Debt recovery for creditorsWhen a business is facing financial difficulties, possibly leading to insolvency, safeguard (sauvegarde), rehabilitation (redressement judiciaire) or liquidation (liquidation judiciaire), French law provides a stay of proceeding that prevents creditors taking legal action to recover debts outstanding. It is often thought by the creditors at that stage that there is little hope of being paid.

Whilst the chances of recovering a sizeable portion of the debt can be small in the context of a liquidation, in rehabilitation or safeguard procedures the objective is to restructure the business under a plan organising the rescheduling of payment, and consequently creditors have improved chances of recovering their debts at the end of the procedure.

It is therefore important for creditors to be able to preserve their rights to be paid at the end of the insolvency by filing what is known as a proof of debt (déclaration de créance) with the appointed court agent.

The formalities laid down are the same for the three types of insolvency procedures.

Opening of insolvency procedures and time limit for filing

Creditors have two months from the publication of the insolvency judgment in the French legal gazette (BODACC) to file their proof of debt with the court agent mentioned on the judgment. Creditors domiciled outside France have four months to file.

French law provides that the court agent has an obligation to inform known creditors within 15 days from the date of the judgment. For practical purposes creditors are recommended to file their proof of debt as soon as they are informed of the insolvency and not to wait for a possible letter from the court agent.

The proof will be time-barred if it is not made within the time limit unless the insolvency judge rules otherwise, where it is established that the creditor is not responsible for the failure in declaring the debt or that the debtor voluntarily concealed the debt.

Form of the declaration

All debts incurred before the insolvency must be declared except employees’ wages or maintenance payments. Debts incurred after the onset of the insolvency must also be declared if they cannot be paid when due.

The declaration is not subject to any particular formalism. It can be made by the creditor or by an appointed agent or proxy. If the creditor is a corporate body, the declaration must be made by its authorised signatory. Agents or proxies must have a power of attorney or a delegation of authority.

The declaration must contain the details of the creditor and if necessary the name of the proxy or agent. In addition, it must mention the amount of the debt, any security held and if the debt is due, or if not when it is due, as well as the rules for calculating interest. Debts in foreign currencies must be converted into Euros.

Once the time limit for declaration has expired, the debts declared will be verified by the court agent and the debtor before being submitted to the Court for approval. The creditor will receive a certificate confirming that the debts are final. The creditors will then have a right to a share in the net proceeds, if any, at the end of the insolvency procedure.

Andrew Charlier / Marie-Louise Noel – Ince & Co, Paris

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