Opening of safeguard proceedings: what an institutional creditor can do

The opening of safeguard proceedings (procédure de sauvegarde) rarely surprises the debtor, who applies for it, but it hits the institutional creditor head-on: the bank holding a pledge, URSSAF (the social security contributions collection body), the Treasury, the commercial landlord or the supplier protected by a retention of title clause find out overnight that they can no longer pursue recovery of their claims. Safeguard is not a mere pause: it freezes enforcement action, neutralises certain security interests, reorganises the payment of liabilities and, since the 2021 reform, requires the creditor to negotiate the plan within classes of affected parties. This analysis sets out what an institutional creditor can and cannot do at each stage, from the opening judgment to the vote on the plan, taking into account the particular weight of employee claims in the balance of the procedure.

Safeguard: a procedure requested by the debtor and endured by the creditor

The safeguard procedure, governed by Articles L620-1 et seq. of the French Commercial Code, is open to a debtor who can show that it faces difficulties it is unable to overcome but is not yet insolvent on a cash-flow basis (cessation des paiements). This is its fundamental difference from court-supervised reorganisation (redressement judiciaire): the debtor keeps control of its business, management remains with its directors, and the stated objective is reorganisation before failure, not the rescue of a business that has already defaulted.

For the institutional creditor, this timing changes everything. Safeguard is a favourable procedure for the debtor, opened on its sole initiative. The creditor is never at its origin and cannot trigger it. It learns of the procedure through publication of the opening judgment in the Official Gazette of Civil and Commercial Announcements (BODACC), which is the starting point of time limits that will condition all of its rights.

The bodies of the procedure and the creditor's point of contact

The opening judgment appoints a court-appointed administrator (administrateur judiciaire) (above certain thresholds of employees and turnover) and a creditors' representative (mandataire judiciaire). The creditors' representative is the creditor's natural point of contact: it represents the collective interest of creditors and centralises the verification of liabilities. An institutional creditor wishing to assert its rights does not write to the debtor; it files its claim with the creditors' representative and then follows the verification procedure.

The freeze on enforcement: the stay of individual proceedings

The first effect of the opening judgment, and the most severe for the creditor, is the stay of individual proceedings laid down by Article L622-21 of the French Commercial Code. This provision prohibits or interrupts any legal action seeking an order against the debtor to pay a sum of money or the termination of a contract for non-payment, as well as any enforcement procedure against movable and immovable property.

The opening judgment interrupts or prohibits any legal action by all creditors whose claim is not referred to in I of Article L. 622-17 and which seeks an order against the debtor to pay a sum of money (Article L622-21, I of the French Commercial Code).

In practical terms, a bank that had started an attachment of debts (saisie-attribution) sees it paralysed. A supplier about to issue proceedings for payment can no longer do so. The Treasury or URSSAF, as holders of pre-opening claims, lose their power of direct action and must submit to collective discipline. The purpose of this rule is to preserve equality between creditors and to give the debtor time to build a plan.

The exact scope of the freeze

The freeze concerns only claims arising before the opening judgment, that is, claims that came into being before it. Post-opening claims properly arising for the needs of the observation period, by contrast, receive preferential treatment under Article L622-17: they are paid when due and, failing that, rank ahead of a large part of the pre-opening liabilities. The institutional creditor therefore has an interest in distinguishing strictly between what belongs to the old, frozen liabilities and what relates to a new service supplied during the observation period.

Article L622-7 completes the framework by prohibiting the debtor from paying any claim arising before the opening judgment. This prohibition on payments is a matter of public policy. A director who discreetly settled a long-standing supplier or an earlier bank instalment would commit an irregularity liable to sanctions. The institutional creditor should therefore not expect an amicable payment during the observation period, except for strictly limited exceptions (payment by set-off of connected claims, in particular).

Filing the claim: a condition for the survival of the right

The most basic means by which a creditor preserves its position is the filing of its claim. Article L622-24 requires all pre-opening creditors to file their claims with the creditors' representative within two months of publication of the opening judgment in the BODACC. This period is extended to four months for creditors domiciled outside metropolitan France.

