An amendment passed by the Senate on May 18, as part of the health crisis management bill, provides for a fast-track collective procedure to restructure the debt of small businesses.
Anticipating the wave of bankruptcies
The bankruptcy rate has reached a 30-year low. The number of business failures fell by 38% in 2020, even as GDP shrank by almost 10%.
According to figures from Altares, 32,200 companies underwent insolvency proceedings in 2020. This compares with 20,000 more in 2019.
However, this is the calm before the storm, as many companies have been kept afloat thanks to state economic aid. With the gradual emergence from the health crisis and the withdrawal of these support schemes, the European Central Bank predicts a wave of bankruptcies in 2021 and 2022.
To anticipate and counter this phenomenon as far as possible, the government, more specifically the Ministry of Justice and the Ministry of the Economy, have tabled an amendment as part of the bill on health crisis exit management. The bill was passed by the Senate on Tuesday May 18.
This amendment is part of a business support package due to be presented shortly.
A simplified procedure for restructuring the debt of small businesses
According to the amendment, the aim of the new system is to "create a fast-track procedure for companies with fewer than 20 employees and less than 3 million euros in declared liabilities".
Companies likely to benefit from this scheme "are those that were operating under satisfactory conditions before the economic crisis, to enable them to bounce back quickly by restructuring their debt".
The aim of this simplified collective procedure is to enable these small businesses, which were in good health before the Covid crisis, to quickly negotiate a debt repayment with their various creditors, over a maximum period of 10 years, in order to avoid bankruptcy.
In this amendment, the government states that it is aware of the reluctance of small businesses to have recourse to the courts, due to the length and difficulty of the procedure, "which can also in some cases lead to the forced sale of the business". According to the text, "this can lead them to resort to such procedures only belatedly, which reduces the chances of allowing the business to continue".
To avoid late appeals, the amendment proposes a procedure with a "rapid execution period of three months", based on "simplified operational procedures". Usually, the duration of a collective procedure is at least 6 months.
The text specifies that it "will be opened in the presence of the public prosecutor, and an agent will be appointed by the court to ensure that the procedure is properly conducted, that the rights of creditors are respected, and to assist the debtor in drawing up the continuation plan".
This simplified insolvency procedure will be temporary, and should be implemented for a period of 2 years.