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Upd@te France
10 January 2013
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Schultze & Braun News

Recent publications

Dr Annerose Tashiro,
Consumer Bankruptcy Law Reform in Germany: Is It Any Good?
ABI Journal, November 2012

Frank Tschentscher,
This England, bankruptcy hotspot
Economia, economia.com, November 2012

Frank Tschentscher,
Personal insolvencies on rise for first time in year
The Telegraph, November 2012

Frank Tschentscher,
FDs must smash emergency glass and call for help sooner
Accountancy Age, August 2012

Dr Annerose Tashiro
From Bondholder to Equityholder: Still a Difficult Route in Germany?
ABI Journal, June 2012, 44-45, 84-85

Frank Tschentscher
Germany welcomes new Insolvency rules
The Lawyer, www.lawyer-monthly.com, April 2012, 1-2

Frank Tschentscher
Germany : Good Tidings
The European Lawyer 02 2012, 31-32

Frank Tschentscher
The Germans are not coming
Accountancy Age, 12.03.2012

Dr Annerose Tashiro / Patrick Ehret / Frank Tschentscher
Trust, Parallel Debt Mechanism under N.Y. Law Are Now Recognized in French Insolvency Law
ABI Journal February 2012, 30 et seq.

Lectures

Trust agreements in cross-border restructuring cases –
Novem Car Interior Design – a high level case study

Handelsblatt, Hilton Hotel, Frankfurt/Main, 24.04.2013
LL.M. (Nottingham), Attorney at Law in Germany,
Solicitor (England and Wales) Frank Tschentscher

 
French courts may not ex officio open insolvency proceedings in terms of redressement proceedings any more in the future!
With its order of 7 December 2012, the French Constitutional Council declared the possibility for French insolvency courts provided in sec. L.631-5 of the French Commercial Code regarding the opening of insolvency proceedings ex officio in terms of redressement proceedings as unconstitutional.

Ellen Delzant
Attorney at Law in Germany
Attorney at Law in France

Ellen Delzant
Ellen Delzant
The Constitutional Council decided that due to the principle of impartialness, a judge is forbidden to open proceedings entailing a legally valid decision without a corresponding petition. Beside criminal justice, the opening of court proceedings ex officio is only justified if the purview of the court serves public interests and if sufficient precautionary measures were undertaken to guarantee the impartialness of the judge.

On the one hand, the Constitutional Council emphasized that the questioned provisions serve the public interest. This is because opening restructuring proceedings ex officio, the procrastination of a corresponding petition and thus the worsening of the financial situation of ailing companies could be prevented. On the other hand, sec. L.631-5 of the French Code of Commerce does not provide a sufficient legal guarantee to ensure that the court opening the proceedings ex officio makes an impartial decision on the basis of the arguments and documents provided by the parties at the end of the contradictory proceedings.

Thus, the Constitutional Council declared sec. L. 631-5 of the French Commercial Code as unconstitutional and invalid as these provisions allow insolvency courts to open redressement proceedings ex officio. This repeal, however, cannot be applied retrospectively, is only effective from the date of the publication of the decision.

Ellen Delzant
Attorney at Law in Germany
Attorney at Law in France

Preliminary safeguarding measures in French insolvency law
As per executive decree, the “Petroplus” law of 12th March 2012 was defined more specifically. In an order on the 25th October 2012, provisions regarding the practical scope of the so-called “Petroplus” law were decreed.

Ronan Dugue
Attorney at Law in France
Ronan Dugué
In a hurry, the French Parliament passed the so-called “Petroplus” law on 12th March 2012. It authorizes judges to order safeguarding measures for the protection of the assets of an insolvent company, or of a company threatened by insolvency. The goal of this law is to prevent important parts of the assets of a company in distress from being taken away unlawfully by its parent company, or its legal or factual business manager.

This rather quick legislative process was as a result of the case of an oil refinery in the north of France which was a subsidiary of the insolvent Swiss company Petroplus. Only a few hours before the opening of insolvency proceedings of the parent company in Switzerland (as well as the simultaneous opening of redressement judiciaire proceedings in France) €122 million and $59 million disappeared from the bank accounts of the French subsidiary. Consequently, there was an investigation by the Public Prosecutor’s office into defalcation and fraudulent insolvency.

The legislator sought to prevent such incidents from happening in the future. These include accusations of the mixing of assets between two or more allegedly independent legal entities, but which are, in fact acting as one entity. This concerns cases where parent companies interfere frequently and thus harm their subsidiaries’ interests. In such cases, the opening of insolvency proceedings can be extended to a second entity – e. g. the parent company.

The legal innovation is the option that preliminary safeguarding measures can be ordered regarding the assets of the debtor in question upon application by the insolvency administrator, the Public Prosecutor’s office or ex officio.

Secondly, similar preliminary safeguarding measures can be ordered regarding the assets of the legal or factual managing director of the insolvent company, if the managing director is also at fault for the insolvency.

Furthermore, this law permits the selling of temporarily secured goods by order of the insolvency judge, if the storing of such goods causes additional costs or if the goods are perishable. In principle, the proceeds must be deposited.

Additionally, the insolvency judge can order that the proceeds from this sale are to be used for the completion of transactions under agency without mandate.

This law was especially criticized as under certain circumstances, goods can be sold and the proceeds can be realized even though proceedings are only at an early stage of preliminary measures. The outcome of proceed-ings regarding the mixing of assets and the default of the business manager respectively is not known yet.

However, there are many doubts with regard to the practicability and the application of such a law. On the one hand, it is to be expected that in view of the severe consequences, the judges will be very careful when it comes to this law. On the other hand, it is highly improbable that the preliminary safeguarding measures in case of a foreign parent company – even within the European Union – can be implemented. The European Court of Justice has confirmed that proceedings regarding the mixing of assets are not comprised in the regulation (EG) No. 1346/2000 regarding insolvency proceedings and their acknowledgement .

On 25th October 2012, an executive decree regarding the application of this law was passed. Thus, the scope of the preliminary measures have been limited.

First of all, it was stipulated that general provisions of the Code of Civil Enforcement Proceedings are applicable, thus improving the protection of the debtors’ interests.

Furthermore, the decree also decides on the amount of money which can be released for preliminary measures. In case of suspected mixing of assets, the decision of the judge regarding the amount of safeguarding measures is to be made in view of the claims filed. In case of the suspected default of the legal or factual business manager, the amount guaranteed by the preliminary measures may not exceed the claimed damages.

Before the goods concerned by the measures can be sold, their owner must be heard. Additionally, the Public Prosecutor’s Office must be informed accordingly.

A further amendment to the law creates the possibility of abandoning preliminary measures, should they entail undue consequences. Additionally, the judges’ decisions are not enforceable by rights on a preliminary basis. The judge decides whether the preliminary enforcement is ordered or not.

The executive decree has provided limits for the application of the law which were, however, predictable. In view of these provisions and existing doubts regarding the preliminary measures, the question arises whether this law will have a rather dissuasive effect rather it be applied. Chances are that it will only be used in the most obvious cases.

Ronan Dugué
Attorney at Law in France

Impressum

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