France collection profile

Visibility on company records in France is good and companies must file their balance sheets with the Commercial Courts even though, in practice, some tend to disregard
this obligation in order to preserve confidentiality. Small companies are allowed not to publish their financials anymore if they chose to do so. Proceedings are published in the Registry of the Commercial Courts and in official journals.

Liability for business debts is determined by legal structures, which can be described as follows:

• Individual businesses are increasingly run through Sole Proprietorship (Entreprise Individuelle, EI), a business entity contributed and owned by one person acting in their own name and who may be held liable for all the debts incurred. In certain circumstances, individual businesses may also be incorporated through a Single Person Limited Liability Company (Entreprise Unipersonnelle à Responsabilité Limitée, EURL), in which case personal liability is limited to the owner’s contribution.
• Partnerships (Société de Personnes) are founded by at least two partners who are jointly and severally liable for the obligations of the entity, but liability limitations may be put into place through Limited Partnerships which involve one or more managing partners jointly liable for the company’s operations and debts together with silent partners liable only in relation to their capital contribution.
• Limited Liability Companies (Société à Responsabilité Limitée, SARL) are very popular for medium-sized businesses as there is no minimum capital requirement and the structure may be owned by up to fifty shareholders, whom may only be held liable for the company’s debts in relation to their capital contribution.
• Public Limited Companies (Société Anonyme, SA) are the most common structures for larger businesses as it allows involvement of more shareholders. These are also available in simplified (Société par Action Simplifiée, SAS) and individual (Société par Action Simplifiée Unipersonnelle, SASU) formats.

Commercial Courts (Tribunal de Commerce) are responsible for dealing with business disputes. This jurisdiction is operated by non- professional judges elected by their peers, and it is efficient in rendering decisions in reasonable timeframes.

Since January 2013, a recovery fee of EUR 40 may furthermore be applied. Additional compensation may also be claimed if the effective collection costs are higher than the flat sum. Failure to mention the EUR 40 flat fee in contractual payment terms would expose the creditor to a potential fine of up to EUR 15,000.

The law entitles a seller to retain ownership until its buyer has paid the related invoice in full, as long as a written Retention of Title (RoT, Réserve de propriété) agreement has been concluded between the parties.
More details can be found in the upcoming Insolvency Proceedings section.

The most common payment methods are as follows:

• Sepa bank transfers are used increasingly. They are fast, secure and practical for both domestic and international payments via the banking network.
  
• For export transactions, transfers are usually guaranteed through Standby Letters of Credit (a bank guarantees the debtor’s credit quality and repayment abilities) which may constitute reliable guarantees.
  
• Checks are also a common payment instrument, which constitute a debt recognition title if they remain unpaid. After two unsuccessful payments, the beneficiary may, subject to certain conditions, obtain a certificate recognized as an enforceable order (‘commandement de payer’ under Article L 131-73 of the Financial and Monetary Code).
  
• Bills of exchange, although less common nowadays, are still an attractive means of payment for domestic businesses because they are a source of short-term financing by means of discounting or transfer. In particular, they are appropriate for payments made in instalments.

Although French courts are reliable, it is advisable to first consider amicable settlement opportunities as an alternative to formal proceedings.
Before starting legal proceedings against a debtor, it is also essential to be aware of the debtor’s solvency status: if insolvency proceedings have been initiated, it indeed becomes impossible to enforce a debt.

