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Lexology GTDT: Market Intelligence

1 In the past year, have you seen any developments or trends in the nature and volume of insolvency filings? (For example, are certain industry segments experiencing a rise in distressed situations?)

The COVID-19 outbreak in France has caused significant disruptions and slowdowns of business activity. In this uncertain economic environment, many companies with high levels of debt are in trouble and experiencing unprecedented difficulties.

The French Consular Observatory of Distressed Companies has issued a report on the business situation in France and the Île-de-France area, as at 1 October 2020, showing a "historically low" number of business failures but underlining the ongoing difficulties.

As a result, companies across different sectors may face a range of adverse financial consequences, the most obvious being liquidity needs. To address the situation, during 2020, the government implemented immediate measures aimed at assisting French companies throughout the current crisis. While for some companies the use of the state-guaranteed loan regime has been a vital solution to remedy short-term liquidity needs, for others it is most likely only a temporary cure. Many companies will be required to call upon additional financial support to repay their debt and, above all, to cover their liquidity needs.

2 Describe the one or two most notable insolvency filings in your jurisdiction in the past year.

From our point view, the most notable fillings during the COVID-19 outbreak were the following.

Solocal Group, the leading European provider of digital solutions for SME companies, has considered a financial restructuring. Under the restructuring, asset management firm GoldenTree has become a reference shareholder of Solocal, holding a minimum of 15.5% of the capital at the end of the transaction. The restructuring follows Solocal suspending the payment of the bond coupon due on 15 March 2020, in anticipation of the impact of COVID-19, leading to the opening of negotiations with its bond creditors. The bond creditors have provided support of €330 million, securing €85 million of liquidity in the group and €32 million of additional financing.

Comexposium, one of the world's leading event organisers, is facing difficulties because of the COVID-19 outbreak. Several of the group's companies initiated safeguard proceedings in September 2020, and these are currently under discussion.

The restructuring of Arc Holdings' financial debt has been implemented in a challenging environment. The deal has led to significant renegotiations with Bpifrance and RDIF and was highly complex given the restructuring scheme and the number of investors.

Antalis, a company listed on the Euronext stock exchange, is the leading professional paper distributor and provider of packaging and visual communications solutions in Europe and the world (outside the United States) and the only operator in its sector with an international presence in 41 countries. The company's financial restructuring throughout the disposal by Sequana and Bpifrance Participations of their majority stakes in the Antalis Group to Kokusai Pulp & Paper was a successful deal for Antalis's senior secured lenders and major stakeholders.

Before the COVID-19 outbreak, the following were the most notable filings.

Rallye, the parent company of retailers Casino and Go Sport, filed for bankruptcy protection in May 2019. This filing was one of the most significant cases of the decade in terms of level of debts, reaching more than €3 billion as at the opening of the safeguard proceedings.

CGG, a major listed oil services company, filed for bankruptcy protection in June 2017 in the United States and France after reaching a restructuring deal with lenders and bondholders that aimed to eliminate around US$2 billion in debt from the company's books. This was one of the largest financial restructuring workouts in France since Eurotunnel.

The deal was highly complex given the number of stakeholders and the diversity of debt and hybrid instruments (debt and equity-linked) issued by CGG. The complexity was further increased by the social and political background of the restructuring, noticeably with regard to the number of employee jobs at stake in France and overseas.

Despite the many challenges, the restructuring of this major industrial actor was successfully completed with the support of CGG's biggest financial shareholder, DNCA, which pushed strongly for the adoption of CGG's recovery and turnover plan. In addition, DNCA backstopped the terms of the financial restructuring and backed CGG in defending the safeguard plan challenged by the minority creditors in court.

3 Have there been any recent legislative reforms? Is there a perceived need for reform?

A directive was adopted by the European Union in June 2019 and a reform has been adopted in France.

European Directive No. 2016/0359 was adopted on 6 June 2019 by the European Council. It provides a common framework for the bankruptcy law of all member states. Among other things, it encourages the introduction of out-of-court proceedings, the cross-class cramdown and new-money privilege.

The French PACTE law provides for the capacity of transposition of European Directive No. 2019/1023 adopted on 20 June 2019 by the European Council, especially the introduction of cross-class cramdown, recognition of subordination agreements and diminution of duration of proceedings. It also provides for the governmental capacity to amend security law by way of an order.

French Ordinance No. 2020-341 dated 27 March 2020 adapts the rules applicable to companies facing difficulties during the COVID-19 outbreak (in particular, provision of flexibility and amendment of usual deadlines).

