Last June, as part of its plan to combat business failures, the French government launched a simplified, amicable and confidential scheme enabling professionals to reschedule their debts in court. Will the mandat ad hoc de sortie de crise work? Is it really effective? Here's what you need to know.
Preventing small business bankruptcies
On June 1, 2021, the government unveiled an action plan for the most fragile businesses. This provides for a change in judicial intervention, with an emphasis on preventive procedures. These must be initiated more quickly so that the company resorting to them has a chance of recovering.
To make it even easier for small businesses to access the various procedures available, the French National Council of Judicial Administrators (CNAJMJ) has undertaken to propose a simplified amicable procedure in the form of an ad hoc crisis resolution mandate.
This "express" scheme is aimed at companies with fewer than 10 employees facing financial difficulties as a result of the health crisis. Its cost is capped at :
- 1,500 excluding VAT for companies with fewer than 5 employees,
- 3,000 excluding VAT for companies with 5 to 10 employees.
With a maximum duration of 3 months, it enables companies to anticipate difficulties by obtaining a deferment of their debts with creditors.
With these new measures, the government aims to prevent the bankruptcy of small businesses, which have been particularly hard hit by the crisis.
The mandat ad hoc de sortie de crise, a little-known procedure
According to a survey conducted by the French Institute of Collective Proceedings Practitioners (IFPPC) in conjunction with IFOP, almost 80% of company directors say they are prepared to resort to collective proceedings if necessary. However, only 44% are aware of the existence of the new "mandat ad hoc de sortie de crise", a mechanism that would enable them tospread the repayment of their debts easily and confidentially.
"There is at least a 60% success rate with these amicable mechanisms, such as the mandat ad hoc and conciliation," says the head of the institute behind the study.
Despite these results, 22% of entrepreneurs surveyed said they would refuse to use the "express" ad hoc mandate if necessary. In particular, they questioned the effectiveness of the system and feared losing their decision-making power.
Judicial administrators have a role to play in preventing future business failures in the context of the health crisis. In 95% of cases, amicable handling of difficulties ultimately avoids the need for safeguard, receivership or liquidation proceedings. Despite these possibilities, in many cases, insolvency administrators find that they are called in too late, due to a lack of understanding of the tasks entrusted to them.