certain conditions, a State guarantee (Garantie de l'Etat) of loans granted by credit institutions, financing companies (sociétés de financement) and crowdfunding intermediaries between 16 March 2020 and 31 December 2020 to non-financial companies registered in France, within the limit of an aggregate amount (principal, interests and ancillary rights (including State guarantee fees)) of €300 billion (the "Covid-19 State Guarantee"). BPIFrance Financement has been appointed to manage this State guarantee.

Please note that a Loi de Finances Rectificative is currently discussed by the French parliament which, in particular, provide for the extension of the Covid-19 State Guarantee to receivables financing granted by factoring companies.

According to article 1 of the application decree (arrêté), once granted, the Covid-19 State Guarantee is irrevocable, unconditional and valid for the entire term of the loan.

Article 3 of the decree (arrêté) relating to the Loi de Finances Rectificative specifies that this Covid-19 State Guarantee can be granted to any type of enterprise (not only companies), natural or legal person, with the exception of (i) certain real estate companies (sociétés civiles immobilières), (ii) credit institutions or financing companies (sociétés de financement), (iii) certain enterprises subject to a safeguard procedure (procédure de sauvegarde), a judicial reorganisation (redressement judiciaire) or a judicial liquidation (liquidation judiciaire) (depending on the date of opening and/or closure of the relevant insolvency proceeding) (an enterprise subject to an ad hoc mandate (mandat ad-hoc) and conciliation procedure (procédure de conciliation) remains eligible).

In addition, certain important companies which are considered in difficulties within the meaning of the EU Regulations, may be excluded.

Subject to certain rules applicable to very specific cases, article 5 of such decree (arrêté) indicates that the total amount of the loans covered by the Covid-19 State Guarantee for each enterprise is capped either to (1) its estimated total payroll for the two next years (or, if more favourable, 25% of its turnover for 2019 (or the last available year)) if the enterprise was created on or after 1^st January 2019 or (2) 25% of its turnover for 2019 (or the last available year) if the company was created before that date, with some exceptions for start-up or innovative companies and, for other companies acting in other business sectors (catering, accommodation, cinema, etc.).

For small and medium size companies (less than 5000 employees and an annual turnover below €1.5 billon), the Covid-19 State Guarantee is granted by way of a simple declaration to BpiFrance Financement, provided that the conditions are met.

If several loans granted to the same enterprise are intended to benefit from the Covid-19 State Guarantee, such guarantee is granted in the chronological order in which the loans are granted.

3. Voluntary measures

The French banking federation (Fédération bancaire française) has announced several measures to be adopted by French credit institutions to support French companies during the crisis (acceleration of credit granting process, deferral of existing mandatory facilities prepayment, limitation of additional costs / penalties). However, this is not a mandatory position and each credit institution that is a member of the French Banking Federation (FBF) will voluntarily decide whether to apply these measures.

In addition, Bpifrance has activated an emergency plan to support mainly small and mid-cap companies through the crisis. This plan focuses on:

• the granting, under certain conditions (minimum 12 months of activity of the debtor, all sectors of activity, with some exceptions (financial intermediation companies, real estate development and rental companies, agricultural businesses with a turnover of less than €750,000, firms in difficulty), …), of loans (from €50,000 to €5,000,000 and up to €15,000,000 for mid-cap companies), to finance punctual treasury needs and / or an exceptional WCR increase due to the COVID-19 crisis, with fixed or floating interest rates, a duration from 3 to 5 years and a differed amortization of 12 months ("Prêts Atouts");
• with the support of the French regions, the granting, under certain conditions (minimum 12 months of activity of the debtor, all sectors of activity, with some exceptions (financial intermediation companies, real estate development andrental companies, agricultural businesses with a turnover of less than €750,000, firms in difficulty), …) of loans for smaller principal amount (from €10,000 to €300,000), to finance punctual treasury needs, an exceptional WCR increase due to the COVID-19 crisis, intangible investments and/or tangible investments with low pledge value, with fixed low interest rates, a duration up to 7 years and differed amortization of 2 years ("Prêts Rebond");
• to support all sizes of French companies, the granting by Bpifrance of guarantees to secure up to 90% of: loans that will be granted by French credit institutions for a three- to seven-year duration; or a bank overdraft of a 12 months to 18 months period. The purpose of these guarantees is to cover urgent treasury needs of those companies;
• an increase in the financing base for factoring lines;
• for all facilities already granted by Bpifrance, suspension of repayments for six months from 24 March 2020, with possible restructuring upon validated request.

Please see above. Further measures may be taken by the French government, as authorised by article 11 of the Emergency Law to face COVID-19 Epidemic.

At this stage, the only loans are those covered by the Covid-19 State Guarantee. The voluntary measures taken by the FBF and Bpifrance apply to many types of financing.

