The specificities of insolvency proceedings under French law

French insolvency law has developed over the years into a complex and highly codified system that reflects the country’s social and economic philosophy. Unlike the common law tradition, which tends to put creditor recovery and business efficiency at the heart of insolvency, the French model prioritises employment, continuity of economic activity, and collective fairness. This does not mean that creditors are ignored, but rather that they are considered as part of a broader set of interests. For foreign investors, business owners, or creditors operating in France, understanding these specificities is crucial in order to avoid costly mistakes and to appreciate the cultural differences that shape the French approach.

The central notion of “cessation of payments”

The entry point into French collective insolvency proceedings is the concept of cessation des paiements. Defined in article L. 631-1 of the code de commerce, it arises when a company is unable to meet its due liabilities with its immediately available assets. This test is extremely narrow: it does not look at balance sheet insolvency or long-term viability, but at whether cash at hand can cover debts that are currently payable.

This concept is central because it determines which procedure can be opened. If the company is not yet in cessation of payments but anticipates financial difficulties, it can apply for safeguard proceedings (procédure de sauvegarde). If it is already insolvent but capable of recovery, judicial reorganisation (redressement judiciaire) is possible. If recovery is manifestly impossible, liquidation (liquidation judiciaire) follows.

Company directors are under a strict duty: they must file for insolvency within 45 days of cessation of payments. Failure to do so may expose them to personal liability for the company’s debts, management bans, or even criminal sanctions. This obligation is far more demanding than in English law, where directors’ duties are assessed under the broader wrongful trading test.

A graduated toolbox of procedures

French law offers a carefully graduated set of procedures:

• safeguard proceedings (procédure de sauvegarde), introduced in 2005, are available to companies not yet insolvent. The aim is to anticipate difficulties, freeze debts, and negotiate a plan of continuation. The debtor remains in possession, under the supervision of a judicial administrator. This tool was inspired partly by Chapter 11 in the United States, but with much greater court involvement.

• judicial reorganisation (redressement judiciaire) applies once cessation of payments has occurred. A period of observation (up to 18 months) allows the court and the judicial administrator to assess the company’s prospects. A plan may involve debt rescheduling, partial debt write-offs, or even the transfer of the business to a third party.

• judicial liquidation (liquidation judiciaire) is opened when the court concludes that recovery is impossible. The liquidator sells assets, dismisses employees, and distributes proceeds among creditors according to statutory priorities.

This gradation demonstrates the French desire to provide flexible instruments while maintaining strict judicial supervision. In the UK, by contrast, administration and liquidation dominate, with voluntary arrangements playing a smaller role.

The unique role of commercial courts

One striking aspect for foreign observers is that French insolvency proceedings are handled mainly by tribunaux de commerce (commercial courts). These courts are composed not of professional judges, but of consular judges elected from the business community. They preside over the majority of corporate insolvency cases.

Supporters argue that this ensures real-world business knowledge and practical judgment. Critics worry about localism, corporatism, and potential conflicts of interest. For a British lawyer accustomed to professional judges in the High Court, the idea that a debtor’s competitors may sit in judgment can be disconcerting. Yet this system is deeply rooted in French legal tradition and reflects the conviction that commerce should be judged by those who understand it.

The protection of employees

French insolvency law is heavily influenced by social policy. Protecting employees is not a side-effect but a primary objective. The assurance de garantie des salaires (AGS), a wage guarantee fund, ensures that employees receive unpaid wages quickly, even if the company is unable to pay.

Moreover, any restructuring or sale plan must consider employment preservation. Works councils and employee representatives play a formal role, and redundancies are strictly regulated. This stands in sharp contrast with UK insolvency law, where employees are creditors like others, subject to preferential but limited rights, and where job preservation is considered desirable but not paramount.

The hierarchy of creditors

Another peculiarity is the rigid statutory hierarchy of creditors. French law distinguishes:

• secured creditors, such as mortgagees and pledgees,

• employees, whose wage claims enjoy super-priority,

• post-petition creditors, whose claims arising after the opening of proceedings are given priority to encourage continued trade,

• ordinary unsecured creditors, who rank last.

