Summons to open reorganisation proceedings

Are you a creditor of a company in difficulty that no longer meets its payment deadlines? Where a company has stopped paying its debts (cessation des paiements), a summons to open court-supervised reorganisation proceedings (assignation en redressement judiciaire) can be an effective remedy for protecting your interests and obtaining payment of what you are owed. This collective procedure, supervised by the commercial court (tribunal de commerce), allows a process to safeguard the debtor company to be started while preserving the rights of creditors.

What is a summons to open court-supervised reorganisation proceedings?

Definition and principle

The summons to open court-supervised reorganisation proceedings is a procedure by which a creditor may apply to the commercial court for the opening of reorganisation proceedings against its debtor. This step is one of the ways of bringing the matter before the court provided for by the French Commercial Code, alongside the debtor's own filing or an application by the public prosecutor.

As Article L631-5 of the French Commercial Code states: "proceedings may also be opened on the summons of a creditor, whatever the nature of its claim". This provision underlines that any creditor, whether unsecured, preferred or secured, may take this step. The strategic use of this option by an unpaid creditor is analysed in our article on summoning the debtor to reorganisation proceedings as a recovery lever.

Aims of the procedure

The summons to open reorganisation proceedings pursues several complementary aims:

• Enabling the company in difficulty to be safeguarded
• Protecting the interests of creditors
• Maintaining business activity and employment
• Organising the settlement of liabilities on an equitable basis

Conditions for opening the proceedings

Cessation of payments

The fundamental condition for issuing a summons to open reorganisation proceedings is that the debtor is in a state of cessation of payments. This situation is characterised by the company's inability to meet its liabilities that have fallen due out of its available assets.

Cessation of payments may be shown by various indicators:

• Repeated delays in paying instalments
• Dishonoured bills of exchange or direct debits
• Accumulation of social security and tax debts
• Systematic recourse to bank overdrafts
• Difficulty in paying salaries

Standing of the applicant

Article L631-5 of the French Commercial Code authorises "the summons of a creditor, whatever the nature of its claim". This broad wording covers:

• Commercial creditors (suppliers, service providers)
• Financial creditors (banks, credit institutions)
• Social security creditors (URSSAF, pension funds)
• Tax creditors (the tax authority)
• Tort creditors

Territorial jurisdiction

The commercial court with territorial jurisdiction is the one within whose area the debtor company has its registered office. For sole traders, jurisdiction is determined by the place of the principal establishment.

Summons procedure: steps and formalities

Drafting the summons

The summons to open reorganisation proceedings must comply with the forms laid down by the French Code of Civil Procedure. It must contain:

• The full identity of the applicant creditor
• The precise identity of the debtor summoned
• A statement of the facts justifying the application
• A statement of the cessation of payments
• The particulars of the applicant's claim
• The application for the opening of the collective proceedings

Service by a bailiff

The summons must be served on the debtor by a bailiff (huissier de justice). This formality ensures respect for the adversarial principle and allows the debtor to take cognisance of the application made against it.

The period for appearance before the commercial court may not be less than fifteen days, except in cases of duly justified urgency.

Instructing a lawyer

Before the commercial court, representation by a lawyer (avocat) is not compulsory for traders and commercial companies. Nevertheless, the complexity of collective proceedings makes it strongly advisable to use a suitably qualified professional.

Examination and judgment by the commercial court

Examination of the application

The commercial court examines the application to open proceedings by checking:

• That the state of cessation of payments is real
• The standing and interest of the applicant creditor
• Compliance with procedural formalities
• That there are no competing proceedings under way

Rights of the defence

The debtor summoned may put forward its defence and challenge:

• The reality of the cessation of payments
• The existence or amount of the claim relied on
• The jurisdiction of the court seised
• Compliance with time limits and forms

Decision of the court

At the end of the examination, the commercial court may:

• Order the opening of court-supervised reorganisation proceedings
• Dismiss the application if the conditions are not met
• Order compulsory liquidation (liquidation judiciaire) if reorganisation appears manifestly impossible

Effects of the opening of the collective proceedings

Stay of individual actions

The opening of reorganisation proceedings brings to a halt all individual actions by creditors against the debtor. This rule aims to protect the company from pressure and to allow a collective approach to dealing with its difficulties. What a creditor can still do despite this freeze is set out in our article on the stay of individual actions from the opening judgment.

Appointment of the officers of the proceedings

The court appoints:

• A supervising judge (juge-commissaire) to oversee the proceedings
• A court-appointed administrator (administrateur judiciaire) to assist or represent the debtor
• A creditors' representative (mandataire judiciaire) acting for the creditors

Observation period

An observation period of six months, which may be renewed, begins in order to:

• Draw up the economic and social assessment of the company
• Explore the possibilities for reorganisation
• Establish the list of creditors
• Negotiate a continuation plan or a sale plan

Rights and obligations of the applicant creditor

Filing of claims

The creditor that initiated the proceedings must, like all other creditors, file its claim with the creditors' representative within the prescribed time limits. This filing is a condition of its participation in any distributions.

Participation in consultative bodies

Depending on the size of its claim, the applicant creditor may be called on to take part in:

• The creditors' committee
• Creditors' meetings
• Consultations on takeover offers

Potential liability

In the event of an abusive or reckless summons, the applicant creditor may be ordered to pay damages if its step causes unjustified harm to the debtor.

Special cases and extensions

Business owners and deceased persons

Article L631-3 of the French Commercial Code provides that court-supervised reorganisation proceedings may also concern natural persons who have carried on a professional activity. Thus, "after the cessation of their professional activity", if their assets were in a state of cessation of payments, "the court may be seised, within one year from the date of death, on the summons" of a creditor.

Businesses that have ceased trading

Businesses that have ceased trading remain exposed to a summons to open reorganisation proceedings if they were in a state of cessation of payments when their activity stopped.

Cross-border proceedings

For companies with establishments in several Member States of the European Union, the European Insolvency Regulation may apply and alter the rules on jurisdiction.

Practical and strategic advice

Before starting the procedure

Before issuing a summons to open reorganisation proceedings, you should:

• Gather all the evidence of the cessation of payments
• Assess whether prior amicable negotiations would be worthwhile
• Analyse the prospects of recovery under the different scenarios
• Consult a lawyer who advises on business law

Alternatives to consider

Other routes may be explored:

• The conciliation procedure (procédure de conciliation)
• Out-of-court safeguard (sauvegarde amiable)
• Protective measures
• Liability claims against the company's managers

Monitoring the proceedings

Once the proceedings have been opened, the creditor must:

• Observe the filing time limits scrupulously
• Follow the progress of negotiations
• Take an active part in consultations
• Ensure that its rights are preserved

Summary and recommendations

The summons to open court-supervised reorganisation proceedings is a powerful legal tool that allows creditors to protect their interests against a company that has stopped paying its debts. This collective procedure, supervised by the commercial court, calls for a rigorous approach and a thorough knowledge of the legal and economic issues.

The complexity of these proceedings and their significant consequences for the future of the company and for the rights of creditors make it essential to be assisted by an experienced professional. Do not hesitate to consult a lawyer who advises on business law to assess whether such an action is appropriate and to optimise your chances of recovery in compliance with the applicable legislation.