European Restructuring Update – France Introduces New Accelerated Safeguard Proceedings

The Directive requires member states in the EU to ensure that their local insolvency and restructuring laws include certain key features such as a debtor-in-possession proceeding and the ability to impose a cross-class cram down. One of the intended aims of the Directive is to ensure that companies in financial distress can access, at the earliest opportunity, restructuring tools which provide a higher probability of a company being rescued on a going concern basis.

For some jurisdictions, such as the Netherlands, the Directive has required it to implement an entirely new restructuring process (having enacted the Wet homologatie onderhands akkoord (WHOA), which has radically changed the local Dutch restructuring regime. However, for jurisdictions such as France, which was already considered to be a very debtor-friendly jurisdiction to restructure, the changes to local law required to comply with the Directive are arguably more incremental as compared to other jurisdictions. Following its departure from the EU, the UK introduced the Corporate Insolvency & Governance Act 2020, which itself incorporates many of the key features set out in the Directive. Whilst the UK was no longer required to implement these changes following Brexit, the UK was heavily involved in the drafting of the Directive and prior to Brexit had already announced its intention to implement the Directive with a view to improving the UK’s rescue culture.

Key Takeaways

• France has now introduced a new restructuring tool following the enactment of Ordinance 2021-1193 (the “Ordinance”), which incorporates the Directive (EU) 2019/1023 on preventive restructuring frameworks (the “Directive”) into local law.
• The Ordinance will apply to proceedings commenced from 1 October 2021 onward and primarily builds upon the current safeguard proceedings by introducing a new version of “accelerated safeguard” proceedings (the “Accelerated Proceedings”). However, in contrast to safeguard proceedings which are only available to solvent entities, the new Accelerated Proceeding will be available to both solvent entities and companies in financial distress.
• Restructuring plans implemented pursuant to the Accelerated Proceedings now include the mandatory use of creditor classes with the ability to impose a cross-class cram down (subject to the “absolute priority rule”) in certain circumstances. Debtors also benefit from an automatic stay on creditor action from the point at which the proceedings are opened, subject to certain exceptions.
• Enhanced protections are also given to “new money” providers by way of limitations on such funds being subsequently restructured or clawed back, as well as preferred creditor status.