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Adaptation of the right of companies in difficulty

French government takes orders to help companies against the economic impacts of the covid-19 pandemic

06/04/2020

Thus, on 23 March emergency law 2020-290 was adopted to confront the Covid-19 epidemic. This law authorises the government to legislate by government orders to reorganise, in particular, the right of companies in difficulty. The law contains a broader version of the authorisation than that detailed in the previous drafts: it is no longer a question of concentrating as a priority on the preventative treatment of the consequences of the crisis but simply “of adapting the provisions of book VI of the Commercial Code […] in order to take account of the consequences of the health crisis for companies […]”.

Solidarity fund

The government order “providing for the creation of a solidarity fund for use by companies in sectors particularly affected by the economic, financial and social consequences of the spread of the Covid-19 virus and measures taken to limit this spread” and the draft application decree are in circulation. At this stage the principal characteristics of this fund appear to be the following

  • duration: three months which may be extended by decree up to six months; 
  • purpose: payment of subsidiary financial aid to companies whose long-term survival is threatened due to a loss of turnover; 
  • contribution: Government and Regions; 
  • beneficiaries: individual companies and legal entities (including exercising a regulated independent profession) not belonging to a group (art. L.233-3 of the Commercial Code): 
    • whose workforce is no more than 10 employees and the pre-tax turnover in the last complete financial year is less than 1 million euros (or 83,333 euros per month on average since the start of the financial year for those not yet having completed one financial year); and 
    • having started their business before 1 February 2020; and 
    • having been the subject of an administrative ban on giving access to the public between 1 and 31 March 2020, or belonging to a sector listed in the appendix; and 
    • having suffered a drop in turnover of more than 70% during this period compared to the previous year;
  • flat-rate subsidy of 1,500 euros with a ceiling of the amount of the loss of turnover (if the latter is less than 1,500 euros);
  • application to be submitted at the latest on 31 May 2020 using an online form accompanied by a declaration of honour and bank account details (RIB).

These companies may, additionally, benefit from a complementary subsidy “If they employ at least one salaried employee and that, on 31 March 2020, they are unable to pay their due debts within the following thirty days” and they have been refused a loan of a reasonable amount by a bank of which they were a client on 1 February 2020. The amount of this subsidy will be equal to the difference between the amount of the debts due in the above-mentioned 30 days and the cash available on 31 March 2020, with a ceiling of 2,000 euros.

These points remain to be conformed in the light of the forthcoming government order and decree

Postponement of rents and other bills

The scope of the Government’s authorisation to legislate by government orders is specified. The law grants it the power to postpone in full or to spread the payment of rents, water, gas and electricity bills relating to the professional and commercial premises and to waive the financial penalties and suspensions, interruptions or reductions in supply likely to be applied in the event of non-payment of these bills.

The beneficiaries of these measures are limited to “microenterprises” within the meaning of decree No. 2008-1354, the business of which is affected by the spread of the epidemic. As a reminder, the category of microenterprises is constituted by companies which

  • “on the one hand employ less than 10 people;
  • on the other, have annual turnover or a total balance sheet not exceeding 2 million euros”.

To find out more about the impact of Covid-19 on real estate and leases, click here

Exceptional support mechanism from BPI

The European Commission has decided not to raise any objections in respect of State aid (BPI guarantee mechanism, including the 300 billion euros of guarantee), considering it to be compatible with European legislation. It should, however, be noted that the Commission is careful to point out that this aid will not benefit companies which were already in difficulty at 31 December 2019.

In accordance with the emergency law, the government order of 23 March of this year, published in the Official Journal, is limited to excluding from the scope of application of the mechanism companies which are not the subject of a safeguard procedure, bankruptcy or judicial liquidation.
This government order specifies, in particular,the ceilings beyond which companies can no longer benefit from the mechanism:

  • for companies created since 1 January 2019, the French payroll estimated over the first two years of business;
  • for companies created before 1 January 2019, 25% of the 2019 turnover recorded or, where applicable, of the last available year; as an exception, for innovative companies, if the following criterion is more favourable to them, up to twice the 2019 French payroll recorded or, where applicable, of the last available year.

Naturally we are keeping a close eye on the government orders and, above all, that adapting the right of companies in difficulty and that (those) relating to the adaptation of the functioning of the commercial and civil procedure courts, which should come soon. 

The CMS Francis Lefebvre Avocats Restructuring team is fully mobilised to provide you with any necessary assistance. To do this, it is capable at any time of using our firm’s transverse skills (fiscal, employment, contract, corporate, real estate, etc.).

We shall not fail to keep you informed based on the topic’s news.


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