French Bankruptcy Law Amendments: Expansion and strengthening of protective measures, and reforms to procedures relating to bondholders and to accelerated financial safeguards

Sullivan & Cromwell LLP - April 17, 2012

French bankruptcy law has been recently modified by Law no. 2012-346 of March 12, 2012 relating to protective measures (mesures conservatoires) applicable to safeguard, recovery and liquidation proceedings, and by Law no. 2012-387 of March 22, 2012 relating to the simplification and easing of administrative procedures.

Law no. 2012-346 of March 12, 2012 modifies the manner in which protective measures may be used in the context of general enforcement proceedings (procédures d’exécution); previously, such protective measures could only be taken in connection with a legal action based on insufficiency of assets brought against the managers of a company subject to judicial liquidation (namely, an action en comblement de passif). The main provisions of the new law are as follows:

  • protective measures can now also be taken against the assets of an individual or a legal entity to whom a bankruptcy proceeding has been extended on the ground of the so-called co-mingling of assets (confusion des patrimoines) or fictitious company (fictivité) theories;
  • within the scope of a legal action based on mismanagement (action en responsabilité pour faute) that contributed to a cessation of payments (état de cessation des paiements), protective measures can now also in certain cases be taken and maintained against the assets of de facto or de jure managers upon the opening of a recovery procedure; and
  • the disposal of assets subject to security measures (mesures de sûreté) and the use of the proceeds from the sale are possible under certain conditions.

These provisions are immediately applicable, including to ongoing bankruptcy proceedings.

Law no. 2012-387 of March 22, 2012 is designed to ease debt restructurings by debtors subject to bankruptcy proceedings. Its main features are as follows:

  • the integration into the proposed recovery plan of any subordination agreement amongst bondholders; and
  • the eligibility of holding companies to accelerated safeguard procedures, subject to a minimum balance sheet condition.

These provisions will only apply to proceedings initiated after the promulgation of the statute.