The filing must state the amount of the claim due on the date of the judgment, the sums falling due and their due dates, the nature of the privilege or security interest attached to it and the method of calculating interest. A filing that is imprecise or incomplete as to the existence of a security interest risks the claim being treated as merely unsecured (chirographaire).

An institutional creditor that lets this period expire does not necessarily lose its claim definitively, but the claim becomes unenforceable against the procedure: it is not admitted to the liabilities and does not participate in distributions or in the plan, unless the supervising judge (juge-commissaire) grants relief from the time bar (relevé de forclusion) under the conditions of Article L622-26. In practice, vigilance over this two-month period is the first reflex to impose on litigation departments and recovery teams. The applicable time limits and the most frequent pitfalls are set out in our article on filing a claim in insolvency proceedings.

The fate of security interests

It is in the field of security interests that the institutional creditor has its strongest positions, provided they were properly created beforehand. Safeguard does not make security interests disappear, but it suspends their enforcement and reorganises their effectiveness.

Registered real security and the stop on interest

During the observation period, a creditor holding a mortgage or a pledge cannot enforce its security: the stay of individual proceedings prohibits seizure of the property or the pledged asset. Its guarantee is not destroyed but put to sleep. The creditor keeps its ranking and will be paid, as the case may be, in accordance with the plan or in any subsequent liquidation.

Article L622-28 stops the running of interest on most claims, which mechanically erodes the value of a claim in the medium term. An exception is made for interest on loans concluded for a term of one year or more. A bank that has granted a long-term investment loan therefore keeps the running of its interest, a significant advantage over the unsecured supplier.

The security interests that best withstand the procedure

Not all guarantees are equally robust in the face of insolvency proceedings. Three categories protect the creditor particularly well:

• Retention of title, enforceable against the procedure if agreed in writing no later than the time of delivery (Article L624-16). A supplier that has delivered goods which are unpaid and unsold may claim ownership of them, thereby escaping the collective procedure.
• The right of retention, which allows the creditor to keep the asset until payment and gives it a formidable position of strength in negotiation.
• The security trust (fiducie-sûreté), which places the transferred asset outside the debtor's estate, subject to the qualifications that apply where the debtor keeps the use of the asset under an agreement making the asset available to it.

A well-advised institutional creditor will have favoured, from the conclusion of its contracts, those guarantees that pass through the procedure without being neutralised by the stay of proceedings.

The fate of sureties and personal guarantors

The distinction between the debtor and its guarantors is essential. In safeguard, Article L622-28, paragraph 2, suspends proceedings against individuals who are co-obligors or who have granted a personal security until the judgment adopting the plan. This protection, wider than in court-supervised reorganisation, also leads some directors to favour safeguard in order to protect their personal guarantee.

The institutional creditor must take this into account: the freeze on action against an individual surety is temporary, but it delays a means of recovery that is often decisive where the director has stood surety for bank facilities. By contrast, a corporate surety does not enjoy the same protection and may be called upon.

The commercial lease in safeguard

The commercial landlord is an institutional creditor in its own right, whose position depends on the special rules laid down by Article L622-14 of the French Commercial Code. The lease of premises used for the business continues by operation of law, but its termination for non-payment of rent due before the opening judgment is blocked.

The landlord cannot seek termination, or have termination of the lease recorded, for rent and charges unpaid before the opening judgment. It can bring an action for termination for non-payment of post-opening rent only after a period of three months from the opening judgment. In other words, a landlord facing a safeguard loses its most effective lever, the termination clause (clause résolutoire), for everything concerning pre-opening arrears.

For post-opening rent, by contrast, the landlord benefits from a favourable status: these claims arise properly for the needs of the observation period and are paid when due under Article L622-17. The landlord therefore has an interest in distinguishing strictly between pre-opening arrears, which are frozen and subject to collective discipline, and current rent, which has priority. A small or medium-sized retail business placed in safeguard will have to keep paying its current rent, failing which the landlord can resume the initiative on termination once the three-month period has passed. The landlord's ranking, the treatment of its post-opening claims and the landlord's distraint (saisie-gagerie) are analysed in our article on the landlord's privilege in the face of the tenant's insolvency proceedings.

