A scheme of arrangement in France is not a single statutory instrument but a family of court-supervised and out-of-court procedures that allow a distressed company to restructure its debts, renegotiate obligations and avoid liquidation. French insolvency law, codified primarily in the Code de commerce, provides a layered toolkit - from confidential preventive mechanisms to full judicial reorganisation - that broadly achieves what common-law jurisdictions call a scheme of arrangement. For international creditors and foreign-owned businesses operating in France, understanding which procedure applies, when it triggers and what it costs is essential before a financial crisis deepens. This guide covers the main restructuring procedures, their legal basis, the roles of courts and administrators, timelines, costs, creditor rights and the practical steps a debtor or creditor should take.
France does not use the phrase "scheme of arrangement" in its legislation. The concept maps onto several distinct procedures under Book VI of the Code de commerce, each designed for a different stage of financial distress. The closest equivalents are the sauvegarde (safeguard procedure), the redressement judiciaire (judicial reorganisation) and, for pre-insolvency situations, the mandat ad hoc and the conciliation. Each procedure involves a court or an appointed officer, a structured negotiation period and, in most cases, a plan that binds creditors once approved.
The sauvegarde is the procedure most analogous to a voluntary scheme of arrangement. It is available to a company that is not yet in cessation des paiements - that is, not yet unable to meet current liabilities with available assets - but faces difficulties it cannot overcome alone. The redressement judiciaire applies once cessation des paiements has occurred. Both procedures can produce a plan de sauvegarde or plan de redressement that reschedules or partially writes down debt, restructures equity and sets a repayment timetable of up to ten years.
The mandat ad hoc and conciliation are confidential, pre-insolvency mechanisms that allow a debtor to negotiate with key creditors under the supervision of a court-appointed practitioner, without triggering formal insolvency proceedings. A conciliation agreement, once homologated by the court, benefits from a privilege de conciliation - a super-priority status for new money provided during the process - which is a powerful incentive for creditors to participate.
The primary source of French restructuring law is the Code de commerce, specifically Articles L.611-1 through L.696-1. These provisions have been substantially amended over the past decade to implement EU Directive 2019/1023 on preventive restructuring frameworks, which France transposed through Ordonnance n°2021-1193. The transposition introduced cross-class cram-down mechanisms and strengthened the position of dissenting creditor classes, bringing French law closer to the flexibility that common-law schemes of arrangement offer.
The Tribunal de commerce (commercial court) is the primary competent authority for most restructuring procedures involving commercial companies. Larger or more complex cases may be handled by the Tribunal judiciaire. The Cour d';appel hears appeals against court decisions approving or rejecting plans. Within proceedings, the juge-commissaire supervises day-to-day administration, while the mandataire judiciaire represents creditor interests and the administrateur judiciaire manages or assists the debtor';s business.
A non-obvious requirement for foreign-owned companies is that French courts assert jurisdiction based on the location of the debtor';s centre of main interests (COMI). Under EU Regulation 2015/848 on insolvency proceedings, a company whose COMI is in France will be subject to French proceedings, and those proceedings will be recognised automatically across EU member states. Foreign creditors should therefore verify where the COMI of their French counterparty sits before assuming that proceedings in another jurisdiction will govern.
The loi Sapin II and subsequent reforms also introduced the comité des créanciers (creditors'; committee) system, now replaced by classes de parties affectées (classes of affected parties) under the 2021 reform. This class-voting mechanism is central to how a restructuring plan achieves binding effect on dissenting creditors.
The mandat ad hoc is the most flexible and confidential procedure available. A debtor applies to the president of the Tribunal de commerce, who appoints a mandataire ad hoc to facilitate negotiations with creditors. There is no statutory timeline, no automatic stay on creditor actions and no obligation to reach agreement. The procedure is entirely off the public record unless the debtor chooses to disclose it.
Conciliation is slightly more formal. It is available to companies that have been in cessation des paiements for no more than 45 days. The procedure lasts an initial four months, extendable to five months by the court. A conciliateur is appointed to mediate between the debtor and its main creditors. If an agreement is reached, it can be either constatée (acknowledged by the court, keeping it confidential) or homologuée (homologated, making it public but granting the super-priority privilege for new money). Homologation also suspends individual creditor actions during the procedure.
In practice, founders and financial directors should consider conciliation as the first line of defence when cash flow difficulties become apparent. A common mistake is waiting until cessation des paiements has persisted for more than 45 days, which closes the door to conciliation and forces the debtor into formal insolvency proceedings.
The sauvegarde is opened on the debtor';s own petition, provided the company is not yet in cessation des paiements. The court appoints an administrateur judiciaire and a mandataire judiciaire. An observation period of up to six months - extendable twice, for a maximum of eighteen months - allows the debtor to assess its situation and prepare a restructuring plan.
