Alexandre Le Ninivin

Partner

Oxynomia

France: What to do if your local subsidiary is facing insolvency

A Legal and Strategic Guide for Foreign Groups

Insolvency of a local subsidiary is a situation that no international group wishes to face—but it can happen, even to sound and well-managed structures. Your French subsidiary is in trouble, you will be reassured to know that France has a well-established legal framework for business restructuring and insolvency, but it is highly specific and imposes obligations and strict timelines.

This article outlines the key legal tools available in France, the obligations of directors, and strategic tips for foreign parent companies with subsidiaries in distress.

1. Understanding the Legal Framework in France

In France, insolvency law distinguishes between pre-insolvency procedures (mandat ad hoc, conciliation) and collective proceedings (safeguard, judicial reorganization, liquidation). The Commercial Court is the main authority in these matters.

A company is considered insolvent (“en état de cessation des paiements“) when it can no longer pay its due liabilities with its available assets. If this is the case, a formal declaration of insolvency must be made within 45 days.

It is crucial to understand that French insolvency law is debtor-in-possession, meaning that in most proceedings, the company’s management remains in place under the supervision of a court-appointed administrator.

1. Available Legal Options for the Subsidiary
2. Pre-insolvency Procedures

These procedures are confidential and aim to prevent insolvency.

• Mandat ad hoc: the court appoints an insolvency practitioner to assist the company in renegotiating its debts (often after an LBO), negotiating with a client or a supplier, settling a dispute, etc. with the help of the lawyer and the accountant. The entity cannot be insolvent, and the proceeding is not limited in time.
• Conciliation: Available to companies facing legal, economic, or financial difficulty, whether insolvent or not (as long as insolvency is less than 45 days old). It can result in a settlement agreement with creditors, approved or homologated by the court.

These mechanisms are particularly useful to preserve reputation, stabilize operations, and restructure key obligations before entering into formal insolvency.

2. Collective Proceedings (Procédures collectives)

These are public judicial proceedings.

• Safeguard (sauvegarde): Initiated before insolvency, it helps preserve the business, maintain jobs, and restructure debt. The aim is to build a reimbursement plan with the help of the insolvency practitioner.
• Administration (redressement judiciaire): For insolvent companies that may still be viable. It opens a 6-months observation period (renewable once), allowing continued operations and negotiation of a restructuring plan (10 years maximum to reimburse). In the absence of any prospect of continuation, the business or assets will be sold.
• Liquidation : For companies with no recovery prospects. A liquidator is appointed to sell assets (often at a low value) and pay creditors in order of priority (secured then unsecured).

In all these cases, a creditors’ claims process is triggered, and contracts may be continued, suspended, or terminated depending on the insolvency practitioner’s decision.

III. Strategic Considerations for the Foreign Parent Company

Although a French subsidiary is legally separate from its parent, intragroup relationships must be carefully managed in the event of distress.

Here are some critical points to consider:

• Review intercompany transactions: Loans, guarantees, or intra-group billing must be properly documented. Unbalanced or undocumented transactions may be challenged by a court.
• Avoid de facto management: Foreign directors or holding companies involved in day-to-day decision-making could be exposed to personal liability. Delegating formal decision-making to local directors is essential.
• Protect intellectual property and key assets: If IP or key licenses are owned by the parent, ensure they are protected through proper contractual arrangements. Be cautious with licensing or sublicensing practices.
• Anticipate reputational risk: Formal insolvency is public and can impact the group’s brand. Pre-insolvency proceedings may offer discreet alternatives to reorganize, carve out or liquidate amicably.
• Seek legal counsel early: Many issues — especially delays in filing or poorly structured internal support — can lead to personal liability for directors or challenges from creditors.

Conclusion

Facing insolvency in France requires a clear understanding of the legal framework, quick action, and the ability to navigate the strategic implications for the wider group.

Whether the goal is to restructure, stabilize, or exit, the French system offers several tools—provided that advice is sought early and the parent company acts with diligence and foresight.

If your subsidiary is facing difficulties, do not wait until the situation escalates. Consult a restructuring lawyer familiar with French procedures to explore the best path forward.

For more information about the above and other related matters, you can contact our office on [email protected]

Oxynomia provides comprehensive support for companies in financial distress, covering preventive measures like mandat ad hoc and conciliation, as well as judicial procedures such as safeguard, reorganization, and liquidation. The firm advises directors, shareholders, creditors, and investors on strategic diagnostics, negotiations, asset sales, financing, and operational restructuring. With recognized expertise in European and cross-border insolvency, including U.S. Chapter 11/15 equivalents. Alexandre le Ninivin, partner in charge, has an extensive experience on international matters. its discreet pre-crisis intervention helps avoid insolvency through confidential procedures. Consistently ranked among top firms in restructuring and business litigation, Oxynomia offers agile, tailored, and legally robust solutions.