Classes of affected parties, the new centre of gravity of negotiation

The reform introduced by Ordinance No. 2021-1193 of 15 September 2021, which transposes Directive (EU) 2019/1193 of 20 June 2019 on preventive restructuring frameworks, profoundly changed the institutional creditor's negotiating power. For proceedings exceeding certain thresholds, it replaced the former creditors' committees with classes of affected parties, governed by Articles L626-29 et seq. of the French Commercial Code.

The formation of classes

Classes of affected parties are mandatory only where the debtor exceeds the thresholds set by Article R626-52: a number of employees combined with an amount of turnover, or a higher turnover taken alone. Below those thresholds, the plan is adopted under the traditional procedure of individual consultation. Above them, the court-appointed administrator allocates creditors and, where applicable, equity holders to classes formed on the basis of a sufficient community of economic interest.

The allocation is not neutral for the institutional creditor. Creditors holding real security are grouped in a class separate from that of unsecured creditors, which reflects the difference in ranking and prospects of recovery. A bank creditor secured by a mortgage therefore does not vote with an unsecured supplier, and its weight within the class of secured creditors may be decisive.

The vote and cross-class enforcement

Each class votes on the draft plan by a majority of two thirds of the votes held by the members who cast a vote, the vote of each creditor being proportionate to the amount of its claim. An institutional creditor whose claim represents a significant share of a class's liabilities thus has a power to block or to carry the vote within that class.

The major innovation of the reform lies in cross-class enforcement, known as cross-class cram down, provided for in Article L626-32. The court may, subject to conditions, adopt a plan despite the negative vote of one or more classes, in particular where the plan satisfies the best interests of creditors test and the rules of priority between classes. This mechanism relativises the individual power to block: a minority class may have imposed on it a plan that it rejected, if the statutory conditions are met. Where the creditor's power to block really lies in this framework is examined in our article on the prepack sale and classes of affected parties.

For the institutional creditor, this means that a strategy of systematic refusal no longer always pays. It is better to influence the content of the plan than to rely on a block that the court may be able to override. Building the class and verifying the admitted amount of claims become strategic issues of the first importance.

The institutional creditor's concrete levers of negotiation

Beyond the technical rules, the institutional creditor has a range of levers that it must use methodically throughout the procedure.

The first lever is the challenge of the amount and nature of its own claim during the verification of liabilities. A claim admitted as privileged carries more weight than an unsecured claim, both in distributions and in the vote within classes. The creditor must ensure that its security interest is properly recognised and challenge any proposed admission that would downgrade it.

The second lever lies in the position within the classes of affected parties. The institutional creditor has an interest in analysing the composition of its class, measuring its relative weight and identifying possible alliances with other creditors of the same rank in order to influence the vote.

The third lever concerns the duration and content of the plan. A safeguard plan may spread payments over a period that cannot exceed ten years (Article L626-12). The creditor can negotiate the payment schedule, the rate of debt write-offs granted, the existence of new security interests or the retention of its guarantees. A partial write-off accepted voluntarily may sometimes prove more favourable than a long plan with an uncertain end.

The fourth lever lies in monitoring the performance of the plan. If the scheduled instalments are not paid, the creditor may apply to the court for termination of the plan on the basis of Article L626-27, which may lead to the opening of a reorganisation or liquidation and to the resumption of its enforcement rights.

The particular place of employee claims

The social dimension of the procedure directly affects the institutional creditor's prospects. Employee claims benefit from the wage super-priority provided for by Articles L3253-2 et seq. of the French Labour Code, which guarantees payment of remuneration for the last months of work ahead of almost all other claims. This super-priority ranks ahead of bank security and reduces by the same amount the base available to secured creditors.