Various proceedings are available. When the debt is fairly modest and undisputed, it is first possible to seek a Payment Order (injonction de payer) from the Commerce Court. These fast-track proceedings are inexpensive (less than EUR 75, excluding bailiffs’ fees) and efficient, presence in court is not required and a lawyer is not necessary. The judge may then deliver a formal Payment Order (ordonnance portant injonction de payer). The debtor must be informed of this decision within six months and has a month to contest. If not, the Payment Order may usually be enforced directly with a bailiff.
When the debt is undisputed but the amount at stake is significant, ‘référé’ fast-track proceedings are also very efficient insofar as they allow obtaining judgments (ordonnances) without delays. The judge’s decision is enforceable immediately even though part of the dispute remains to be settled through an ordinary lawsuit.
Ordinary proceedings (Procédures au fond) are reserved for disputed and complex cases. Lawsuits are initiated by serving summons (assignation) on the defendant through a bailiff prior to filing the claim with the court. The court then considers whether the claim is receivable (mise en état), focuses on the parties’ evidence and opinions through hearings, and then reaches a decision. If the defendant fails to file a defence, a default judgment may be rendered ex parte on the basis of the claimant’s arguments.
Provided that the debt is undisputed, the courts are able to issue European Payment Orders enforceable in all European Union countries (except Denmark) without exequatur proceedings (Regulation 1896/2006/EC).

The general rule is that the applicant bears the burden of proof and thus needs to provide the court with documents proving the debt on its reality and on its quantum, i.e. evidence of both order and delivery, contracts, General Terms and Conditions and all correspondence exchanged with the debtor. It should be noted that the signing of documents is considered increasingly necessary by the local courts. Above all, it is important for overseas recoveries. In overseas departments, courts are much more demanding in terms of signing of documents.
Thanks to its deep knowledge and proximity with local courts, Allianz Trade’ local agents are able to guide its clients through these procedures.

As a general rule, business claims must be brought to court within five years (Article L.110-4 Code de Commerce), starting from the date on which the facts causing the action occurred or on which the creditor obtains knowledge of the circumstances which caused the claim. Transportation and communication-related disputes must be brought within one year.

Provisional measures (mesures conservatoires) that may be taken to protect clients’ interests are conservatory seizures (of bank accounts or trade receivables). Those measures must be authorized by the court and are handled by a bailiff. As conservatory measures, they are taken to protect the claimant’s interests and remain provisional: the latter will have to introduce a legal action (‘référé’ or ‘assignation au fond’) within one month of the date of enforcement of the protective order. Once the courts achieve a final decision, protective orders may be either cancelled or confirmed (preventive attachments may for instance be converted into a forced sale). When a decision has been made, protective orders must be enforced within three months notwithstanding any attempt of the respondent to lodge an appeal.

The defeated party is entitled to lodge an appeal before the Court of Appeal (Cour d’Appel) within one month of the notification (three months if the responding party is located abroad), provided that the claim is in excess of EUR 4,000. Appeal proceedings have a suspense effect (unless the first instance judgement is temporarily enforceable), which means that enforcement is delayed while the facts and legal issues are reviewed.
Decisions rendered in the second instance (arrêts) may also be appealed before the Supreme Court (Pourvoi en Cassation) within two months. This court is divided into criminal, employment, commercial and financial sections, and focuses on erroneous applications of the law by the Court of Appeal. Therefore, it never re-considers decisions on the merits. Quashed decisions would then be sent back to a Court of Appeal with a request to reconsider the case on its merits, but the procedure has no suspense effect.
By contrast with domestic arbitral awards, international arbitration awards cannot be appealed. Annulment may however be considered on various grounds (lack of jurisdiction, faulty procedure, etc).

Unless the court decision is temporarily enforceable, enforcement may commence once a judgment is final (i.e. if no appeal is lodged within one month), and must occur within ten years of notification of the court’s decision.
If the defeated party fails to satisfy the judgment, compulsory enforcement may be requested. Obligations to pay would be enforced through attachment (bank account, assets) or garnishment (orders allowing the creditor to obtain payment of a debt through a third-party owing money to the debtor), obligations to give or to return would be enforced through seizure. Obligations to do or refrain from doing something would usually be enforced through pecuniary penalties. These proceedings would typically be carried out by a bailiff.

Obtaining a Payment Injunction may take three to six months while protective orders may be rendered within a month on average.
Proceedings before the courts of first instance may vary from one court to another but would tend to take one year on average when the debt is disputed. Appeal proceedings may take up to two years. Enforcement is normally fairly fast (up to three months on average). There is no difference between domestic and transnational litigation proceedings but the debtor can try to gain some time in disputing the jurisdiction of the seized court or the applicable law. Therefore, it is very important that the creditor adapts its general terms and conditions accordingly.
In overseas departments, legal actions can be very long – three times longer than in mainland France. Obtaining a payment injunction may take six months to a year. In mainland France, it takes around two months.