During the observation period, an automatic stay (suspension des poursuites) prevents creditors from enforcing claims that arose before the opening judgment. New creditors who supply goods or services during the observation period benefit from a priority payment right, which encourages continued trading.
The restructuring plan (plan de sauvegarde) must be voted on by classes of affected parties. Under the 2021 reform, creditors are divided into at least two classes: secured creditors and unsecured creditors. Equity holders form a separate class if their interests are affected. A class approves the plan if two-thirds of the voting rights in that class vote in favour. If one or more classes dissent, the court may impose the plan through cross-class cram-down, provided the plan does not leave dissenting creditors worse off than they would be in liquidation (the "best interest of creditors" test) and at least one class of creditors that would receive payment in liquidation has approved it.
The plan can reschedule debt over up to ten years, reduce interest rates, convert debt to equity and impose partial write-downs. Once approved by the court, the plan binds all affected creditors, including those who voted against it.
The redressement judiciaire applies once a company is in cessation des paiements. The debtor must file a declaration at the Tribunal de commerce within 45 days of cessation des paiements. Failure to file within this period exposes directors to personal liability for the company';s debts (action en responsabilité pour insuffisance d';actif).
The procedure follows a similar structure to the sauvegarde, with an observation period, class voting and a plan de redressement. However, the court has broader powers: it can impose a sale of the business (cession) to a third party if no viable reorganisation plan emerges. The administrateur judiciaire plays a more active role in managing the business during the observation period.
A practical scenario: a French subsidiary of a foreign group enters cessation des paiements after its parent withdraws intercompany funding. The subsidiary';s directors must file within 45 days. If they delay, the parent group may face claims that directors acted in bad faith, potentially exposing group assets to liability. Engaging a restructuring adviser immediately after cessation des paiements is identified is essential.
For creditors, the redressement judiciaire requires timely declaration of claims (déclaration de créances) within two months of the opening judgment being published in the BODACC (Bulletin officiel des annonces civiles et commerciales). Foreign creditors have three months. Missing this deadline results in the claim being extinguished, which is one of the most common and costly mistakes made by international creditors unfamiliar with French procedure.
If you are a creditor or debtor navigating a French restructuring, contact info@vlolawfirm.com. We can help structure the setup correctly the first time.
If neither a sauvegarde nor a redressement judiciaire plan is feasible, the court orders liquidation judiciaire. A liquidateur judiciaire is appointed to realise assets and distribute proceeds to creditors in the statutory order of priority: super-priority new money from conciliation, then secured creditors with specific security, then preferred creditors (including certain employee claims under the AGS guarantee scheme), then unsecured creditors. Equity holders receive nothing unless a surplus remains after all creditor claims are satisfied, which is rare in practice.
A simplified liquidation procedure (liquidation judiciaire simplifiée) is available for small companies with no real property and limited assets. It is faster - typically completed within six to nine months - and involves lower administrative costs.
Under the current framework, the administrateur judiciaire or, in the absence of an administrator, the debtor, proposes the division of affected parties into classes. The rules for class formation must reflect a sufficient commonality of interest among members of each class, taking into account the nature of their claims and their ranking in a hypothetical liquidation.
Secured creditors whose security covers the full value of their claim are typically placed in a separate class from partially secured or unsecured creditors. Equity holders form their own class. The court reviews the proposed class structure and can modify it if it does not reflect the economic reality of creditor interests.
Voting takes place during the observation period. Each class votes separately. A class approves the plan by a two-thirds majority of voting rights held by members who participate in the vote. Abstentions and non-votes do not count against approval. This means a creditor holding a significant minority position within a class cannot block the plan unless it can persuade other creditors to vote against.
The cross-class cram-down introduced by the 2021 reform is the mechanism most comparable to the binding effect of a common-law scheme of arrangement. If one or more classes reject the plan, the court can still confirm it provided:
The absolute priority rule has a specific French nuance: the court retains discretion to depart from strict priority if the deviation is necessary to achieve the restructuring objectives and does not unfairly prejudice creditors. This gives French courts more flexibility than some common-law jurisdictions but also introduces uncertainty for creditors modelling recovery scenarios.
Consider a German bank holding a pledge over the shares of a French operating company. The company enters sauvegarde. The bank is placed in the secured creditor class. The plan proposes a five-year rescheduling of the loan at a reduced interest rate. The bank votes against the plan. If the unsecured creditor class approves the plan and the bank would recover at least as much under the plan as in liquidation, the court can confirm the plan over the bank';s objection. The bank';s pledge is not extinguished but its enforcement is stayed for the duration of the plan. This scenario illustrates why foreign secured creditors must engage French restructuring counsel early and participate actively in the class voting process.
Mandat ad hoc has no fixed duration. In practice, mandates last between two and six months. Conciliation lasts up to five months from appointment of the conciliateur.
