The reform resulting from Order no. 2021-1193 dated September 15, 2021 is applicable to proceedings initiated as of October 1, 2021

French insolvency law is undergoing a far-reaching reform, 7 years after the last major reform that came from Order No. 2014-326 of March 12, 2014. This reform is the result of Order No. 2021-1193 amending Book VI of the French Commercial Code, adopted by the Council of Ministers on Wednesday, September 15, 2021 (the Order).

Presented as a major measure of the five-year French presidential term, the law “on growth and business transformation”, also known as the PACTE Act, came into force on May 24th, 2019. Amongst the changes that were brought, some of them deserve a particular focus.

Two phases of the reform. The PACTE Act revises the insolvency legal framework and mainly empowers the executive to directly implement the EU insolvency directive and to reform the law on security interests within a period of two years.

The first phase of the reform

An extract from GRR The European, Middle Eastern and African Restructuring Review 2018

Brief overview of insolvency proceedings

Enhanced by no less than five reforms over the past 10 years, French insolvency law now provides a comprehensive set of tools designed to efficiently handle the legal, economic and financial difficulties that companies are facing. The whole insolvency architecture hinges on the key concept of cessation of payments (ie, inability of the debtor to pay its debts as they fall due with its available assets).

Executive Order n° 2014-326 of 12 March 2014 reforming French insolvency proceedings was published in the Official Journal of the French Republic (Journal officiel de la République Française) on 14 March 2014.

Considered a priority by the Government, the objectives of this reform include, notably, favoring preventative measures and increasing the powers of creditors.¹ Below are the principal provisions which will enter into force on 1 July 2014:

Amicable proceedings: mandat ad hoc, conciliation proceeding

A new form of bankruptcy procedure, Accelerated Financial Safeguard (sauvegarde financière accélérée, “AFS”) was adopted by the French Parliament on October 22, 2010.

In July 2006, after a long and unsuccessful attempt to reach an out-of-court restructuring of the indebtedness of the Eurotunnel group of companies, the managers of the Eurotunnel group requested the opening of main insolvency proceedings for all the companies in France.

The Office of Compliance Inspections and Examinations (OCIE) announced it is examining registrants’ compliance with key whistleblower provisions arising out of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act).

On 25 February 2010, the Paris Court of Appeal handed down two much-anticipated decisions confirming that creditors are able to challenge the opening of safeguard proceedings and clarifying the basis upon which safeguard proceedings can be opened by a debtor.  

Summary

This briefing sets out the key French corporate income tax issues in respect of debt restructurings. In summary, debtors and creditors may be faced with material tax consequences in case of a debt waiver, debt transfer, conversion of debt into equity or debt buy-back, so that such operations may require an appropriate structuring in order to mitigate potential tax issues.

Introduction  

This briefing summarises key French tax points relating to restructuring of indebtedness.  

Although safeguard proceedings have been used successfully as a negotiation tool in a number of high-profile cases (such as the Eurotunnel case), they have represented just 1 per cent of all insolvency proceedings in France since the Business Safeguard Act 2005 introduced the safeguard procedure in January 2006. The main reason for this lack of success is the continuing stigma that is attached to insolvency proceedings in France.