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VSEs: managers do not sufficiently anticipate the risk of bankruptcy

Published on February 24, 2021 by Pierre Belhache - 3 mins reading time
Bank watch
According to a recent report submitted to the French government by Georges Richelme, former president of the Conférence générale des juges consulaires (General Conference of Consular Judges), very small businesses are not familiar with preventive measures. As a result, when faced with difficulties such as the risk of bankruptcy, VSE managers tend not to anticipate and let the situation get worse.

Prevention measures little known to VSEs

The report by the economic justice mission, entrusted to Georges Richelme, was commissioned by Bruno Le Maire, Minister of the Economy and Finance, Éric Dupont-Moretti, Minister of Justice, Agnès Pannier-Runacher, Minister for Industry, and Alain Griset, Minister for SMEs.

The report's findings are unequivocal: in most cases, VSEs do not make use of "the amicable procedures that could protect them when their situation deteriorates". These preventive measures, which include amicable negotiation with creditors, are not sufficiently well known, and VSE managers see the situation slipping out of their hands as difficulties mount.

On average, in 2018 and 2019, 6,000 prevention procedures were conducted by the courts each year. Half of these cases involved companies with an average workforce of 18 employees, which is twice the size of the majority of VSEs.

However, 95% of French companies are very small businesses, which means that they all too rarely make use of this system, which could in many cases save them from bankruptcy.

Managers of very small businesses are often unaware of these possibilities. What's more, according to the report, there is sometimes a refusal to face the facts and take the difficulties at face value, which can lead to a disaster that, had it been anticipated, could sometimes have been avoided.

Recommendations of the economic justice mission report

To remedy this situation, the February 2021 report makes a number of recommendations.

  1. Among them is the need for better dissemination of information, notably through justice points or the creation of a dedicated portal.
  2. The report also refers to the role of creditors, and mentions the possibility that letters of denunciation following non-payment should be accompanied byinformation on existingprevention mechanisms.
  3. The "Signaux faibles" system developed by the Ministry of the Economy and Finance and the commercial court registries, which identifies companies in difficulty, particularly SMEs and VSEs with fewer than 400 employees, could also be fed by information held by the registries. In this way, the courts would have direct access to these warning signals, and the prevention judge or the authorities could draw on concrete evidence to help the managers of very small businesses become aware of their company's situation.
  4. Last but not least, the report recommends providing support for the managers of very small businesses threatened by bankruptcy, either through specialized associations or by drawing on existing experience, such as the psychological support system for entrepreneurs in acute distress (APESA).