Insolvency Law at French Polynesia (France)
French Polynesia is an overseas collectivity of France, and thus French Polynesia's insolvency law is governed by French law. As a result, the French Insolvency Law (under the Code de commerce and other related legislation) applies in French Polynesia, with some local adaptations where needed. This means that the insolvency framework in French Polynesia is largely aligned with the French insolvency system and is subject to the same legal procedures for bankruptcy, reorganization, and debt restructuring.
Here’s an overview of the key features of the insolvency framework that applies in French Polynesia:
Key Features of French Insolvency Law (Applicable in French Polynesia):
Scope of Application:
The French Insolvency Law applies to both legal entities (such as companies and corporations) and individuals (including entrepreneurs and professionals) who are insolvent or unable to meet their financial obligations.
The law covers various types of businesses, including corporations (e.g., S.A., S.A.R.L.), partnerships, and sole proprietorships, and also applies to self-employed individuals.
Types of Insolvency Proceedings:
Safeguard Procedure (Procédure de Sauvegarde): This preventive procedure allows businesses facing financial difficulties but not yet insolvent to reorganize and protect their operations. It aims to avoid insolvency by enabling businesses to continue operating while restructuring.
Reorganization (Redressement Judiciaire): This procedure is used when a company is already insolvent but still has a viable future. The company enters a reorganization plan, and the court, along with creditors, supervises the plan's implementation.
Liquidation (Liquidation Judiciaire): When reorganization is not possible, the debtor's assets are liquidated, and the proceeds are distributed to creditors. If a company is unable to pay its debts and there is no chance of recovery, liquidation is the final step.
Simplified Liquidation: For small companies with fewer creditors or assets, a simplified liquidation process may apply.
Personal Bankruptcy (Over-Indebtedness Procedures): Individuals, including self-employed persons and entrepreneurs, can apply for personal bankruptcy procedures (known as over-indebtedness), which may involve partial debt relief or restructuring.
Filing for Insolvency:
Voluntary Filing: A debtor may file for insolvency voluntarily if they are unable to meet their financial obligations. Both companies and individuals can initiate this process.
Involuntary Filing: Creditors can also file for the debtor’s insolvency if the debtor fails to pay debts or is otherwise in a state of insolvency.
Mandatory Filing for Companies: French law requires companies to file for insolvency if they are insolvent for over 45 days after failing to meet their financial obligations. Failure to file can result in legal consequences.
Insolvency Administrator (Mandataire Judiciaire):
An insolvency administrator (or trustee) is appointed by the court to oversee insolvency proceedings. The administrator is responsible for managing the insolvency process, protecting creditors' interests, and ensuring compliance with the law.
In reorganization, the administrator works with the debtor to develop and implement a restructuring plan.
In liquidation, the administrator is tasked with selling off the debtor’s assets and distributing the proceeds to creditors in order of priority.
Creditor Rights:
Creditor Participation: Creditors have the right to participate in meetings and vote on important decisions, including the approval of reorganization plans and liquidation processes.
Priority of Claims: Creditors are ranked based on priority, with secured creditors (those holding collateral) being paid first, followed by unsecured creditors (suppliers, employees, etc.).
Voting on Plans: Creditors are involved in deciding whether to accept a reorganization or restructuring plan. In reorganization procedures, creditors may be asked to agree to a reduced debt amount or extended payment schedule.
Reorganization Procedure (Redressement Judiciaire):
In the reorganization process, the debtor works with an insolvency administrator to propose a reorganization plan that allows for the continuation of the business while repaying creditors.
The court approves the reorganization plan, and creditors must approve the plan by a majority vote. If creditors accept the plan, the debtor is given time to restructure operations and pay back creditors according to the plan.
The reorganization period typically ranges from 1 to 10 years, depending on the complexity of the case and the debtor’s ability to repay.
Liquidation Procedure (Liquidation Judiciaire):
If the debtor cannot recover through reorganization, the insolvency process proceeds to liquidation, in which the debtor's assets are sold, and the proceeds are distributed to creditors.
Once the liquidation process is complete, the company is usually dissolved, and any remaining debts not covered by the sale of assets may be written off, depending on the specific circumstances.
Personal Bankruptcy (Over-Indebtedness Procedure):
Individuals in French Polynesia, as in mainland France, can apply for over-indebtedness procedures if they cannot meet their financial obligations. This is available to self-employed individuals or those who run small businesses.
The process includes conciliation (attempts to reach an agreement with creditors) and, if necessary, a personal bankruptcy procedure.
After a period of restructuring, typically lasting 5 years, any remaining debts may be forgiven.
Cross-border Insolvency:
As part of the European Union, French Polynesia follows the EU Insolvency Regulation (2015/848). This regulation facilitates cross-border recognition and cooperation in insolvency cases within the EU.
While French Polynesia is not part of the EU itself, EU insolvency rules apply in cases involving companies and individuals operating across different jurisdictions within the EU, particularly when assets or creditors are located in other European countries.
Key Challenges and Considerations:
Administrative Complexity: Insolvency procedures can be complex and time-consuming, particularly when large companies are involved, or when there are multiple creditors.
Creditor Cooperation: Creditors may be difficult to negotiate with, especially in cases where the reorganization plan requires significant concessions (such as debt reduction or delayed payments).
Economic and Cultural Factors: The relatively small size of the economy and the business community in French Polynesia may result in a greater impact from bankruptcy proceedings, making debt restructuring more difficult in some cases.
Recent Developments:
COVID-19 Impact: Like other regions, French Polynesia saw temporary relief measures introduced during the COVID-19 pandemic, including moratoriums on debt repayments and flexibility in insolvency proceedings to help struggling businesses and individuals.
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