Legal redress

When a company's cash flow is no longer sufficient to pay its debts, it can declare a cessation of payments (also known as filing for bankruptcy) to a commercial or judicial court. Following this request, the court may open collective proceedings known as redressement judiciaire.

LEGALCITY has positioned itself as a key partner in supporting its customers throughout these proceedings, ensuring that their interests are safeguarded in the reorganization of their debtor customers.

For this reason, a company's transition to receivership is not without consequences for its creditors. Judicial collection of unpaid invoices is not possible with a customer in receivership.

How does this collective procedure work? How does the receivership process work, and what are the possible outcomes at its end? What is the impact on creditors? How do they declare their claims?

LEGALCITY offers in-depth answers to these questions in this article. What's more, in the interests of practical assistance, the Firm offers a free download 🎁: the declaration of claims. This step is essential if you ever want your money back.

‍What is receivership?

There are several types of collective procedure. The mandat ad hoc and sauvegarde procedures concern companies in financial difficulty, but not in cessation of payments. On the other hand, receivership and compulsory liquidation involve a company in cessation of payments. Reorganization takes place before judicial liquidation. It only concerns companies that have ceased payments.

Consequently, the major difference between receivership and liquidation is that the company can continue to operate, employing its employees and paying its supplier debts. So don't panic if your customer is in receivership, he'll still be able to pay you his debts, under certain conditions.

The receivership procedure may concern :

- Sole proprietorships

- Micro-entrepreneurs

- The companies

Legal redress

Initiation of reorganization proceedings

The request to open the procedure must be made within 45 days of the company's cessation of payments being declared. It can be made by :

- The company itself

- A creditor

- The public prosecutor

For this reason, the application to open a company must be made to a competent court located in the same jurisdiction as the company's registered office. If the company is engaged in a commercial or craft activity, the application should be made to the Commercial Court. For all other types of business, the application must be made to a district court (tribunal de grande instance).

The observation period

As soon as the petition is accepted, the court issues a judgment opening the receivership. Following this decision, the following persons will be appointed

- Provisional date of cessation of payments

- The opening of a 6-month observation period, renewable up to 18 months. Its purpose will be to analyze the company's ability to overcome these difficulties, and to prepare a recovery plan if necessary.

- The procedural bodies: the juge-commissaire, the mandataire judiciaire and the administrateur judiciaire. Their mission will be to draw up an economic and social assessment of the company, as well as an inventory of its assets.

💡 The appointment of a court-appointed administrator is compulsory only when the company in receivership has more than 20 employees and sales in excess of €3M.

Throughout the observation period, LEGALCITY assists its creditor clients to ensure that their rights are preserved during the reorganization of their debtor clients.

The end of the observation period

As soon as the observation period comes to an end, there are several possible outcomes for the company concerned:

- Closure of the procedure: if the company has the necessary funds to pay off its creditors and pay the various procedural costs.

- Placing in compulsory liquidation: if the turnaround fails completely, the company will be placed in compulsory liquidation.

- Partial or total cessation of the business: receivership may provide for the sale of the company to a buyer.

- Implementation of a recovery plan: lasting up to 10 years, the aim of this plan is to enable the company to settle its debts while continuing to operate.

The court-ordered recovery plan

The judicial recovery plan is drawn up at the request of the competent court, after hearing the company's directors, the administrator, the judicial representative and employee representatives.

Its purpose is to clarify the following points:

- Settlement of company debts

- Possible redundancies

- Changes in company status

- The company is prohibited from selling assets necessary for the continuation of its business.

The debts of a company in receivership can be staggered over the duration of the plan, i.e. up to 10 years. The insolvency plan may also provide for redundancies or the sale of one or more of the company's activities, if this is deemed necessary for its survival.

💡 An employment safeguard plan may be put in place by the administrator within one month of the judgment.

The consequences of receivership for creditors

1. Prohibition on payment of debts :

One of the first major consequences of receivership is that the company is prohibited from settling any debts incurred prior to the date of the opening judgment. This measure is designed to create a period of financial stability during which the company can reorganize.

2. Prohibition of lawsuits :

Creditors whose claims became due and payable prior to the opening of the receivership may no longer take legal action against the debtor. Demand letters, payment orders and simplified collection procedures cannot be pursued during this period.

3. Obligation to declare a claim :

Following the opening judgment, creditors with pre-proceeding claims are required to declare their claims. This step, crucial to the protection of creditors' rights, must be addressed to the judicial representative.

4. Priority of Payment for New Claims :

Creditors who contribute new cash flow to the company during the observation period can benefit from priority payment of their claims. This is intended to encourage the financial support needed to restructure the company.

Conclusion:

In short, receivership, although designed to safeguard the company's business, can have substantial repercussions for creditors. Understanding these consequences is essential for creditors seeking to protect their interests and successfully navigate through this delicate period. LEGALCITY, experts in legal support, are on hand to guide creditors through these complex situations, ensuring optimum protection of their rights.

To contact an amicable and judicial collection agent who will accompany you throughout the collection process, we also suggest you call us at

+33 (0) 1 75 85 85 16

Our agents are available to answer any questions you may have about the benefits of using a collection agency.