By requesting to be placed under controlled management (mise sous gestion contrôlée), a trader who is temporarily in difficulty can avoid bankruptcy or an immediate cessation of business and also avoid the drawbacks of a suspension of payments or a scheme of composition with creditors.
The trader places the management of his assets under the control of one or more administrators (commissaires) in order to restructure his business or sell his assets under the best possible conditions.
However, this procedure is little used in practice.
Controlled management may be granted to:
- all traders;
- operators of industrial establishments who are not legally defined as traders.
To request to be placed under controlled management, the applicant must:
- be a trader, i.e. any natural or legal person who carries out commercial acts as his profession. This is recognised de facto for any commercial company;
- have lost creditworthiness or be in a situation that compromises the proper fulfilment of his commitments. Loss of creditworthiness may result from an inability to obtain fresh funds in order to pay debts or from the refusal of creditors to grant extensions to payment periods;
- be able to demonstrate that it is possible to recover or protect the business;
- not have been declared bankrupt (court bankruptcy order).
The trader must also be acting in good faith, not only at the time of the request but also throughout the controlled management proceedings.
According to case law, a business may not be placed under controlled management:
- if its recovery is based on bad debts;
- or if carrying out orders requires liquidity that it does not have and that it can only obtain from a bank with collateral that it cannot provide.
Submission of the request
The trader must submit a request to be placed under controlled management to the commercial court of the district in which it has its main establishment or registered office, if it is a company.
The request must be justified and well founded. It must indicate:
- the reasons for the request;
- the concrete and realistic measures proposed to enable the company to be restructured or improve its business and to contribute to the proper liquidation of its assets.
This request must be accompanied by supporting documents (including a list of creditors) to allow the court to rule on the admissibility of the request and to ensure that the prerequisites to benefit from the scheme are satisfied.
In the case of a company, the request must be presented to the court by a majority of the directors, managers or auditors.
Following consultation with the applicant, the court examines the request in closed session (in camera).
The court will reject a request if it does not believe that being placed under controlled management would result in the gradual recovery and normal operation of the applicant’s business, or ensure better conditions for the liquidation of assets in order to pay creditors.
Appointment of a judge to establish a report
If the court decides that the request is admissible, it appoints a judge to establish a report on the situation of the business of the applicant. The appointed judge, known as the juge délégué (deputy of the presiding judge), can be assisted by an expert.
Between the time this judge is appointed and the final decision of the court on whether or not to grant the request to be placed under controlled management, the applicant:
- benefits from a suspension of enforcement measures on the part of creditors (mortgages, privileges or pledges): any creditor can start legal proceedings, have the request investigated and obtain a judgement, but cannot have the resulting decision enforced;
- is forbidden to constitute pledges or mortgages, enter into commitments or receive movable assets without the prior written consent of the juge délégué, on pain of nullity.
Once the report has been established, the juge délégué submits it to the court.
Judgement concerning controlled management
Having consulted the report of juge délégué and consulted with the applicant, the court decides whether or not to reject the request.
At this stage the court may also rule on the status of cessation of payments for the applicant and determine, either in this judgement or in a later judgement, the exact period of the cessation of payments. However, according to case law, the applicant cannot be declared bankrupt until the final decision concerning the request to be placed under controlled management has been handed down.
If it decides to place the trader under controlled management, the court appoints one or more administrators, depending on the complexity and scale of the business and the assets to be managed. The administrators will lodge the decision with the Trade and Companies Register for publication in the electronic compendium of companies and associations.
The task of the administrators
The administrators are remunerated by the applicant. They must protect the interests of the applicant and all of the creditors.
Unlike a bankruptcy, the applicant is not automatically stripped of the right to administer all of his assets. His acts nevertheless remain under the control of the administrators.
The applicant therefore cannot, on pain of nullity, carry out the following acts without the prior consent of the administrators:
- dispose of, pledge or mortgage movable or immovable assets;
- plead, compromise, borrow or receive any sum;
- make any payment or carry out any act of administration.
The administrators have unlimited rights of supervision and control over all the operations of the trader. In particular they must:
- draw up an inventory of the assets under controlled management;
- draw up a statement of the assets and liabilities of the trader and establish the balance sheets required by law or by the articles of association in the case of a company;
- prescribe measures that appear to be required in the interests of either the trader or the creditors, while keeping in mind their collective interests;
- cancel all fraudulent acts or payments of creditors;
- attend the meetings of the board of directors or management board, for which they must receive notices to attend (joint-stock company (société par actions) or cooperative company (société coopérative));
- call a meeting of the boards;
- draw up a recovery or liquidation plan (restructuring plan or plan for the realisation and distribution of the assets).
An administrator can be replaced, after having been heard, by decision of the court at the request of the trader or automatically.
Plan for restructuring or liquidating and distributing assets
The applicant's business restructuring plan or asset liquidation and distribution plan must be drawn up within the timeframe determined by the court and must take all the interests at stake into account in a fair manner.
The administrators must therefore respect the ranking of privileges and mortgages and ensure that the contractual clauses concerning expiration, resolution and penalties are invalid in relation to the plan. This implies that all creditors must be in the same situation.
Approval of creditors
The plan must be communicated to the general body of creditors and to the known joint and several co-debtors and guarantors.
In the case of a company, the project will be lodged with the Trade and Companies Register (Registre de commerces et des sociétés - RCS) and published in the electronic compendium of companies and associations (Recueil électronique des sociétés et associations - RESA).
The creditors have 15 days to inform the court of their approval of or opposition to the plan, as of the planned publication or communication date. The plan can only be adopted by the court if more than half of the creditors representing more than half of the liabilities (in terms of receivable debts uncontested by the administrators) approve the plan.
Any abstention will be deemed to be an approval.
Approval by the court
The court must still approve the plan, even if the conditions for approval by the creditors have already been met. To this end, the court must ensure that the plan respects the ranking of privileges and mortgages and that it takes into account in an equitable manner, insofar as possible, all of the interests at stake (creditors and the collective interest).
If the court does not approve the plan, it definitively rejects the request or allows the administrators a brief period to draw up a new plan.
If the court approves the plan, an extract of the judgement made in a public hearing is lodged with the Trade and Companies Register for the purpose of publication in the electronic compendium of companies and associations and in a newspaper designated by the court, under the responsibility of the administrators.
The judgement approving the administrators' plan is binding on the trader and his creditors, as well as on the joint and several co-debtors and guarantors. The judgement handed down (unless it rejects the request) is provisionally enforceable. The trader and his creditors may lodge an appeal within eight days of the date of the judgement. The decision concerning the appeal may not be appealed.
Once the plan has been definitively adopted, the trader once again enjoys his rights, except for the stipulated restrictions, to successfully carry out the plan.
If the court rejects the plan, the business is declared bankrupt.