Conciliation privilege (Art. L. 611-11 French Commercial Code): the ranking of the fresh money provider before the proceedings

A debt fund or a bank asked to refinance a company in conciliation always weighs the same risk: injecting cash into a business that may tip into collective insolvency proceedings (procédure collective) within months, and ending up as an unsecured creditor (chirographaire) in the middle of liabilities that are already saturated. The legislature responded to that exposure with a specific priority mechanism, the conciliation privilege (privilège de conciliation) under Article L. 611-11 of the French Commercial Code, which places the provider of new money at the head of the queue if prevention fails. The financing must still be structured in the exact form the text requires: an error in timing, an agreement merely recorded (constaté) instead of approved by the court (homologué), or an imprecise proof of claim is enough to make the priority disappear. This analysis sets out, from the standpoint of the institutional creditor, the conditions for obtaining the privilege, the real scope of the sums covered, the actual ranking obtained against prior and subsequent claims, and the mistakes that lose its benefit.

What Article L. 611-11 of the French Commercial Code actually guarantees

Conciliation, governed by Articles L. 611-4 et seq. of the French Commercial Code, is an amicable and confidential procedure open to a debtor experiencing legal, economic or financial difficulty, whether established or foreseeable, and which has not been insolvent (en cessation des paiements) for more than forty-five days. Its duration is subject to strict limits: four months, extendable by one month, with a total duration that may not exceed five months. This short timetable governs the whole negotiation of the financing.

The conciliation privilege, often referred to as new money, is the statutory incentive designed to induce a third party to finance a weakened business during that window.

"Where safeguard proceedings, judicial reorganisation proceedings or judicial liquidation proceedings are opened, persons who, in the course of a conciliation procedure that gave rise to the approved agreement referred to in II of Article L. 611-8, granted the debtor a new injection of cash with a view to ensuring the continuation of the business and its viability, are paid, for the amount of that injection, by privilege ahead of all other claims […]" (Article L. 611-11 of the French Commercial Code)

Three characteristics structure the mechanism. The privilege is conditional: it takes effect only if collective proceedings are subsequently opened. It is statutory: it does not need to be stipulated, it arises from the text once its conditions are met, which does not remove the need to document it. Finally, it is independent of contractual security: it can be combined with a mortgage, a pledge over securities or a security trust (fiducie-sûreté), and does not prevent the lender from requiring conventional security in parallel.

A useful point at the outset: an ad hoc mandate (mandat ad hoc) gives rise to no privilege. A contribution made during an ad hoc mandate, even formalised in a protocol signed before the mandataire, remains unsecured. Moving into conciliation is therefore an indispensable technical prerequisite, not an interchangeable procedural formality. On the choice between these two amicable procedures, see our article on conciliation and the ad hoc mandate.

The conditions for obtaining it: four locks to secure

Court approval of the agreement, the first condition

The text refers only to an agreement approved within the meaning of II of Article L. 611-8. An agreement merely recorded by order of the president of the court, which preserves confidentiality, gives rise to no conciliation privilege. This is the central trade-off imposed on the creditor: priority of ranking is paid for in publicity.

Approval requires three conditions, checked by the court: the debtor is not insolvent or the agreement puts an end to insolvency; the terms of the agreement are such as to ensure the viability of the business; and the agreement does not harm the interests of non-signatory creditors. The approval judgment is subject to publicity measures and may be challenged by third-party opposition (tierce opposition) by non-signatory creditors, as well as by appeal by the public prosecutor. Until the decision is final, the privilege rests on a fragile foundation.

Operational consequence for a lender: the documentation must treat approval as a condition precedent to drawdown, or at the very least as a contractually defined trigger event. Releasing the funds on the mere signature of the agreement, betting on a future approval, amounts to lending without ranking.

A new contribution, not a recycled exposure

The privilege requires a new injection of cash. The text expressly excludes signatory creditors from benefiting from it, directly or indirectly, in respect of their facilities granted before the opening of the conciliation. This exclusion is the main potential source of dispute for a bank that is already exposed.

The following do not constitute a new contribution: the rescheduling of an existing medium-term loan, the consolidation of an overdraft into an amortising loan, the mere maintenance of a short-term credit line, a waiver of early repayment rights, or a partial write-off of a claim with a return-to-better-fortune clause. In all these cases, the creditor is negotiating an adjustment of its existing exposure, not new financing.