The purpose of French Ordinance No. 2020-596 dated 20 May 2020 is (1) to consolidate the provisions of Ordinance No. 2020-341 dated 27 March 2020, and (2) to adapt the provisions of Book VI of the Commercial Code to make these more effective.

French Ordinance No. 2020-1443 dated 25 November 2020 amends previously adopted emergency rules to reflect the evolution of the health and economic crisis.

Over the past 15 years, French insolvency law has been reformed greatly and faster than it was during the past century. Fundamental changes have taken place in the context of a global financial crisis, giving rise to a new and more appropriate set of legal tools. The nature and extent of the reforms have necessitated careful consideration from both financial actors and practitioners. Some entirely new procedures have been introduced into law, effectively preventing difficulties from arising. The reforms have also enabled the reorganisation of difficult cases, impacting cases and major actors beyond the sole area of insolvency law (including public and listed groups).

That said, France is still perceived as a debtor-friendly jurisdiction in this matter. This is a real incentive for creditors, especially financial institutions, to opt for other jurisdictions or to create alternative credit protection through sophisticated (and often expensive) collateral structures (such as the Double LuxCo). The next round of reform must take this factor into account; for example, by the law and the courts effectively and clearly recognising the arrangements between lenders and their creditors, but also those between higher- and lower-ranking creditors.

In France, there is no special social law related to bankruptcy situations. The creation of such a law is, however, the subject of more and more discussion among practitioners.

4 In the international insolvency field, have there been any legislative or case law developments in terms of coordination of cross-border cases? What jurisdictions are you most likely to have contact with?

The new EU Insolvency Regulation (the Regulation), which replaced the previous EU Regulation on Insolvency Proceedings, from 2000, entered into force on 26 June 2017. The updated Regulation aims, in particular, to make cross-border insolvency proceedings more efficient and to establish a common framework for the benefit of all stakeholders.

The main features of the Regulation are: the extension of its application to pre-insolvency proceedings that promote the rescue of economically viable but struggling companies and give entrepreneurs a second chance; the creation of a pan-European online insolvency registers; the possibility of avoiding the opening of multiple proceedings and preventing forum shopping; the updating of the rules on secondary insolvency proceedings to, inter alia, extend to "pre-insolvency" or "hybrid" proceedings; amendment of the rules on information regarding creditors and the lodging of claims; and the introduction of new procedures to facilitate cross-border coordination and cooperation between multiple insolvency proceedings in different member states relating to members of the same corporate group.

On 2 November 2017, an ordinance was published in France to specify the terms of the Regulation and provide for its implementation.

Regarding other jurisdictions that we have the most contact with, before Brexit, a flourishing restructuring business was developing in the United Kingdom as the English courts approved pleas of arrangement for companies incorporated outside England. We were therefore most likely to have contact with UK jurisdictions.

However, even though the impact of Brexit on the availability of the UK scheme of arrangement system as a restructuring tool for foreign companies remains uncertain, EU companies are nowadays probably more reluctant to petition UK courts. As such, we might be less likely to have contact with UK courts and in turn increase our contacts with other European jurisdictions.

5 In your country, is there a particular court or jurisdiction that sees a higher concentration of insolvency filings? What is the attraction of that forum?

In France, the courts that see the highest concentration of insolvency filings are the specialised insolvency courts created by Law No. 2015-990 of 6 August 2015 (for example, Bobigny, Bordeaux, Dijon, Évry, Grenoble, Lyon, Marseille, Montpellier, Nanterre, Nantes, Nice, Orléans, Paris, Poitiers, Rennes, Rouen, Toulouse and Tourcoing).

The specialised insolvency courts have jurisdiction over companies that reach certain thresholds in terms of number of employees or turnover, and which are subject to safeguard, reorganisation or liquidation proceedings. With respect to conciliation proceedings, specialised insolvency courts have jurisdiction provided that it has been requested by the public prosecutor or where the president of the court has given his or her consent.

Specialised insolvency courts also have jurisdiction with respect to insolvency proceedings falling within the scope of European Insolvency Regulation 2015/848 when the debtor's centre of main interests is located in France or where the debtor is located outside the territorial scope of the European Insolvency Regulation but has an establishment in France.

Among those courts, Paris and Nanterre naturally remain the most active for bigger deals and cases, given the number of global actors legally incorporated in both areas.

