Vol 2 (2005) - Issue 2

Article preview

French Insolvency Law: The 2004 Project and Reform Perspectives

Introduction

The quest for the perfect insolvency law in many jurisdictions is a history of incremental progress and reversals of fortune. In France, as elsewhere, the search for the ideal procedure to palliate the economic effects of insolvency has seen a number of different methods used to deal with the phenomenon. The increasing numbers of insolvencies and the apparent inability of legal regimes to stem the tide, as much a product of macro-economic influences as the occasional micro-economic reasons deriving from the conduct of directors, have prompted periodic calls for reforms, perhaps in the belief that change would bring more certainty. In France, these calls have succeeded in introducing substantial changes to domestic insolvency law in 1967, 1984-1985 and again in 1994. Now, similar appeals to the need to deal with what has become an unstoppable phenomenon have prompted the production of a new draft law that is likely to undergo enactment in 2005. This draft has not been immune to changes during the currency of its existence, undergoing a reorientation between 2003 and 2004. The result is the creation of a highly complex set of procedures, which has left commentators in no doubt that the reforms are projected on a scale previously unforeseen and may represent a profound shift in the philosophy of French insolvency law. It is the purpose of this article to chart the proposed reforms and outline some views on where the reforms will leave the quest for the model insolvency regime.

French insolvency law: an historical précis

Insolvency law in France has a long and ancient history. Modern insolvency law in France dates, however, from the introduction of legislation in 1967 providing for rescue and liquidation as alternative outcomes dependent on an initial examination of the financial situation of the afflicted debtor. The Law of 1967 represented a comparative novelty in that it shifted the emphasis from the bankruptcy of individuals and, through their status as company directors, their companies to the treatment of the problems of the enterprise as a whole. Despite these changes, reform proposals were current during the 1970s and early 1980s, chiefly prompted by the worsening economic climate and the inexorable rise in the number of business failures. Developments in other jurisdictions influenced the outcome of the reform proposals that eventually secured passage into legislation in 1984-1985. Although France was one of the earliest countries to boast of a rescue regime, the refinements and developments in many other jurisdictions of institutions that promoted the ideal of ‘corporate rescue’ had some influence in the shape of the new rules that would be enshrined in these laws. The result was to focus attention on legal structures whose purpose was to promote corporate rescue as an alternative to liquidation and improve the early prevention and treatment of businesses facing financial difficulties by using pre-insolvency diagnostic tools as well as informal arrangements allowing for compacts between the debtor and creditors, thus involving creditors in the rescue process.