Secretive French Restructuring Tool Is on Rise as Firms Struggle

An increasing number of French companies struggling to pay their debts are using a secretive restructuring tool to deal with creditors.

(Bloomberg) — An increasing number of French companies struggling to pay their debts are using a secretive restructuring tool to deal with creditors.

Use of the procedure, known as conciliation, rose by a third to 2,259 cases in the first nine months of the year, according to data from French court administrators. It involves the debtor going to a commercial court to propose a so-called “conciliator” — typically a court administrator — and then choosing which creditors it will engage with during the process.

One of the main features of the arrangement is that it is confidential, and it also opens the door to forcing a deal on dissenting creditors later. Those are strong draws for companies facing an alarming surge in the cost of debt payments after the sharp rise in interest rates.

The two highest profile French restructurings this year, by care-home operator Orpea SA and grocer Casino Guichard-Perrachon SA, both used this process. The trend is expected to continue next year.

“The main advantages of the procedure are the confidentiality and that the company has the ability to request a moratorium on debts for the whole duration of the conciliation,” said Anne-Sophie Noury, partner at law firm Weil, Gotshal & Manges LLP, who advised the conciliator for Orpea and is advising Casino on its restructuring. “If the freeze is ordered by the court, all default interest and any penalty arising out of the payment default stop accruing.”

Part of the reason these conciliations are on the rise is a catch-up effect after French government-backed loans protected many companies during the pandemic downturn and from the economic impact of the war in Ukraine, according to Saam Golshani, a partner at law firm White & Case LLP. 

Once companies have done a conciliation, they can pursue an accelerated safeguard — a court process that allows them to reach an agreement with a majority of secured creditors and impose the deal on any dissenting creditors. That happened in the case of Orpea.

“The conciliation has become the launching pad for the accelerated safeguard, new money privilege or a pre-pack sale,” said Golshani, who advised Orpea in its restructuring and is advising Czech billionaire Daniel Kretinsky in the takeover of Casino. “So we’ll see more conciliations going forward.” 

Short Timeframe

While the process is mostly advantageous from the perspective of borrowers, there is some downside. Conciliations can only last five months at most, meaning companies need to have done their homework beforehand to make sure the process is wrapped up in that timeframe, Golshani said.

The conciliator has three main tasks: organizing the case, including managing the schedule, the timing and the legal or financial questions to be addressed; conducting the negotiations; and making proposals to reach a compromise, according to Marc Senechal, the conciliator in Casino’s case.

Read more: Casino Signs Lock-Up Deal With Kretinsky, Secured Creditors 

The talks are not limited to financial creditors. Suppliers can also be included, and even the government can get involved if the company requests it. The government’s Inter-ministerial Committee of Industrial Restructuring (CIRI) tends to get involved in bigger cases where there’s a national interest, and represents the financial interest of the state when it is a creditor.

“We look at the financial parameters of the restructuring and make sure that the deal is fair,” said Pierre-Olivier Chotard, secretary general of CIRI. “We can weigh in to provide important moral input and comfort to join the consensus, to make all parties accept a compromise.”

–With assistance from Demetrios Pogkas.

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