Forum shopping is very limited in France as the territorial jurisdiction depends on the localisation of the registered office. In the case of a change of address of the registered office within six months before the opening of a proceeding, the relevant jurisdiction is the one related to the former registered office.

6 Is it fair to describe your jurisdiction as either "debtor-friendly" or "creditor-friendly" in terms of how insolvency filings proceed?

The founding law of the French bankruptcy regime of 1985 was quite debtor-friendly and the French restructuring system was for a very long time therefore perceived as a debtor-friendly system. However, a certain shift began in 2005 with, in particular, the introduction of committees and the strengthening of controllers' power.

The shift was further emphasised with Decree No. 2014-326 dated 12 March 2014, which, for example, granted creditors the right to propose a restructuring plan (when committees are constituted). More recently, the law dated 6 August 2015 introduced a shareholder squeeze-out system under which shareholders may be forced to sell their shares if they do not consent to share capital increases required to redress the distressed business.

This shift in the French legislation has been followed by the French courts, which have favoured a number of lender-led restructurings carried out by lenders, allowing lenders or a group of lenders to take control of the debtor, outside the reach of its existing shareholders (mainly financial sponsors). Furthermore, a number of hedge funds have strengthened their focus on the French market, providing liquidity to French banks willing to sell their claims on the secondary market.

However, the recent introduction of the cross-class cramdown mechanism may reinforce the debtor-friendly image of France.

7 What opportunities exist for businesses wanting to purchase assets out of an insolvency, and how efficient is the process? What are the best ways to take advantage of opportunities in this area?

Businesses wanting to purchase assets out of an insolvency can do so either under a classic sale plan or under a pre-pack sale.

A classic sale plan involves the transfer of assets, contracts and employment contracts of the debtor to a third-party purchaser without the consent of the transferred party. As the sale plan is constructed as an asset deal, debt and claims are therefore not transferred to the purchaser of the distressed business (except for security interests granted in favour of creditors who financed the acquisition of the secured assets).

Another advantage for companies wanting to purchase assets out of an insolvency is the sale price, which is typically very low, as the main criteria retained by French courts are the number of jobs preserved and the purchaser's ability to continue operating the business.

However, the sale plan process is interpreted as an open bidding process where there is no exclusivity to the benefit of one bidder and the courts often base their decision (and election of the final bidder and transferee) mostly on employment-driven criteria.

The pre-pack sale plan concept was introduced to France in the decree dated 12 March 2014. Pre-pack sales consist of companies appointing an ad hoc representative or a conciliator in charge of supervising a plan for the partial or total sale of the company's assets, which will then be adopted under in-court insolvency proceedings after obtaining the public prosecutor's consent and the formal (but not binding) opinion of the participating creditors. Pre-pack sales offer the option to avoid compulsory public advertising for submission of offers and can therefore provide the buyer chosen under the amicable proceeding with a certain form of exclusivity. Pre-pack sales are also faster than asset plans implemented under reorganisation proceedings.

 

The Inside Track

What two things should a client consider when choosing counsel for a complex insolvency filing in this jurisdiction?

In the event of a complex deal restructuring transaction, counsel needs to be creative with all the possibilities offered by French insolvency law. Therefore, the client must ensure that counsel not only knows all the tools offered by the law and has extensive experience of domestic and cross-border insolvency matters, but also understands the business including numbers and economics that are key to a successful sophisticated restructuring.

Furthermore, lawyers in this matter need to know the courts and need to be familiar with all the other parties involved in the restructuring (judicial administrators, creditors' representatives and liquidators, financial experts, etc).

What are the most important factors for a client to consider and address to successfully implement a complex insolvency filing in your jurisdiction?

The most important factors to be considered and taken into account when conducting a successful and complex insolvency filing in France are the choice of the appropriate legal counsel (and also financial advisers) and the appropriate strategy and global timeline (including the choice of the proceedings, jurisdiction, etc) sufficiently in advance and at the very early stages of financial distress or other difficulties.

What was the most noteworthy filing that you have worked on recently?

The most noteworthy filing we have worked on recently is CGG. As explained earlier, the company is listed and the number of stakeholders and the diversity of debt and hybrid (debt and equity-linked) instruments issued by CGG were significant. Also, the plan was strongly (but unsuccessfully) challenged by certain creditors.

 

Reproduced with permission from Law Business Research Ltd. This article was first published in Lexology GTDT Market Intelligence - R&I 2021. To view the publication, please visit R&I: Market Intelligence - Getting The Deal Through  - Lexology.

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