Vol 10 (2013) - Issue 4

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French Accelerated Financial Safeguard Procedure (AFS): The Nanterre Court Gives Green Light to the First Safeguard Plan Presented under the AFS Regime

Since its creation in October 2010, academics and legal practitioners had been waiting for the first application of the AFS and, to some extent some of them had probably started considering that the AFS would end up as a theoretical topic for university students, rather than an efficient restructuring tool. But recently, this wait came to an end. The first filing to open an AFS procedure came through in February 2013 and the financial restructuring plan was approved by the financial creditors and upheld by a decision from the Nanterre commercial Court within one month from the filing.
This decision was rendered by the second largest commercial court in France, thereby giving it a good start in terms of recognition and quality of drafting. It was also made within a very short period from the filing, showing that the AFS procedure can be used efficiently and expeditiously when certain conditions are fulfilled. Finally, the procedure was successfully applied to restructure the financial debt of the troubled holding company of one of the leaders in the French packing and logistics business, named Hejenion S.A., thus showing that some of the recent changes in the AFS regime have at last allowed it to go off the starting block.

I. Essential background on the AFS regime
The Accelerated Financial Safeguard Procedure (Procédure de Sauvegarde Financière Accélerée) ('AFS'), was introduced in France in late 2010, but by drafting oversight missed its original target, i.e LBO holding companies. At that times, the AFS was only applicable to operational companies employing 150 employees or generating an annual turnover of EUR 20 million or more.
The AFS is subject to the general regime of the safeguard procedure (implemented in January 2006), supplemented by the specific provisions applicable to the AFS, being Articles L. 628-1 et seq. of the French Commercial Code.
Almost two years after the creation of the AFS, a Decree extended the AFS to holding companies, subject to certain thresholds being met. Only financial creditors (mainly banking establishments and bondholders) are affected by, and involved in an AFS procedure. Trade creditors remain unharmed and their claims need not being filed and ought to be paid when due.
To be eligible to this procedure, the debtor experiencing financial difficulties must have already requested the opening of a confidential conciliation procedure and prove that it is not in cessation of payments, and that the plan to be presented to the financial creditors will solve the difficulties that it is facing. The debtor must also convince the Court that a qualifying majority of the financial creditors will vote in favour of the plan, as under Article L. 628-1 of the French Commercial Code.
A number of documents need to accompany the filing, and more importantly, the debtor must fulfil different thresholds to be eligible for the AFS filing and procedure:
– the debtor’s accounts must be certified by a statutory auditor or prepared by an accountant; and
– the debtor’s annual turnover must equal or exceed EUR 20 million; or
– the debtor must employ 150 or more employees on the date of filing for the ASF.

Alternatively, and this is the change brought about the Decree made in September 2012, a troubled debtor may also ask the commencement of an AFS procedure, if its balance sheet total is more than EUR 25 million, or EUR 10 million if the debtor controls another company for which the number of employees and the turnover are respectively more than 150 employees and EUR 20 million. The purpose of this alternative threshold was to allow holding companies, financed by LBO, to benefit from an AFS procedure.

The AFS procedure cannot last more than two months. If a restructuring plan is not approved by the creditors and upheld by the court within that time period, the court must bring the procedure to an end.