The intervention of the AGS (Association for the management of the employee claims guarantee scheme) is, by contrast, more limited in safeguard than in reorganisation or liquidation. In principle, the AGS does not guarantee employee claims arising while a safeguard is being performed, except in cases where it is called upon to intervene under Article L3253-8 of the French Labour Code. The institutional creditor must take this parameter into account: the protected employee liabilities weigh on the realisation value of the business and on what remains to be distributed between secured and unsecured creditors.

Conclusion

Safeguard is not a procedure hostile to the institutional creditor, but it reverses the balance of power. The creditor moves from a logic of individual enforcement to a logic of collective discipline in which its responsiveness and the quality of its guarantees determine everything. The freeze on enforcement is unavoidable, the fate of security interests depends on their nature and prior creation, the commercial lease follows special rules that deprive the landlord of its termination clause for arrears, and the classes of affected parties have shifted the centre of gravity of plan negotiation towards a structured vote and a possible cross-class override.

The point to retain is clear: the matter is not won in recovery litigation. It is won beforehand, by creating robust security interests that pass through the procedure, and during the procedure, by an irreproachable claim filing and an active presence in the classes. An institutional creditor that endures a safeguard passively condemns itself to what is in practice unsecured treatment. Before any difficulty arises, have an adviser audit the strength of your security interests and the quality of your personal guarantees; as soon as a safeguard is opened, have your claim filed within the two-month period with the exact statement of your privileges, because it is this filing that conditions all of your subsequent rights.

Frequently asked questions

Can a creditor oppose the opening of safeguard proceedings?

No. Safeguard is a matter for the debtor's sole initiative, and the debtor must show that it faces difficulties it is unable to overcome without being insolvent on a cash-flow basis (Article L620-1 of the French Commercial Code). The creditor has no standing to apply for the opening of safeguard proceedings or to oppose it before judgment. It may, however, use the routes of appeal available against certain decisions and assert its rights once the procedure has been opened.

What is the time limit for filing a claim in safeguard?

The time limit is two months from publication of the opening judgment in the BODACC, extended to four months for creditors domiciled outside metropolitan France (Article L622-24 of the French Commercial Code). After that period, an unfiled claim is unenforceable against the procedure, unless the supervising judge grants relief from the time bar under the conditions of Article L622-26. The filing must state the amount, the nature and the security interests attached to the claim.

Does a mortgage or a pledge survive safeguard?

Yes, the security interest is not destroyed, but its enforcement is suspended during the observation period because of the stay of individual proceedings (Article L622-21). The creditor keeps its ranking and will be paid in accordance with the plan or in any subsequent liquidation. The quality and priority in time of the security interest determine the creditor's weight within the class of affected parties and in distributions.

Can a commercial landlord terminate the lease in a safeguard?

The landlord cannot terminate the lease for rent unpaid before the opening judgment. For post-opening rent, it can bring an action for termination only after a period of three months from the opening judgment (Article L622-14 of the French Commercial Code). Current rent remains payable when due and benefits from the priority treatment of post-opening claims.

What are classes of affected parties and when are they mandatory?

Classes of affected parties, introduced by Ordinance No. 2021-1193 of 15 September 2021, group creditors according to a sufficient community of economic interest in order to vote on the plan (Articles L626-29 et seq.). They are mandatory only where the debtor exceeds the employee and turnover thresholds set by Article R626-52. Each class votes by a majority of two thirds of the votes cast, calculated in proportion to the amount of the claims.

Can cross-class enforcement impose a plan on a creditor that rejected it?

Yes. Article L626-32 of the French Commercial Code allows the court, subject to conditions, to adopt the plan despite the negative vote of one or more classes, in particular where the plan satisfies the best interests of creditors test and the rules of priority. This mechanism, known as cross-class enforcement, limits the power of a minority class to block. It encourages the institutional creditor to negotiate the content of the plan rather than to offer a refusal that may be overridden.

Is the director's surety protected in a safeguard?

In safeguard, proceedings against individuals who are co-obligors or who have granted a personal security are suspended until the judgment adopting the plan (Article L622-28 of the French Commercial Code). This protection, wider than in court-supervised reorganisation, often delays a means of recovery that is decisive for the bank where the director has stood surety. Corporate sureties do not benefit from this suspension and may be called upon.