Memorandum Provisional Measures taken by the French Government in relation to the state of health emergency

This memo aims to give an overview of the main provisional measures taken by the French government in order to deal with the Covid-19 crisis and in support of the French Economy.  The Government has been empowered to promulgate Orders by the Emergency Law n°2020-290 of 23 March 2020 (delegated legislation), which establishes the state of health emergency as of 24 March 2020.

The French Government has promulgated a number of Orders which provide measures for several key sectors including, among others, economy, adaptation of the rules applying to judicial courts and limitation periods, corporate law and adaptation of pre-insolvency and insolvency proceedings.

The purpose of these measures is to facilitate the operation of the companies (I) and companies governance (II); we will conclude with a brief summary on the potential consequences on agreements (III).

(I)   Measures facilitating the life of companies including companies in difficulty

1. General provisions applicable to all court proceedings

Several Orders temporarily adapt the rules applicable to judicial courts in order to facilitate their functioning and to extend limitation periods (Ord., 2020-304; Ord., 2020-306). 

Regarding the functioning of judicial courts (Ord., 2020-304), these provisions are meant to grant greater flexibility for the organisation of hearings. This includes:

• The possibility of transferring the territorial competence to another jurisdiction when a jurisdiction is partially or completely unable to operate;
• The simplification of the conditions for the referral of cases;
• The possibility of holding a hearing by a single judge;
• The simplification of the exchanges of written submissions and exhibits, and restriction of public hearings;
• The possibility to hold all hearings of insolvency proceedings by audio-visual communication and, if this is not possible, by electronic means of communication. In any case, these means shall comply with the obligations of consultation/information of parties and questioning/examining (compliance with adversarial proceedings).

Regarding the extension of limitation and foreclosure periods (Ord., 2020-306), a “legally protected time period” has been established. This period covers the whole period of the state of emergency plus one month after its termination.

Limitation periods that will have expired between 12 March 2020 and the expiration of a period of one month following the date of termination of the national health emergency, are extended.

This means that all concerned acts may be performed within 2 months after the end of the emergency.

As a consequence, declarations of claims and repossession actions, for instance, can benefit from this extension.

Limitation and foreclosure periods that are directly due after the state emergency will logically not benefit from any suspension or interruption.

However, one should bear in mind that the general functioning of judicial courts has considerably slowed due to these exceptional circumstances.

2. Specific Measures applicable to pre-insolvency and insolvency proceedings (, 2020-341)

The French Government has temporarily adapted sections of the pre-insolvency and insolvency law. The Order promotes the recourse to preventive procedures (conciliation and safeguard procedures) and extends the delays in pre-insolvency and insolvency proceedings.

      (a) Measures applicable during the state of emergency and 3 months after

– Freeze of the situation of cessation of payments at 12 March 2020:

The Debtors situation will be appreciated at 12 March but any worsening of their situation after this date will not prevent them to apply for a conciliation or safeguard procedure (“procédure de sauvegarde”), except in the event of fraud. Debtors will also be able to ask for the opening of a recovery proceedings (“procédure de redressement”) or a corporate liquidation (“procédure de liquidation”).

It should be specified that only the Debtor can apply for pre-insolvency or insolvency proceedings, which excludes any application by the Creditor.

The major interest of this provision is that companies will be able to benefit from conciliation and safeguard proceedings (i.e., preventive measures), even if their situation worsens and they become subject to a cessation of payment after the 12 March and the whole period emergency state plus 3 months. This is a major change which may considerably help companies facing difficulties to find solutions with their creditors.

Besides, the procedure of conciliation itself benefits from a full right extension for the same duration as the state of emergency plus 3 months.

Encouraging conciliation proceedings is supposed to compensate for the risk of inertia in negotiations between the company and the Creditors during the period covered by the law establishing the emergency state.

 – Adaptation of time limits: the President of the court can extend the time limits that are imposed on the actors (legal representatives, administrators, liquidators…) participating in the pre-insolvency or insolvency proceedings, upon their request, for the same duration as the state of emergency plus 3 months.

(b) Measures applicable during the state of emergency plus one month (the “legally protected period”)

• Full right extension of the durations related to the observation period, the reorganization plans, the maintenance of the activity and of the simplified corporate liquidation, until the expiry of 1 month after the date of the termination of the state of health emergency.
• Modifications of certain procedural rules as a direct consequence of the constraints related to public health measures:
• Possibility to hold a hearing without the Debtor having to be present;

• Simplification of the exchanges between the different actors participating in the procedure, which may be performed by any means, in accordance with the adversarial principle;
• Possibility for the President of the court to acquaint themselves with the observations/ comments of the applicant to a pre-insolvency proceeding by any means;
• Removal of the “intermediate” hearing provided by Article L. 631-15 of the French Commercial Code, 2 months after the opening judgment.

This means that the observation period previously defined by the opening judgment will continue until its conclusion, except in the event of requests for reconversion;

In summary, the Order related to pre-insolvency and insolvency proceedings has 3 main goals:

• Freeze in time of the situation of cessation of payments,
• Adaptation of the chronological constraints of the proceedings,
• Easing formalities and hearings for opening pre-insolvency or insolvency proceedings.

(II) Measures taken in respect with companies governance

Two Orders (Ord., 2020-318 ; Ord.,2020-321) adapts the rules for the meetings and deliberations of the (annual) Shareholder’s meetings and governing bodies of private-law entities in order to allow companies to hold their board of directors (supposed to close the annual accounts) their Shareholder’s meetings (supposed to approve them) through various alternative modes of deliberations.

A general postponement of the annual Shareholder’s meetings in this context is not the solution that has been chosen. Instead, the provisional measures alleviate the conditions for these meetings (Shareholder ‘s and boards of directors).

Only the companies, in which the process of approving the annual accounts could not be implemented before 12 March, can benefit from an extension of 3 months to approve the annual accounts.

Generally, the Orders allows the holding of boards of directors or supervisory boards and Shareholder’s meetings without the physical presence of directors or members and shareholders. However, the meetings of these governance bodies will have to bring attendees together by audio-videoconference or tele transmission, even in the articles of association do not allow such recourse or forbid it. Thus, a flexibility has been provisionally granted for the exercise of these means.

Likewise, the possibility of a written consultation procedure is also provisionally allowed without conditions for all meetings of the governance bodies. 

(II) Consequences on agreements

The aims of the recently promulgated regulations are mainly facilitating the functioning of courts, extending time limits of proceedings, as well as the holding of meetings of companies governance bodies.

Although the regulations do not affect the rights of creditors, they can affect the conditions in which those rights could be enforced.

It is thus advisable to review the relevant provisions of the agreements with a view to identify present or future breaches of obligations (e.g. default of payment, breaches of covenants etc.) and engage analysis and discussions on appropriate measures.