The government has introduced a new simplified procedure to allow small and medium-sized enterprises (SMEs) in difficulty to restructure their debt. This new "special Covid" mechanism aims to prevent the risk of an acceleration of companies entering into insolvency as they emerge from the crisis. It is included in Article 13 of the law on managing the exit from the health crisis, which was enacted on May 31, 2021. While awaiting the publication of the decree that will specify certain thresholds, further details are available within the amendment filed in the Senate. What are the key features of this new mechanism?

 

Which Companies Are Concerned?

This system would be aimed at "companies with fewer than 20 employees" that meet a number of criteria:

  • Be in a state of insolvency
  • Have declared liabilities of less than 3 million euros
  • These entities must have "been operating under satisfactory conditions before the economic crisis"
  • Present accounts that "appear to be regular, sincere, and capable of providing an accurate image of the company’s financial situation"
  • Have "available funds to pay their employee debts"
  • Justify "the ability to develop a plan to ensure the company’s sustainability"

The assessment of these criteria by the competent authorities will be specified by decree.

 

What Would Be the Duration of This "Special Covid" Mechanism?

This new temporary system is expected to be accessible for 2 years.

 

Simplified Judicial Procedure: What Is the Implementation Framework?

This procedure would allow the debt to be spread over up to 10 years and would have the following key characteristics:

  • An observation period limited to 3 months
  • The involvement of a single court-appointed representative, whose fees would be capped: €1,500 excluding taxes for companies with fewer than five employees, and presumably €3,000 excluding taxes for those with five to ten employees
  • An examination of the company’s ability to present a plan right from the beginning of the process
  • A significant reduction in the verification of liabilities: creditors are not required to declare their debts (only the debts listed by the distressed company’s manager will be treated by the plan)
  • This procedure should protect the guarantors.

 

What Are the Practical Modalities?

Detailed Operating Framework

  • Inventory: As with judicial recovery procedures, the court can appoint a bailiff to conduct an inventory of the debtor's assets and any encumbrances. However, the director may also request to be exempted from conducting this inventory.
  • Liabilities: The director compiles a list of the debts owed to each identified creditor in their accounting documents or with whom they have a commitment they can justify. This list includes standard details (amount, due/not due, privilege, and guarantee) from the commercial code. It will undergo a review as per the procedures set by a decree from the Council of State.

The list is filed with the court clerk by the debtor. The appointed representative sends each creditor on the list an excerpt from this list regarding their debt. Within deadlines set by the Council of State, creditors can inform the representative of any updates to the listed debts or disputes regarding the amount and existence of those debts.
The plan can only address the debts listed as mentioned above.

 

What Are the Repayment Modalities (Awaiting the Decree)?

  • A maximum of 10 annual payments
  • The third payment must be a minimum of 8% of the liabilities listed by the debtor

Given the reluctance of business owners to trigger a safeguard procedure, this new system presents many advantages (speed of execution, simplification of financial elements to be provided, etc.). The publication of a decree will clarify some elements of the procedure.

RSM can assist you in implementing this new simplified judicial procedure.

Author

Christophe Callet
Christophe Callet
Partner - Corporate Finance

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