French bankruptcy law and enforcement procedures: Commercial code - article L. 632-2 para.
| Abstract | 1. In 2005, French bankruptcy was amended by the law regarding the Safeguarding of Businesses (the "Reform of 2005"). This Reform has amended Book VI of the French Commercial Code, entitled "Businesses in Difficulty." The new law also affects enforcement procedures in a most interesting way. But before describing the impact on the enforcement process, garnishment in particular, let me give you the main objective of the Reform of 2005.2. One of the key features of the Reform is the creation of a novel category in bankruptcy proceedings that entails the suspension of action by an individual creditor to the benefit of a debtor who is not yet insolvent - and this is what is so different from other categories of French bankruptcy proceedings. The debtor needs only to demonstrate financial difficulties that may lead to insolvency. In other words, the debtor needs to "meet current liabilities with its (immediately) available assets" to benefit from the new safeguarding proceeding. The idea is to create an early-warning mechanism that would prevent ailing enterprises from becoming insolvent.3. But along with this, which aims to restructure the debtor at an early stage, the Reform of 2005 also aims to render bankruptcy proceedings more "creditor friendly." The old procedure was indeed too "socially oriented" towards restructuring the debtor and maintaining employment, rather than satisfying creditors. The reason for this shift in approach is to encourage creditors to participate in court-driven safeguarding proceedings. Among the creditor friendly provisions are claims that accrued prior to the bankruptcy judgment and for which creditors omitted to file a petition in due time; these claims will no longer be extinguished. Also, creditors may no longer be held liable for abusive support, that is to say, a creditor shall not be liable for the losses caused as a result of the credits extended.4. Therefore, in this creditor friendly environment, one may be surprised by a provision of article L. 632-2 of the Commercial Code, which reads in paragraph 2 (also taken from the Reform of 2005):"Any notice issued by the Treasury to a third party holding property, any garnishment or any opposition shall also be voidable when it was delivered or carried out by a creditor after the date of cessation of payments and in knowledge thereof."5. This provision is the stumbling block of two different approaches: one taken by the bankruptcy law, and the other taken by the enforcement law. To understand how this apparently conflicting viewpoint is solved in the foreground, the paper first describes the background. | |||||||||
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