Reform of French Bankruptcy Law - Fried Frank

If the debtor has issued bonds, the Act provides that the creditors’ representative must contact the
bondholders’ representatives so that an assembly of bondholders can be convened. 29 There is a serious
ambiguity in the Act concerning whether a financial institution, even if a licensed French credit
establishment, that holds only bonds would have a seat on the creditors’ committee as does an ordinary
bank lender, or whether it can exercise its rights exclusively through the bondholders’ assembly.
Debt restructuring in the context of a safeguard procedure
If the company is large enough to have creditor committees, the debtor must present the committees with
a proposed workout plan within two months of the date they are convened. 30 The debtor and the
administrator negotiate with the two committees. The committees will have 30 days to respond to the
debtor’s proposal. Approval of the plan requires, for each committee, a double majority of 50% of the
committee members, representing 2/3 of the total debts held by members of such committee. 31
If both creditors’ committees approve the plan, the court must independently review the plan to verify that
it appropriately protects the interests of all creditors. 32 The bankruptcy judge can then approve the plan,
and impose it on dissenting members of the committee. If the creditors’ committees oppose the plan, or
fail to respond within 30 days, the negotiation process will recommence on an individual basis, without the
intervention of the creditors’ committees, and can continue until the end of the six-month deadline. 33
If the company has issued bonds, the bondholders assembly will have the opportunity to review and vote
on the adoption of any plan submitted to the creditors’ committees. 34 The Act does not specify whether the
bondholders’ refusal to approve a plan would entail the failure of the plan, or whether their vote is purely
consultative. 35
Creditors who are not members of either of the creditors’ committees and are not bondholders will
negotiate individually with the bankruptcy administrator. 36 They may accept or reject the plan proposed by
the administrator. If they accept the plan, the judge can confirm the new arrangement. If they reject it, the
29 Bondholders assemblies are governed by separate, non-bankruptcy provisions in the French Commercial Code, which set forth the rules for convening an
assembly and voting. The Act does not specify whether these general provisions will be subject to any modifications in the safeguard context.
30 The deadline of two months may be extended up to four months total, by court order.
31 French Commercial Code, Art. L. 626-30.
32 French Commercial Code, Art. L. 626-31. The wording of this provision is ambiguous, and could be read to mean that the judge must verify the protection of all of
the company’s creditors, or only all of the creditors on the creditors’ committees. The Act does provide elsewhere that any creditor, including creditors not
represented on a creditors’ committee, may appeal the judge’s approval of a safeguard plan. French Commercial Code, Art. L. 661-3.
33 French Commercial Code, Art. L. 626-34.
34 French Commercial Code, Art. L. 626-32.
35 An implementing decree is expected to resolve this ambiguity, as well as questions concerning the makeup of the creditors’ committees.
36 French Commercial Code, Art. L. 626-33. Individual negotiation will also be used for all creditors if the creditors’ committees reject the proposed safeguard plan.
Fried, Frank, Harris, Shriver & Jacobson LLP Client Memorandum November 17, 2005 7
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