presentation commercial justice - may 9th 2009

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Washington Symposium

May, 11th-12th 2009

"Continental Law and the Global Financial Crisis :

Contributions towards a better regulation"

Mr Fred Scetbon-Didi

Chairman and Vice-President

Commercial Court, Paris

Washington Symposium May, 11th-12th 2009 "Continental Law and the Global Financial Crisis : Contributions towards a better regulation"

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- Commercial Justice in France -

• 3,100 judges assigned to 135 Commercial Courts render 386,000 decisions per year

• Judges are company heads or executives engaged in professional activity or retired from business, who are elected to office by representatives of professional bodies, and by both judges in office and those retired

• Judges receive no remuneration for their judgeship duties; their mandate in the same court cannot exceed 14 years

• Before entering office and during the entire length of their judgeship the Commercial Court justices undergo legal training organised by the Ecole National de la Magistrature (Professional Judge’s National Training School) which prepares them for their duties and keeps them informed of changes in laws and evolving jurisprudence

• Decisions rendered by Commercial Courts may be appealed before a Court of Appeal where professional judges sit

• About 10% of decisions are the subject of an appeal

• Number of reversals or amendments to commercial court decisions is completely similar to those emanating from other courts

Washington Symposium May, 11th-12th 2009 "Continental Law and the Global Financial Crisis : contributions towards a better regulation"

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- Brief Overview of Prevention / Insolvency procedures available to distressed companies in France -

The law of 26 July 2005 significantly changed the legislative framework and as of today the law disposes of several procedures :

C. Those procedures where the company head keeps control over decision-making and management of operations

- Prevention-Detection- Ad hoc mandate- Conciliation- Safeguard

B. Those proceedings where the Court plays an active role :

- Judicial Recovery (Reorganisation while in Receivership)- Liquidation

I will discuss the first three procedures

Next, Mr Vincent GLADEL will illustrate the Safeguard procedure through a major case, the EUROTUNNEL proceedings

Finally, Mr Marc ANDRÉ will provide you with a broad outline of the following bankruptcy proceedings : Judicial Recovery and Liquidation.


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- Prevention – Detection -

The initiative for this procedure lies with the Court which, based on a certain number of criteria, solicits a meeting with the company head

The company head may also, if he so desires, request a meeting with a judge having a prevention mandate

The judge listens, analyses the situation, and ensures that :

The company head is conscious of the problems he is facing Has taken or will soon take the necessary measures to put an end to the situation

Potentially, the judge may draw to the attention of the company head the risks encountered by abstaining from taking necessary action (consequences: insolvency, personal sanctions or financial penalties). The judge gives no advice.

There may be a subsequent meeting at the request of the company head or of the judge, but the objective remains preventive; ideally a single session allowing for an awareness raising of the difficulties faced and not an ongoing series of regular checkups.

In the event that the company head does not answer to the meeting request, further investigation may be confided to a judicial auxiliary officer (Receiver) at the request of the judge.

Prevention activity at the Paris Commercial Court in 2008 : 40 judges held a total of 2,500 meetings.

Prevention is the first of the « amicable » procedures whose purpose is to “sound the alarm” thereby alerting the company head of the situation


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- The ad hoc mandate -

Procedure : - Flexible- Confidential: No publication whatsoever- At the sole prerogative of the company head who continues to run his company

Company head : - demonstrates that he is not insolvent - exposes the scope of his request and the mission to confer upon the

administrator

The President of the Court directs the debtor to a specialised judge who :

- examines the conditions of the request,- proposes an administrator (the company head may also put forward a name)/ the ad hoc administrator is normally a judicial administrator familiar with negotiations

Decides on the scope of the mission (wide or narrow in scope)

The duration/length of mission is freely set

Fees are negotiated openly between the company head and the proposed administrator under the supervision of the judge

Agreements reached are not subject to any formalities or publication.

The ad hoc mandate often precedes Conciliation or Safeguard proceedings : IN 2008 THE PARIS COMMERCIAL COURT OPENED 90 AD HOC MANDATE PROCEEDINGS


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- Conciliation (1) -

• This procedure reserved to companies :

- which are not insolvent or have been in payment default for less than 45 days-who are undergoing legal, economic or financial problems, currently existing or anticipated

• Objective of procedure: To provide the assistance of a recognised professional to favour amicable agreements between the debtor and his main creditors and ongoing contracts to put an end to the company’s difficulties, ensure the continuation of the business and maintain employment

• Special and unique features of this procedure :

- Confidentiality : The Order naming the conciliator is not published- Flexibility :

Freedom to negotiate, possibility for creditors (including public bodies) to agree to discounts on the debt

Scope of mission varies widely, in relation to needs but limited to 4 months (possible one month extension)

Possibility for contributors of capital or new services to be granted a creditor’s preferential right for the “new money”

• Company head not divested of his duties/ he remains in charge of his business


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- Conciliation (2) -

• Protection = Conciliation :

- Allows the company to take advantage of extensions on time limits as provided for in Article 1244-1 of the Civil Code from the moment that he becomes the recipient of a formal notice or summons

- Automatically prevents the opening of Liquidation or Judicial Recovery proceedings

• The signed agreement :- must ensure the continuity of the business- must not infringe upon the rights of creditors not party to the agreement- must prevent the state of insolvency

• Outcome of agreement :

- It may remain confidential- It may be registered with the court or parties present, and published- In the event of non-performance of written commitments: Cancellation of the agreement and

forfeiture of payment extensions granted.

• If no agreement signed : End of conciliation mission

- eventually converting to Safeguard proceedings (if no payment default)- or Judicial Recovery- or Liquidation

• Conciliation at the Paris Commercial Court : In 2008, the Paris Commercial Court opened 77 Conciliation proceedings


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- Safeguard (1) -

• Safeguard was the new procedure introduced by the law of 26 July 2005

• It allows a company :

- which is not in payment default (not insolvent)- which is aware of difficulties that it cannot overcome

to dispose of the necessary time to reorganise and ensure the continuity of the business.

• This procedure is initiated exclusively by decision of the company head who must provide :

- Up-to-date economic and financial information on the company- Reorganisation prospects plausibly being considered

• 3 judges examine the request :

- and can reject it : the application remains confidential- or can accept it : a Judgment is issued which becomes public

• The Opening Judgment of Safeguard proceedings automatically stays :

- the payment of any debt originating prior to the opening judgement- legal proceedings, creditor collection activities and enforcement actions


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- Safeguard (2) -

• The Administrator appointed by the court, for the entire observation period (From 6 to 12 months, exceptionally to 18 months)

- Performs a supervisory role over the activity of the business- Prepares a diagnostic assessment of the business and the safeguard plan along with the input/

support from the manager- Organises the functioning of the Creditor Committees

• The company head, during the entire proceedings continues to run his business and keeps his pay; he can no longer be dismissed or forced to surrender his shares.

• The Judgment confirming the Safeguard Plan may :

- provide for a rescheduling of payments over a period not exceeding 10 years- register discounts or forgiveness on debt by private or public creditors

• Requests for Safeguard were relatively limited in years 2006 and 2007.

• In 2008, over the entire French territory, 694 Safeguard proceedings were opened

• It appears that in 2009, the current upward trend is accelerating

• 30 Safeguard proceedings are opened as at this date at the Paris Commercial Court

• Changes to legislation on 18 December 2008 significantly modified provisions of the Safeguard laws and I will now pass the word on to Mr Vincent Gladel


presentation commercial justice - may 9th 2009

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