Tools to avoid bankruptcy
Paradoxically, while the crisis linked to the Covid-19 epidemic is having a strong impact on companies, the number of insolvencies in France is decreasing this year. Indeed, according to the Banque de France, since March, the number of bankrupt companies has fallen by 45%.
However, this temporary decline should follow an upsurge in bankruptcies next spring, if the state support measures for businesses are not sufficient. However, several effective legal mechanisms exist to deal with the difficulties of companies, such as preventive or collective procedures.
Anticipate financial and cash flow difficulties
In order to prevent difficulties well in advance, it is essential that the manager identifies and analyzes certain warning signs to adapt the company’s organization to the current crisis situation. It is therefore a question of anticipating , month after month, the evolution of the cash flow over 12 rolling months, taking into account any requests for payment deferrals formulated (social security contributions, tax settlement plan, deferrals of rents, etc.) .
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In the event of major difficulties, it is advisable to resort to various types of financing ( PGE , rebound loans , aid from the Solidarity Fund , etc.). In the absence of obtaining these sources of financing, it is always possible to appeal to the credit mediator and possibly request an equity loan , a last resort solution put in place by the State.
Moreover, the redefinition of the company’s activity, target markets or its internal organization could allow it to get through this difficult period more easily. These elements could thus guide and adapt the strategic management of the company to give it the means to face the current crisis.
Faced with difficulties: the solution of preventive procedures
But if the alert points indicate a very degraded situation and the current aid linked to the health crisis is not enough, then it is essential not to put the difficulties aside. Thanks to a quick reaction, tools such as preventive procedures can save a company from bankruptcy.
There are two preventive procedures which are the ad hoc mandate and conciliation . They are aimed at companies which are not in cessation of payments and which wish to find an amicable agreement to redress the financial situation of the company.
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Thus, the ad hoc mandate facilitates the search for an agreement with the help of a third party without any coercive power. In this context, the Commercial Court appoints an agent to assign it a confidential assistance mission, without time limit and relating to very diverse difficulties (financial, real estate, legal issues, etc.).
Like the agent, the conciliator appointed by the Commercial Court must find suitable solutions in order to satisfy the company and the creditors. However, unlike the ad hoc mandate , the conciliation can only last a maximum of 5 months and is not confidential. Indeed, the company must expose the proven or foreseeable difficulties that it is going through before the Commercial Court.
Companies that encounter greater difficulties may resort to collective proceedings.
Thus, the safeguard procedure gives the possibility to a company, which is not yet in a state of suspension of payments, to reorganize, under the protection of justice. For this, the court proceeds to the opening of an observation period of a maximum duration of 6 months (renewable once). During this period, the manager retains his prerogatives in the management of the company. There is also a stay of proceedings, a suspension of previous claims and a continuation of current contracts . Following this observation period, if the company is considered to be solid enough, the court can decide on a safeguard plan (to
But when companies experience a cessation of payments, a declaration of cessation of payments must be filed by the manager within a maximum period of 45 days following the date of cessation of payments to the Commercial Court.
Companies in a state of cessation of payments , which can still maintain their activity and employment, will turn to the receivership procedure. This is comparable to the backup procedure. However, it imposes more constraints and frameworks on the management of the company. The judicial administrator can therefore carry out a mission of supervision, assistance or complete management in place of the manager. The observation period can end either with the implementation of a recovery plan (limited to 10 years) if the company is viable, or with a partial or total sale of the activity , or with the opening of
Thus, if no solution is found, the judicial liquidation procedure is implemented: its purpose is to sell all the assets of the debtor company to allow the payment of its creditors.