By contrast, the following are eligible contributions: the payment of a new loan, a drawing on a newly opened line, the grant of an on-demand guarantee that is subsequently called, or the provision of a cash advance that did not previously exist. The distinction between genuine fresh money and a restructuring of existing exposure must appear unambiguously in the agreement, ideally through an itemised breakdown of the amounts by name.

The purpose: continuation of the business and viability

The contribution must be made with a view to ensuring the continuation of the business and its viability. This purposive criterion is not decorative. Financing whose real purpose is to pay off a signatory creditor, to fund a distribution to shareholders or to refinance an asset unrelated to the business exposes the privilege to challenge by the creditors' representative (mandataire judiciaire) or by a competing creditor.

Practice therefore recommends documenting the use of the funds: an annexed cash-flow forecast, allocation to identified operating needs, and use-of-proceeds clauses backed by reporting. The conciliator's report and the approval judgment are decisive pieces of evidence on this point.

The statutory exclusions

The text excludes contributions made by shareholders and partners as part of a capital increase. The exclusion is limited: it covers a contribution of capital, not a shareholder current account advance. A partner who makes a repayable shareholder current account advance (avance en compte courant d'associé) under the approved agreement is in principle admitted to the benefit of the privilege, a reading widely adopted in legal scholarship and consistent with the wording of the text. This nuance is structuring for arrangements in which a shareholder fund agrees to put in more money without wishing to dilute further or to bear the risk of residual equity.

A second filter: the signatory creditor cannot benefit from the privilege in respect of its earlier facilities, either directly or indirectly. Arrangements that have the new contribution made by a related entity in order in reality to obtain better treatment of the historic exposure amount to interposition and are liable to be recharacterised.

The scope of the sums covered

The privilege applies for the amount of that injection. This restrictive wording has two consequences.

First, the privilege covers the principal actually made available, not the financing commitment. A line that is confirmed but undrawn on the date of the opening judgment generates no privileged claim. The splitting of drawdowns must be planned accordingly: each drawdown secures its own share of priority.

Second, the treatment of ancillary amounts remains debated. Contractual interest, arrangement fees, commitment fees and early repayment indemnities are not mentioned in the text. Prudence dictates assuming they are not covered and adapting the structuring: collecting fees on signing rather than in fine, avoiding capitalisation of interest, and favouring remuneration collected during the life of the agreement rather than deferred to its conclusion.

The second paragraph of Article L. 611-11 extends the privilege to those who supply a new good or service with the same objective, for the price of that good or service. A strategic supplier that agrees to resume deliveries, an industrial equipment lessor or a logistics provider can thus secure claims arising from new services. Here again, the dividing line is novelty: unpaid prior invoices, even if rescheduled in the agreement, remain outside the scope.

The actual ranking in the opened proceedings

It is in the ranking that the conciliation privilege takes on its full value, and it is also there that expectations are sometimes overestimated.

In safeguard and judicial reorganisation proceedings

Article L. 611-11 refers to the ranking provided for in II of Article L. 622-17. The holder of the conciliation privilege is paid ahead of meritorious subsequent claims, which themselves take priority over almost all prior claims. Two categories nevertheless rank ahead of it: the wage super-privilege under Articles L. 3253-2 and L. 3253-4 of the French Labour Code, and legal costs validly incurred after the opening judgment for the purposes of conducting the proceedings.

A decisive point for a lender: fresh money provided in conciliation ranks ahead of financing provided later during the observation period. Pre-money ranks ahead of post-money. An investor who refinanced the business during the observation period, even with the authorisation of the supervising judge (juge-commissaire), would rank behind the conciliation provider.

The privilege also has an effect in the preparation of the plan. Article L. 626-20 of the French Commercial Code prohibits imposing debt write-offs or payment extensions on the holder of the conciliation privilege without its consent. The scope of this protection, however, calls for a reservation since Order No. 2021-1193 of 15 September 2021 transposing Directive (EU) 2019/1023 of 20 June 2019: where classes of affected parties are formed, the discussion shifts to the composition of the classes, the best-interests-of-creditors test and cross-class cram-down. A privileged creditor must therefore follow closely the formation of the classes, which affects its position more than the general protection does. The creditor's blocking power in a plan adopted by classes is dealt with separately in our article on the prepack sale and classes of affected parties.

In judicial liquidation

The reference to II of Article L. 641-13 leads to a comparable order: wage super-privilege, legal costs of the proceedings, then the conciliation privilege, ahead of the other subsequent claims and all prior claims.

The limits of the ranking: what the privilege does not do

A privilege is a right of preference over the price of an asset forming part of the common pledge (gage commun). It can do nothing against techniques that remove the asset from that pledge.