As a general rule, the successful party may request that part of its court fees and legal costs be paid by the defeated party. In practice, full compensation is never awarded. Court fees are very low in France: it costs only EUR 50 to initiate a request for an order of payment. This proceeding does not require a lawyer and only the bailiff fees (around EUR 300) are required. Conditional arrangements whereby attorneys are not paid upfront and receive a fixed sum upon success are strictly forbidden.

Use of alternative dispute resolution methods (such as conciliation, mediation and arbitration) in France is widespread but remains rather uncommon in relation to debt collection since the courts are efficient in providing timely decisions. Nonetheless, a cross- business mediation mechanism was recently set up to facilitate communication and payment-related disputes between debtors and creditors. On average, eight out of ten mediations lead to amicable settlements. Similarly, a credit mediation aiming at solving financing difficulties and at facilitating finance-related disputes has also been put in place.

Use of foreign forums is also uncommon. Nonetheless, it can be mentioned that France is a signatory to the Rome I Regulation on the law applicable to contractual obligations, which stipulates that the parties to a contract may, by mutual agreement, choose the law applicable to this contract, and select the court that will have jurisdiction over disputes. France is also a signatory to the Hague Convention of 15 June 1955 on the law applicable to international sales of goods, which stipulates that contracts shall be governed by the law chosen by the parties, the general spirit of the agreement and the circumstances of the case.
The designated foreign law may, however, be excluded by the court if it contradicts with the public order and ‘the principles of universal justice,’ or if the case relates to real estate property. It is essential that the agreement be characterized by an international connection (for example, one party has elected domicile in another country, or the place of execution is located abroad), and that a jurisdiction clause is specifically drafted for this purpose.

As previously mentioned, using foreign forums in order to obtain enforceable decisions against French debtors is rather unusual. However, foreign decisions issued against foreign debtors may be fairly enforced in France.
Various circumstances may apply. On one hand, decisions rendered in an EU country would benefit from particularly advantageous enforcement conditions. Apart from EU Payment Orders which are normally enforceable directly in domestic courts, the two main methods of enforcing an EU judgment in France are by the use of a European Enforcement Order (EEO, as provided under Regulation EC No. 805/2004) when the claim is undisputed, or by registering the judgment under the provisions of the Brussels I Regulation (44/2001).
If the judgment qualifies as an uncontested claim, it can be enforced directly (i.e. without registration) by use of an EEO provided that the debtor has identified assets in the country. A European Small Claims Procedure (as provided by Regulation EC 861/2007) aiming at eliminating intermediate steps may similarly be relied upon while enforcing decisions up to EUR 2,000.
If the claim is disputed, the procedure for registering an EU judgment with domestic courts is relatively simple. The judgment holder must apply to the relevant court for the judgment to be registered and provide the court with, among other documents, an authenticated copy of the judgment, a certified translation and, if interest is claimed, a statement confirming the amount and rate of interest at the date of the application and going forward. Once the judgment has been registered, the judgment can be enforced as if it were issued by domestic courts (according to the Recast Regulation EC 1215/2012, such an exequatur procedure is no longer required from January 2015).
On the other hand, judgments rendered in foreign countries outside of the EU would normally be recognized and enforced provided that the issuing country is party to a bilateral or multilateral agreement with France. In the absence of a reciprocity agreement, the French courts would essentially verify that the issuing court had jurisdiction over the claim, that the decision is not incompatible with the necessity to preserve the French public order, and that the decision was not rendered fraudulently.
France is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, therefore its domestic courts ought to recognize and enforce awards rendered through international arbitration proceedings.