The observation period in sauvegarde or redressement judiciaire is initially six months, renewable twice, giving a maximum of eighteen months. In practice, most plans are adopted within twelve to fifteen months of the opening judgment. The plan itself runs for up to ten years, though many plans are completed earlier if the debtor';s financial position improves.
Liquidation judiciaire for a mid-sized company typically takes two to four years to complete, depending on the complexity of asset realisation and litigation over creditor claims.
Professional fees in French restructuring proceedings are regulated. The fees of the administrateur judiciaire and mandataire judiciaire are set by a tariff based on the size of the debtor';s assets and liabilities, subject to court approval. For mid-market companies, these fees typically run into the low to mid hundreds of thousands of euros over the course of a sauvegarde or redressement judiciaire.
Legal fees for the debtor';s own counsel and financial advisers are additional and are not subject to the statutory tariff. For a complex cross-border restructuring, total professional fees - including French and foreign counsel, financial advisers and court-appointed officers - can reach the low millions of euros. For smaller companies, costs are proportionally lower but still material relative to asset values.
State and court filing fees are modest relative to professional fees. The BODACC publication fee is a minor administrative cost. The more significant financial exposure for debtors is the cost of maintaining operations during the observation period, including the priority payment obligations to new suppliers.
Many underestimate the cost of the déclaration de créances process for creditors. Each creditor must formally declare its claim to the mandataire judiciaire, with supporting documentation, within the statutory deadline. Errors in the declaration - incorrect amounts, missing supporting documents, wrong legal basis - can result in partial or total rejection of the claim. Correcting a rejected declaration requires a separate court application and additional legal fees.
A common mistake for foreign debtors is failing to notify foreign creditors of the opening of proceedings in time. Although publication in the BODACC is the formal notice mechanism, the court may require individual notification to known foreign creditors. Failure to notify can give foreign creditors grounds to challenge the plan';s binding effect in their home jurisdiction.
Directors of French companies in financial difficulty should also be aware of the action en responsabilité pour insuffisance d';actif. If the company enters liquidation and the assets are insufficient to cover liabilities, the liquidateur can bring a claim against directors for the shortfall if they committed management faults that contributed to the insufficiency. This is a personal liability risk that is often underestimated by foreign managers of French subsidiaries.
For assistance navigating French restructuring procedures as a creditor or debtor, contact info@vlolawfirm.com. We can assist with documents, filings and creditor class strategy.
The sauvegarde is available to a company that is not yet in cessation des paiements - meaning it can still meet current liabilities but faces serious difficulties. The redressement judiciaire applies once cessation des paiements has occurred. Both procedures produce a restructuring plan that binds creditors, but the redressement judiciaire gives the court broader powers, including the ability to order a sale of the business if no viable plan emerges. Directors retain management of the company in sauvegarde, subject to supervision, while in redressement judiciaire the administrateur judiciaire may take over management entirely. The sauvegarde is generally preferable because it preserves more management control and avoids the stigma of formal insolvency.
The observation period in sauvegarde or redressement judiciaire lasts up to eighteen months, though most plans are adopted within twelve to fifteen months. The plan itself can run for up to ten years. Mandat ad hoc and conciliation are faster, typically concluding within two to five months. Costs depend heavily on the size and complexity of the case. Court-appointed officers'; fees are regulated by tariff and typically reach the low to mid hundreds of thousands of euros for mid-market cases. Debtor-side legal and financial advisory fees are additional and unregulated. Foreign creditors should also budget for the cost of declaring and defending their claims within the statutory deadlines.
Yes, in most cases. If the debtor';s COMI is in France, French proceedings are recognised automatically across EU member states under EU Regulation 2015/848, and the plan binds all creditors whose claims arose before the opening judgment, regardless of their nationality or the governing law of their contract. For creditors outside the EU, recognition depends on the rules of the relevant foreign jurisdiction. Some non-EU jurisdictions will recognise French insolvency proceedings under their domestic law or bilateral treaties; others may not. Foreign creditors with security over assets located outside France should take local advice on whether the French plan affects their enforcement rights in those jurisdictions.
France';s restructuring framework offers a sophisticated and flexible set of tools that collectively function as a scheme of arrangement, from confidential pre-insolvency negotiation through to court-confirmed plans with cross-class cram-down. The 2021 reform has modernised the system significantly, aligning it with EU best practice and giving both debtors and creditors greater predictability. Navigating the system requires early action, precise compliance with procedural deadlines and a clear understanding of creditor class dynamics.
VLO Law Firms advises international clients on bankruptcy and restructuring matters in France. We can assist with opening and managing sauvegarde or redressement judiciaire proceedings, declaring and defending creditor claims, structuring conciliation agreements and advising on cross-border recognition of French plans. To request a consultation, contact: info@vlolawfirm.com