• Title-based security escapes the ranking: a security trust (fiducie-sûreté) set up for the benefit of another creditor, an enforceable retention of title clause, and a movable or real estate finance lease take the asset out of the debtor's estate or allow it to be reclaimed.
• An effective right of retention, exercised over an asset physically held, in practice neutralises the priority for as long as the person retaining the asset has not been paid.
• Super-privileged wage claims and the legal costs of the proceedings retain their primacy, including over the proceeds of realisation of real estate assets.

The operational conclusion is clear: the conciliation privilege improves ranking, it does not replace real security. In a case where most of the value is already held in a security trust or encumbered by a finance lease, the privilege may attach only to a residue. The analysis of the existing security structure must precede the commitment, not follow it.

The ancillary protections enjoyed by the provider

Approval produces an effect that lenders often underestimate: under Article L. 631-8 of the French Commercial Code, the date of cessation of payments cannot be set at a date earlier than the final decision approving the agreement, except in cases of fraud. Security granted in performance of the approved agreement is thus protected from the nullities of the hardening period (période suspecte) under Article L. 632-1, in particular the automatic nullity affecting security granted for previously incurred debts. This clearing of the hardening period is, for an institutional creditor, an advantage comparable in value to the privilege itself. The regime of these nullities and what a creditor that has been paid or secured may lose are detailed in our article on the nullities of the hardening period.

To this must be added Article L. 650-1 of the French Commercial Code, which in principle exempts the creditor from any liability by reason of the facilities granted, except in cases of fraud, clear interference in the management of the debtor or disproportionate security. The last case deserves attention: a lender that required a package of security manifestly out of proportion to the contribution made is exposed both to a liability claim and to the annulment or reduction of the security taken.

Finally, Article L. 611-12 provides that the opening of collective proceedings automatically terminates the recorded or approved agreement, with creditors recovering all of their claims and security, less the sums received, without prejudice to the privilege under Article L. 611-11. The privilege therefore expressly survives the lapse of the agreement that gave rise to it.

The mistakes that lose the benefit of the privilege

Loss of the privilege rarely results from a challenge on the merits. It almost always results from a failure of execution.

• Settling for a recorded agreement. The debtor often prefers confidentiality. A lender that accepts a recorded agreement gives up the privilege. The trade-off must be put on the table from the term sheet, not at the end of the negotiation.
• Releasing funds outside the time frame of the conciliation. The contribution must be made within the procedure. A bridge loan paid before the conciliation is opened, then simply mentioned in the agreement, risks being recharacterised as a prior facility.
• Failing to individualise the contribution in the agreement. The amount, the identity of the provider, the new nature of the facility and its purpose must appear explicitly. Practice is to have these elements referred to in the operative part of the approval judgment, which considerably reduces the risk of later challenge.
• Mixing fresh money and restructuring of existing exposure in a single set of documents. A global framework contract combining rescheduling and new financing invites a debate on scope. Two separate agreements are better than one.
• Filing the claim as unsecured, or out of time. This is the most costly and the most frequent mistake. Because the contribution was made before the opening judgment, the claim is a prior claim and must be filed against the liabilities within two months of publication of the judgment in the BODACC, extended to four months for creditors domiciled outside metropolitan France. The proof of claim must specify the nature of the privilege relied on, in accordance with Article L. 622-25. A proof of claim that is silent on the conciliation privilege is a proof of claim for an unsecured debt.
• Failing to secure the final nature of the approval. Third-party opposition by a non-signatory creditor or an appeal by the public prosecutor may lead to the judgment being overturned, and therefore to the retroactive disappearance of the basis of the privilege.
• Ignoring the pre-pack scenario. Where the conciliation is designed to lead to accelerated safeguard proceedings under Article L. 628-1, the agreement is not necessarily approved. In that structure, the new financing must be secured by other means, notably the authorisation of the supervising judge during the observation period or the privilege created for contributions made for the performance of the plan since the order of 15 September 2021. The choice of procedural vehicle determines the security strategy.

Structuring the financing: points for the lender to watch

A fresh money transaction in conciliation is run like a structured finance transaction under a tight timetable. A few requirements are worth setting out from the start of the negotiation.

Due diligence focuses first on mapping the existing security: security trusts already set up, pledges over securities accounts and over the business (fonds de commerce), retention of title clauses of strategic suppliers, and finance lease contracts covering the industrial plant. This mapping determines the residual base on which the privilege will have real effect.