French law provides for a variety of proceedings when the debtor faces financial difficulties. These proceedings can be classified into two parts: preventive proceedings (Mandat ad hoc and conciliation) and collective proceedings (safeguard, reorganisation and liquidation). The choice depends on the financial situation of the debtor.
The keystone in French insolvency law is the cessation of payments, i.e., when the debtor is not able to pay its debts as they fall due out of its available assets.

Preventive proceedings can be opened when a debtor is not in cessation of payments but is faced with difficulties that it is unable to overcome by its own means. A conciliation can also be opened when the debtor is in cessation of payments for less than 45 days.
Mandat ad hoc and conciliation are both confidential and are conducted under the supervision of a court-appointed practitioner to help the debtor reach an agreement with its main creditors. However, the conciliation proceeding can become public if the debtor seeks the approval of the commercial court.

The opening judgment triggers the application of automatic rules: obligation to lodge the claims (déclaration de créances), stay of payments and claims, stay of individual enforcement action.
In safeguard and reorganisation proceedings, the court appoints an insolvency practitioner in order to supervise or assist the directors in drafting the safeguard plan. A creditors' representative is appointed by the court; his or her role mainly involves handling the debt verification process and representing the interests of all creditors.
The creditors must lodge their claims within two months – or four months for foreign creditors – from the publication of the opening judgment. Then, the creditors' representative will verify the lodgement of creditors' claims. If claims are disputed by the debtor or the insolvency officer, their admission should be submitted to a decision of the supervisory judge.

The safeguard proceeding was introduced in 2005. It allows debtors that, though still solvent, face difficulties that they cannot overcome, to be restructured under the court's supervision.
A restructuring plan is drawn up following an observation period of a maximum of six months, renewable twice.
The safeguard proceeding can take up to fifteen years. 

Reorganisation proceeding is opened by the Court when the applying debtor is in a state of cessation of payments but has not ceased its activities. The aim is to achieve the survival of a company and to preserve its activities and employment   
The same principles apply as in safeguard proceedings. 

In addition, the courts may order the liquidation of the insolvent debtor. It’s a terminal proceeding ordered when the company has no chance of recovery.
In this case, the debtor’s assets are realized by a court-appointed liquidator. Again, the creditors must lodge their claims with the creditors’ representative within two months from the publication of the liquidation judgment; otherwise they would be prevented from participating in the proceeding and from receiving their share of the proceeds.
Priority rules normally apply in liquidation proceedings while distributing the proceeds to the creditors. Secured claims are paid first (employees’ wages with AGS scheme, taxes, etc.). Unsecured claims would be treated last.

In June 2019, the European Union adopted the Directive on Preventive Restructuring Frameworks. The objective is to harmonize the laws of EU member states concerning preventive restructurings, insolvency and the discharge of debt. In France, the reform came into force on October 1, 2021.
The reform respects the essential balances between the various interests involved and the decree ensures the consistency of all bankruptcy proceedings allowing the maintenance of activity: accelerated safeguard, safeguard and receivership with or without compulsory affected party classes.
Among the major changes imposed by the directive are:

• the organization of creditors and, where applicable, holders of capital, into "classes of affected parties"; called upon to vote on the draft restructuring plan;
• the possibility for the court to validate a plan despite the negative vote of one or more classes.
  

The text also reinforces:

• systems for detecting and preventing business difficulties (informing the court earlier, making the conciliation procedure more attractive, etc.);
• the right to a second chance for individual entrepreneurs, in particular by perpetuating several measures adopted temporarily by the decree of May 20, 2020 to deal with the difficulties of businesses in the context of the Covid crisis.

The Retention of Title (RoT, Réserve de propriété) is particularly efficient in insolvency proceedings. It allows goods to be reclaimed (action en revendication) and entitles the creditor to be recognized as secured, granting them a priority right during insolvency proceedings. In practice, RoT provisions do not provide absolute guarantees but remain the best way to obtain payment from insolvent debtors provided that (i) the RoT has been specifically acknowledged while signing the contract, (ii) the creditor sent their request within three months following public notification of the insolvency proceedings, and (iii) the goods are clearly identifiable in their original form.

Invoices, statements of account, orders, proof of delivery, power of attorney and general sales terms.