The Accelerated Safeguard Procedure: A Fast and Effective Mechanism for Companies in Difficulty

The accelerated safeguard procedure (procédure de sauvegarde accélérée), introduced by the Ordinance of 15 September 2021, results from the merger of two former procedures: the accelerated financial safeguard and the 2014 accelerated safeguard. To help you understand this procedure, its effects and the related timeframes, here is a note presenting, in turn, the conditions for opening it and how it unfolds.

1. Definition of the Accelerated Safeguard Procedure

The accelerated safeguard is a procedure that makes it possible to shift quickly from a conciliation to a judicial restructuring. Its main objective is to adopt a safeguard plan pre-negotiated within the framework of a prior conciliation. It makes it possible to impose a majority rule and to compel reluctant minority creditors to accept the plan.

2. Conditions for Opening an Accelerated Safeguard Procedure

Under Article L. 628-1, paragraph 2, of the French Commercial Code, the opening of this procedure is subject to several conditions:

• It is reserved for companies reaching certain turnover and employee thresholds, defined by decree.

• The company must already have been engaged in a conciliation procedure.

• It must not be in a state of suspension of payments (cessation des paiements).

• A draft plan must have been drawn up to ensure the company’s viability and to secure sufficient support from the affected parties in respect of whom the opening of the procedure will produce effect, support broad enough to make its adoption likely within the timeframe set out in the first paragraph of Article L. 628-8, that is, within two months.

• The company must have accounts certified by a statutory auditor (commissaire aux comptes) or drawn up by a chartered accountant (expert-comptable).

• The debtor must file, within 10 days of the opening judgment, a list of the main claims concerned by the procedure and, where applicable, the subordination agreements brought to the debtor’s attention by the creditors before the opening of the procedure (Commercial Code, Art. L. 628-7), a list that must be certified or be the subject of an attestation by a statutory auditor or a chartered accountant.

• The judicial agent (mandataire judiciaire) receives a copy of the list of claims and must communicate it to each creditor within 8 days.

3. Specific Rules of the Accelerated Safeguard

The accelerated safeguard is distinguished by particularly short timeframes compared with the ordinary safeguard.

➢ Filing and Examination of the Application

During the conciliation procedure, the court rules on the opening of the procedure after a report by the conciliator on the conduct of the conciliation and the prospects of adoption of the draft plan by the affected parties concerned (Commercial Code, Art. L. 628-2). The opening of the procedure is examined in the presence of the public prosecutor (ministère public).

The court rules within 15 days of receipt of the application (Article R. 628-1 of the Commercial Code).

➢ Appointment of the Bodies of the Procedure

The court will appoint:

• A judicial agent (mandataire judiciaire), tasked with representing the creditors.

• A judicial administrator (administrateur judiciaire), mandatory if the company employs more than 20 staff and achieves net turnover exceeding 3 million euros (Article L. 628-3 of the Commercial Code).

➢ Timeframes and Adoption of the Plan

• In principle, the plan must be settled within two months of the opening judgment (the observation period).

• Exceptionally, at the joint request of the debtor and the judicial administrator (it being specified that the Conciliator may be appointed as Judicial Administrator), the court may extend this timeframe, provided that the total duration of the procedure may not exceed four months (Commercial Code, Art. L. 628-8).

• In so far as the 2-month extension is not granted as of right, it is preferable to anticipate by having the plan voted on sufficiently before the expiry of the two-month timeframe so that its adoption by the court is possible. In practice, the classes of affected parties must be determined during the conciliation, so that notification to the affected parties of the class to which they belong and of their voting rights should be able to take place as soon as the accelerated safeguard procedure is opened,

• Notification must be sent to the classes of affected parties at least 21 days before the date of the vote (Commercial Code, Art. R. 626-58).

• In the absence of a settled plan within this timeframe, the court terminates the procedure.

4. On the classes of affected parties

• The accelerated safeguard may be opened only in respect of a debtor who establishes that its project enjoys sufficiently broad support from the affected parties in respect of whom the opening of the procedure will produce effect and who alone are called upon to vote on the plan (Commercial Code, Art. L. 628-1, paragraph 2).

• In theory, the objective would be to reach a preliminary agreement that, if possible, exceeds 67% of the total amount of these claims.

• It is also possible to call to the conciliation the equity holders who hold a claim.

• As the creditors have refused the draft plan, it must be assumed that they will exercise the remedies available to them: thus, the status of affected party and the arrangements for division into classes and for calculating the votes corresponding to the claims or rights conferring the ability to cast a vote may be challenged by each affected party, the debtor, the administrator, the judicial agent and the public prosecutor (Commercial Code, Art. R. 626-58-1).

• The juge-commissaire (supervising judge) is seised of this challenge by application within ten days of the notification provided for in the first paragraph of Article R. 626-58, on pain of inadmissibility. An appeal may be lodged within five days of its notification.

5. What are the Advantages of this Procedure?

The accelerated safeguard offers several notable benefits for companies in difficulty:

• Greater speed: Unlike the ordinary safeguard, it is limited to a maximum of four months.

• Better buy-in from creditors: The procedure rests on a prior dialogue in conciliation, favouring acceptance of the plan.

• The preservation of the business: It makes it possible to avoid more constraining alternatives such as judicial liquidation.