The contractual sequencing must link signature of the agreement, the application for approval, the judgment, expiry of the periods for appeal and drawdown. Each later drawdown must be conditional on the continuation of the conditions that justified approval.

Combining the privilege with contractual security remains the rule, subject to proportionality. The security trust offers the most robust protection, subject to the important reservation of Article L. 622-23-1 of the French Commercial Code where it is coupled with an agreement making the asset available to the debtor, a configuration that largely neutralises its effectiveness during the proceedings.

Finally, the remuneration must be built taking account of the uncertain scope of ancillary amounts, and post-signing monitoring organised: cash covenants, monthly reporting, and immediate notification if the court is seised.

Conclusion

In the French arsenal of prevention, the conciliation privilege is the tool most favourable to a creditor who agrees to refinance a weakened debtor. It places fresh money ahead of almost all of the liabilities, including financing provided later during the observation period, and it comes with a clearing of the hardening period that secures the security taken in performance of the agreement. But it is a privilege of form: it is won in the drafting of the agreement, in the timing of the drawdown and in the proof of claim, not in the economic negotiation.

The position we take is simple. An institutional creditor should never assess the privilege under Article L. 611-11 in isolation: its real value depends on the residual base of the common pledge, once assets held in a security trust, subject to retention of title or under a finance lease have been deducted. Before any commitment, have the net available base quantified and make each drawdown contractually conditional on the approval judgment being final. Then record, from signing, in your internal procedure, the deadline for filing the proof of claim with express mention of the privilege: it is the only step whose omission on its own destroys the whole benefit of the negotiation.

Frequently asked questions

Does a recorded conciliation agreement give the benefit of the conciliation privilege? No. Article L. 611-11 of the French Commercial Code refers only to the approved agreement mentioned in II of Article L. 611-8. An agreement merely recorded by order of the president of the court preserves confidentiality but gives rise to no privilege. A creditor that finances on that basis remains unsecured for its contribution. The choice between confidentiality and ranking must be decided before the funds are made available.

Does the conciliation privilege take priority over a prior mortgage creditor? Yes, the text provides for payment by privilege ahead of other claims, which includes prior claims backed by real security. Only the wage super-privilege under Articles L. 3253-2 and L. 3253-4 of the French Labour Code and the legal costs incurred after the opening judgment for the purposes of the proceedings rank ahead of it. By contrast, the privilege has no effect on assets removed from the common pledge by a security trust, retention of title or a finance lease, nor against an effective right of retention.

Must the claim be filed against the liabilities in order to keep the privilege? Yes, and this is the most costly mistake in practice. Because the contribution was made before the opening judgment, the claim is a prior claim and falls under the filing regime of Article L. 622-24, within two months of publication of the judgment in the BODACC, extended to four months for creditors domiciled outside metropolitan France. The proof of claim must expressly mention the privilege under Article L. 611-11, in accordance with Article L. 622-25.

Can a shareholder benefit from the conciliation privilege? The text excludes only contributions made by shareholders and partners as part of a capital increase. A shareholder current account advance, which is not a contribution of capital, remains in principle eligible for the privilege provided it meets the other conditions: novelty of the facility, purpose of continuing the business and ensuring its viability, and inclusion in the approved agreement. The arrangement must be carefully documented to rule out any recharacterisation.

Are the interest and fees on the loan covered by the privilege? Article L. 611-11 refers to payment for the amount of that injection, wording that leads most commentators to limit the privilege to the principal actually made available. Contractual interest, arrangement fees and indemnities do not have certain cover. The structuring must take this into account, in particular by collecting fees on signing and avoiding capitalisation of interest.

What becomes of the privilege if the conciliation agreement comes to an end? Article L. 611-12 of the French Commercial Code provides that the opening of safeguard, reorganisation or liquidation proceedings automatically terminates the recorded or approved agreement, with creditors recovering their claims and security less the sums received, without prejudice to the provisions of Article L. 611-11. The conciliation privilege therefore expressly survives the disappearance of the agreement. By contrast, the overturning of the approval judgment on third-party opposition or an appeal by the public prosecutor removes its basis.

Does the fresh money from the conciliation rank ahead of financing provided during the observation period? Yes. The reference to II of Article L. 622-17 places the holder of the conciliation privilege ahead of meritorious subsequent claims, including financing granted during the observation period. Pre-money therefore ranks ahead of post-money. This ranking is a decisive negotiating argument for a lender approached very early on, and a point of caution for any investor considering stepping in only after the proceedings have opened.