This differs from English law, where floating charges and contractual priorities play a stronger role. In France, public policy determines the order, and it is not easily circumvented by private agreement.

The role of judicial officers

Judicial officers play a crucial role. The administrateur judiciaire (judicial administrator) may be appointed to assist or supervise the debtor’s management, or in some cases to take over entirely. The mandataire judiciaire represents creditors collectively. In liquidation, the liquidateur judiciaire sells assets and distributes proceeds.

These professionals are highly regulated and act under the authority of the court. Their role contrasts with the UK system, where insolvency practitioners – often accountants – are appointed but exercise wide autonomy. French law insists on keeping the debtor under tight judicial and professional supervision.

Sanctions against directors

French law contains an extensive arsenal of sanctions against directors of insolvent companies. If they delay filing or commit management errors, they may be ordered to cover the shortfall of assets with their personal wealth (comblement de passif). They may also face bans on managing companies, sometimes for up to 15 years.

In cases of fraud or misuse of assets, criminal sanctions for fraudulent bankruptcy (banqueroute) may apply, including imprisonment. These measures illustrate the French tendency to treat insolvency not merely as a business event but also as a field for moral and disciplinary control.

Recent case studies

Several high-profile cases illustrate how the French system works in practice:

• Camaïeu, the fashion retailer, was placed in liquidation in 2022 after failed attempts at reorganisation. Thousands of jobs were lost, highlighting the limits of the system when a company is structurally unviable.

• Go Sport, another retail chain, entered safeguard proceedings in 2023. The court appointed administrators to assess the feasibility of continuation, and the fate of the company remains closely tied to negotiations with suppliers and employee representatives.

• Casino, the supermarket group, underwent a massive restructuring in 2023–2024. The proceedings illustrated how safeguard and reorganisation can be used for large, complex groups, involving negotiations with creditors, investors, and the French state.

• Orpea, the care home operator, entered into a safeguard procedure in 2022 after financial scandal and debt overload. The case demonstrated the flexibility of safeguard proceedings, especially when political and social stakes are high.

These examples show the tension between economic rationality, creditor recovery, and the political imperative of preserving employment.

European and international context

French insolvency law has been influenced by European law, particularly the EU Insolvency Regulation, which governs cross-border recognition and jurisdiction. However, France has resisted adopting a debtor-in-possession model like Chapter 11. Instead, it has adjusted its system while maintaining its emphasis on judicial control and social priorities.

For cross-border investors, this means that proceedings opened in France are recognised across the EU, but the substantive rules – such as creditor hierarchy and employee protection – remain distinctly French.

practical consequences for foreign investors

For British or international creditors, several points deserve attention:

• Security interests may not rank as expected. Even secured creditors may find their rights delayed or subordinated to employee claims or post-petition claims.

• Directors of French subsidiaries must monitor cash flow carefully and respect the 45-day filing deadline. Failure to comply can trigger personal liability, something far stricter than wrongful trading provisions in the UK.

• Restructuring plans may impose debt rescheduling or write-offs without the need for unanimous creditor approval. The court has broad powers to impose a plan in the interest of collective preservation.

• Employees and labour institutions play a central role, and their involvement may lengthen proceedings and limit strategic options.

Conclusion

French insolvency law is characterised by its unique balance of economic, social, and disciplinary goals. Rooted in the concept of cessation of payments, it offers a graduated range of procedures but keeps them under close judicial supervision. Employees receive strong protection, creditors are ranked according to rigid statutory priorities, and directors face strict duties and sanctions.

For British practitioners, the French model may appear interventionist and even paternalistic, but it reflects the country’s broader social and legal philosophy. Any cross-border investor or entrepreneur must therefore approach French insolvency with caution, appreciating that the rules are not simply technical but embody a distinct vision of how business, law, and society should interact in times of financial distress.