Vol 20 (2023) - Issue 4

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Insight into the Application of the New Scheme of Classes of Affected Parties and the Cross-Class Cram-Down Mechanism in France

Synopsis
By ordinance No. 2021-1193 dated 15 September 2021 (hereinafter the 'Ordinance'), France transposed the European directive on restructuring and insolvency of 20 June 2019 (the 'Directive') into its national law. For the adoption of restructuring plans, a brand-new scheme of classes of affected parties now replacing the previous operational scheme of creditors' committees (I.) and implementing a cross-class cram-down mechanism (II.). New recourse procedures have also been enacted, to manage the procedures arising from the new scheme (III.).
This new scheme is mandatory for proceedings aimed at adopting a restructuring plan in a reduced time frame, if the plan has the broad support of the affected parties, i.e. in proceedings known as 'procédures de sauvegarde accélérée'. With regard to ordinary insolvency proceedings, this scheme is mandatory only for mid-sized and large companies which meet specific criteria such as (i) a minimum annual turnover of EUR 40M, or (ii) a minimum annual turnover of EUR 20M and employing at least 250 persons. Smaller companies are thus, unless authorised by the supervising judge at their request, or upon the demand of the court-appointed administrator in judicial reorganisation proceedings, shielded from the application of a complex and costly system in view of the stakes.
A year and a half after the entry into force of the Ordinance, several interesting decisions arising from the application of the new scheme have been handed down in the restructuring plans presented by BCM Energy (Lyon), Pierre & Vacances (Paris), Arc Holdings (Lille) and Allimand (Grenoble). The first three companies' plans were subject to accelerated safeguard proceedings and, for this reason alone, were required to form classes of affected parties. In the Allimand decision, on the other hand, the company was subject to a regular (i.e. non accelerated) safeguard procedure and had to form classes of affected parties because it met one of the above criteria. Each of these decisions implemented the cross-class cram-down mechanism to adopt the proposed restructuring plans, except for in Pierre & Vacances where broad support from the affected parties for the plan had been secured prior to the vote, which resulted in the approval of the plan at an overwhelming majority.
These decisions offer valuable insights into how different French courts have applied the new scheme.
The outcome is particularly interesting, given that the court-appointed administrators in charge of forming the classes in these proceedings were not the same. In each of the decisions, the court-appointed administrators avoided any legal challenge regarding the distribution of the affected parties within their respective classes.