The suspension put in place by the Ordinance applies to all kind of contracts and obligations.

The EU Commission has approved the French framework.

See above.

Article 6 of the Loi de Finances Rectificative and the application decree (arrêté) relating to the Loi de Finances Rectificative provide for certain conditions to be met by a loan in order for it to qualify for the Covid-19 State Guarantee:

• only a loan (prêt) – no other financing;
• loan granted between 16 March 2020 and 31 December 2020;
• loan must not be secured by any other guarantee or security (but there might be exception on a case-by-case basis);
• loan must have a minimum amortisation deferred period of 12 months and a clause allowing the borrower to choose to amortise it over an additional 1 to 5 year period  (exceptions may be granted to this point for important companies, according to a specific decree (arreté) of the Minister of the Economy and Finance (Ministre de l'Economie et des Finances); 
• the duration of the loan may in any event not exceed a period of 6 years from the date of the first disbursement of the loan;  and
• loan must result in the amount of the facilities granted to the borrower by the lender beneficiary of the guarantee being higher than the level of facilities provided by this lender to the relevant borrower on 16 March 2020 (excluding amortisation resulting from a schedule repayment or from a decision of the relevant borrower) (exceptions may be granted to this point for important companies, according to a specific decree (arreté) of the Minister of the Economy and Finance (Ministre de l'Economie et des Finances).

See above. Companies registered outside France will not benefit from the Covid-19 State Guarantee.

See above. Companies registered outside France will not benefit from the Covid-19 State Guarantee.

The existing common provisions of French law already provide for:

• rules relating to the payment of dividends (which is at the discretion of each company after having complied with the rules relating to legal reserves); and
• certain tax or legal restrictions on certain intra-group cash transfers.

Futhermore, on 2 April 2020 the government published a press release entitled "Liability commitment for large companies benefiting from cash support measures" which states that large companies benefiting from a cash support measure (request for a tax and social security charges deferral or the Covid-19 State Guarantee) shall undertake not to pay dividends to their shareholders (apart from legal obligations) or to carry out share buybacks during 2020 (starting on 27 March 2020).

Pursuant to the Emergency Law to face Covid-19 Epidemic, Ordinance No. 2020-341 of 27 March 2020 makes various adjustments to the law governing companies in difficulty in view of the current health crisis which relate to the specific time period within which the opening of French insolvency proceedings must be requested.

The cessation des paiements is the keystone under French insolvency law: it is the situation where a company cannot pay its outstanding due debts for lack of sufficient available cash and liquid assets.

In principle, the occurrence of the cessation des paiements entails the legal obligation for the managers to request the opening of a redressement judiciaire or a liquidation judiciaire and the possibility for third parties to also request its opening.

The major modification of the provisions applicable to companies facing difficulties is the "freezing" of this legal obligation.

Indeed, the appreciation of the cessation des paiements is paralysed by the Ordinance which provides that, until 23 August 2020, the cessation des paiements shall be assessed on the basis of the debtor's situation on 12 March 2020.

However, this provision does not apply to businesses that were already in a state of cessation des paiements before 12 March 2020. Thus, during the period described above, the worsening of the debtor’s situation should not force him to request the opening of an insolvency proceeding. However, this will not prevent him from requesting the opening of a redressement judiciaire or a liquidation judiciaire in the event of cessation des paiements.

This "freezing" might also allow a company to request the opening of a sauvegarde if it is in cessation des paiements after 12 March 2020.

Additional provisions have been adopted relating to the duration, for example, of the période d'observation (observation period), the plans de sauvegarde or plans de redressement (safeguard or reorganisation plans), the maintenance of activity, etc.

Besides insolvency proceedings, French insolvency law allows companies to deal with their difficulties in the framework of amicable proceedings (i.e. mandat ad-hoc and conciliation), which have also been modified.

To that extent, the legislation relating to the conciliation proceeding has notably been modified in order to make available, upon the request of the debtor, several mechanisms closer to those triggered by the opening of an insolvency proceedings (e.g. possibility to request the prohibition to launch legal actions tending to the conviction of the debtor in payment of a sum of money or to the termination of an agreement for non-payment of a sum of money, grant of instalments or deferred payments, etc.).

Please see our answer in the paragraph above.

No specific rule has been provided in this framework.

No specific measures have been provided, therefore the general rules remain applicable.

French law provides for three different insolvency proceedings: the sauvegarde, the redressement judiciaire or the liquidation judiciaire (winding up).

Furthermore, a troubled company can opt to seek a voluntary arrangement with its main creditors without using the formal insolvency procedure mentioned above (i.e. sauvegarde, redressement judiciaire, liquidation judiciaire).

French law provides that such negotiations can be led under a mandat ad-hoc or a conciliation.

Our dedicated insolvency and restructuring team remains at your disposal should you need further details.