Collective insolvency proceedings
Set of regimes organized by the texts to deal with a debtor's failure, from safeguard to judicial liquidation.
Definition
Collective proceedings are the set of regimes organised by the legislation to deal with the default of a debtor, whether a natural person or a legal person carrying on an economic activity. They are described as collective because all creditors are dealt with within the same framework and individual enforcement actions are stayed. They are conducted before the competent court, which determines the regime to be opened.
The proceedings are opened either on the debtor's declaration or on a creditor's application. The opening judgment appoints the bodies responsible for conducting them and fixes the date of cessation of payments where it establishes it. Its publication in the BODACC makes it enforceable against third parties, who are informed of the company's actual situation.
For creditors, the opening prohibits any individual enforcement action and requires claims to be declared to the appointed body. It is not to be confused either with enforcement commenced by an isolated creditor, or with the treatment of over-indebtedness of private individuals. It is also distinct from dissolution, a decision of the company and not of the court.
The three regimes for handling business failure
Safeguard proceedings
Safeguard proceedings are available to a debtor who is not yet in cessation of payments but whose difficulties are likely to lead to that state. The business continues to operate during an observation period, during which a safeguard plan may be prepared.
Judicial reorganization
Judicial reorganization is opened when the debtor is in cessation of payments and reorganization appears possible. The business continues to operate during the observation period, after which the court orders a reorganization plan or a sale of the business.
Judicial liquidation
Judicial liquidation is opened when reorganization is manifestly impossible. The business ceases to operate, except for a temporary continuation ordered to allow a sale, and the assets are realized for the benefit of the creditors in accordance with the statutory order of priority.
What the procedure changes for creditors and employees
The stay of proceedings and the declaration of claims
Creditors whose claim predates the judgment opening the proceedings can no longer bring legal action to obtain payment. They declare their claim to the designated officer, who verifies its amount and rank. Claims arising after the opening are in principle paid at their due date.
The plan, the sale and the role of the parties involved
The judicial representative represents the creditors, and the judicial administrator assists or represents the debtor. The examining judge supervises the proceedings and rules on routine applications. The court approves the plan, authorizes the sale or orders the liquidation.
The fate of employees
Employment contracts continue during the observation period, except for employees whose dismissal has been authorized by the court. In the event of a sale, they are transferred to the purchaser. Wages and compensation owed are covered by the wage guarantee insurance, within the limits provided by law.
Frequently asked questions
What is the difference between judicial reorganization and judicial liquidation?
Reorganization assumes that the business can be kept running and that a plan can be adopted, whereas liquidation brings the business to an end and realizes the assets for the benefit of the creditors. Liquidation is ordered when reorganization is manifestly impossible.
What happens to the company during the observation period?
The business continues to operate and the manager remains in place, assisted or represented by a court-appointed administrator when that duty is entrusted to one. The observation period serves to prepare a solution, a continuation plan or a sale.
Can a creditor still take action against a company in collective proceedings?
No, for claims arising before the judgment opening the proceedings, since individual enforcement actions are stayed and the creditor must file a proof of claim. It may, however, apply to the judge-commissioner for a dispute relating to the proceedings.
How does a company in collective proceedings appear in the announcements?
The judgment opening the proceedings is the subject of an announcement stating the company name, registered office, the proceedings opened and the bodies appointed. Other acts, such as the plan, the sale or the closure, are publicized and make it possible to follow the proceedings.