Insolvency Law at Réunion (France)
Réunion, as a French overseas department, follows the same insolvency laws and commercial regulations as mainland France. The legal framework for insolvency in Réunion is primarily governed by French law, particularly the French Commercial Code (Code de commerce) and specific insolvency legislation. These laws apply equally in Réunion as they do in mainland France, with no significant differences in the procedures or rules, though local courts in Réunion handle cases within the island's jurisdiction.
Here’s an overview of insolvency law in Réunion (and France more generally):
1. Key Legislation:
The primary laws governing insolvency and restructuring in France, and thus in Réunion, include:
French Commercial Code (Code de commerce): This is the main source of law that covers the procedures for business insolvency in France, including both corporate bankruptcy and debt restructuring.
Law No. 85-98 of 1985: This law introduced the prevention of business difficulties and a formal framework for insolvency procedures.
Law No. 2019-222 of 2019 (Pacte Law): This law modernized the insolvency framework in France, with provisions aimed at facilitating the rescue of struggling businesses, including measures for early-stage intervention to prevent insolvency.
2. Types of Insolvency Procedures:
Insolvency procedures in Réunion are structured to allow both business restructuring and liquidation. The procedures aim to balance creditor rights with the need to preserve businesses whenever possible.
Insolvency Procedures include:
Prevention and Early Intervention:
Companies facing financial difficulty, but not yet insolvent, can enter into a preventive procedure (mandat ad hoc) or a conciliation procedure. These processes aim to help businesses recover before insolvency occurs by negotiating with creditors and restructuring debt.
Redressement Judiciaire (Judicial Reorganization):
This procedure is designed for businesses that are insolvent but still have the potential for recovery. The company enters judicial reorganization under the supervision of the court, which appoints a judicial administrator (mandataire judiciaire) to manage the company’s operations, protect it from creditors, and develop a reorganization plan. The goal is to enable the company to return to financial health.
The reorganization plan often includes debt rescheduling, partial debt forgiveness, or operational restructuring.
Liquidation Judiciaire (Judicial Liquidation):
If a business is insolvent and cannot be saved through reorganization, it may enter judicial liquidation. In this process, the company is closed, and its assets are sold off to repay creditors. The court appoints a liquidator to oversee the liquidation, and creditors receive a portion of the proceeds based on their priority.
Procedure for Individuals:
For individuals, particularly entrepreneurs and self-employed persons who are insolvent, there is a specific personal bankruptcy procedure (régime de la faillite personnelle). This allows individuals to liquidate their non-exempt assets to satisfy creditors, while potentially discharging remaining debts after a certain period.
3. Key Steps in Insolvency:
Filing for Insolvency: A company must file for insolvency when it becomes insolvent, meaning it cannot pay its debts as they fall due. The company may file for either reorganization or liquidation.
Court Supervision: In most cases, insolvency procedures are supervised by the commercial court (tribunal de commerce) in Réunion, which handles disputes related to corporate insolvency, debt restructuring, and liquidation.
Debtors’ Protection: During reorganization procedures, the debtor is generally protected from creditor actions, such as lawsuits or the seizure of assets. This gives the company time to develop a recovery plan.
Creditor Involvement: Creditors are invited to meetings during the process to vote on the proposed plans for reorganization or liquidation. Creditors are paid according to a legally prescribed order of priority.
4. Creditors’ Rights and Priority:
Secured Creditors: Creditors who hold security interests over the company’s assets (e.g., banks with mortgages or liens) have priority in receiving payment from any liquidation proceeds.
Unsecured Creditors: Unsecured creditors, such as suppliers or service providers, typically receive payment after secured creditors are paid. However, unsecured creditors are often less likely to recover their full debts.
Employee Claims: Employees often have a higher priority than unsecured creditors and may be paid from a special fund (the AGS fund, or Association pour la gestion du régime de garantie des créances des salaires).
5. Role of Insolvency Practitioners:
Administrators (Mandataires Judiciaires): These are court-appointed professionals who oversee the reorganization or liquidation process. They work with creditors, the debtor, and the courts to ensure the process runs smoothly.
Liquidators: In a liquidation process, a liquidator is appointed to manage the sale of assets and the distribution of funds to creditors.
6. Recent Reforms and Trends:
Pacte Law (2019): This law introduced reforms to promote the early-stage prevention of insolvency. It made it easier for businesses to access conciliation procedures, which allow companies to negotiate with creditors before entering into formal insolvency proceedings. The law also simplified the restructuring process for smaller businesses.
COVID-19 Impact: The global pandemic led to temporary reforms, including moratoriums on creditor actions and simplified procedures to help businesses facing cash flow problems. These changes were designed to protect companies from liquidation during the economic downturn caused by the pandemic.
7. Cross-Border Insolvency:
International Frameworks: France, including Réunion, is a signatory to the UNCITRAL Model Law on Cross-Border Insolvency, which facilitates cooperation between different jurisdictions when dealing with cross-border insolvency cases. This is particularly relevant for companies with operations in both France and other countries.
8. Enforcement of Insolvency:
French Commercial Courts: In Réunion, the commercial courts (tribunaux de commerce) handle all insolvency-related matters. These courts are specialized in commercial and business law and have the authority to enforce bankruptcy and liquidation proceedings, supervise business restructuring, and deal with creditor disputes.
Conclusion:
In Réunion, insolvency law follows the same principles and procedures as in mainland France, governed by the French Commercial Code and recent insolvency reforms. The law provides several tools for businesses to either restructure their debts and recover or liquidate assets to pay creditors when recovery is not possible. Businesses in Réunion facing insolvency can access a variety of procedures, including judicial reorganization, liquidation, and preventive measures, depending on their financial situation.
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