The French government has recently published a new regulation (ordonnance n°2014-326 dated March 12, 2014) amending France’s bankruptcy law. Its aim is to facilitate further restructurings of French companies, in particular with respect to pre-insolvency consensual restructurings, and to give creditors a greater say in the restructuring process.

PRE-INSOLVENCY CONSENSUAL RESTRUCTURINGS

Order No. 2014-326 of March 12 (the "Order"), adopted pursuant to enabling legislation No. 2014-1 of January 2, significantly modernizes French distressed companies law.  

The primary objective of the Order is to encourage recourse to mediation proceedings and conciliation proceedings, the efficiency and success of which have been demonstrated consistently in recent major financial restructurings. 

Introduction

PROCEDURE INTERNATIONALE D’INSOLVABILITE

SEUL LE TRIBUNAL QUI OUVRE LA PROCEDURE PRINCIPALE A L’ENCONTRE D’UNE PERSONNE MORALE EST COMPETENT POUR PRONONCER UNE INTERDICTION DE GERER CONTRE LE DIRIGEANT DE CELLE-CI (CASS.COM. 22 JANVIER 2013 N°11-17.968 (N°55 F-PB), MAJOT C/ STE BECHERET- THIERRY-SENECHAL- GORRIAS ES. QUAL.)

Under French law, the divestiture of an unprofitable business can create specific legal risks resulting from the status of the sold business. International companies should anticipate a number of issues when selling a French loss-making subsidiary, including, but not limited to, issues surrounding the sale price, the risk of post-closing liabilities under bankruptcy proceedings and the risk of post-closing liabilities relating to employee claims.

Sale Price

LE PRINCIPE DE PRIMAUTE DU DROIT COMMUNAUTAIRE NE SAURAIT FAIRE ECHEC AUX REGLES TRES RESTRICTIVES DE DROIT INTERNE DES PROCEDURES COLLECTIVES (CASS. COM., 23 AVRIL 2013, F-P+B, N°12-19.184)

Introduction

Inspired by the American “prepackaged restructuring plan,” the French authorities have yet again decided to reform French insolvency law, with the creation of an “accelerated financial safeguard procedure” (procédure de Sauvegarde Financière Accélérée). This procedure is available to debtors who start conciliation proceedings after 1 March 2011.

Amendments to the rules of deductibility of interest expenses

Further restrictions to deductibility of interest expenses incurred in relation to a share purchase¹

Since the adoption of the 2011 Finance Act, the scope of application for thin capitalization rules, provided for in article 212 of the French Tax Code, was extended to all loans, including bank loans, backed by security interest or a guarantee, granted by a company belonging to the borrower's group or by a company with a guaranteed undertaking secured by a company related to the borrower.

On January 19, 2012, the Versailles' Court of Appeals confirmed that CMBS borrower, Heart of la Défense SAS (Hold), and its Luxembourg parent company, Dame Luxembourg Sarl (Dame), were entitled to Court protection in France under Safeguard Proceedings (sauvegarde).  Safeguard is a French pre-bankruptcy process that resembles the U.S.