What are collective proceedings?
Collective proceedings are a legal procedure for dealing with a company’s financial problems. It begins when the company can no longer pay its debts. The aim is to save the company or, alternatively, to pay creditors by selling the company’s assets in a fair manner.
During this procedure, several people are involved, such as the mandataire judiciaire, who represents the creditors, and sometimes the administrateur judiciaire, who helps the company. The procedure may lead to a plan to turn the company around, or to its liquidation if it cannot be saved.
Definitions relating to collective proceedings
One of the first potential phases of collective proceedings is judicial reorganisation. This stage takes place after it has been established that payment has stopped. The aim of receivership is to enable the company to continue trading, maintain employment and pay off its debts. During this period, measures are taken to restructure the business and draw up a continuation plan. This plan is often conditional on efforts on the part of both the company and its creditors, and its adoption depends on the court’s approval.
During receivership, the company may be authorised to carry out certain management actions, but often under the supervision of the receiver.
If no viable solution is found, the receivership may lead to liquidation.
Judicial liquidation is ordered when it is clearly impossible for a company to recover. The aim is to put an end to the company’s activity and liquidate its assets by selling them off. The judicial representative plays a key role in this phase, selling the company’s assets and distributing the proceeds of the sale among the various creditors in accordance with the order of priority established by law.
Employees are generally the first to be compensated through the AGS (Association pour la Gestion du régime de garantie des créances des Salariés).
Once the creditors have been paid, any balance remaining is returned to the company’s partners or shareholders.
Pledging is a form of security often used in insolvency proceedings. It involves pledging an asset belonging to the company (stock, equipment, business goodwill) as security for a debt. However, unlike mortgages, pledging does not automatically lead to the seizure of the asset by the creditor.
Pledging gives the beneficiary creditors a preferential right to the proceeds of the sale of the pledged assets in the event of the company’s liquidation.
It is a key element that can influence the fate of a company in receivership by providing creditors with an additional guarantee, which can, where appropriate, make it easier to obtain financing in critical periods.