PACTE : Simplify the Entrepreneurs’ and Companies’ Rebound

Enacted on May 22, 2019, the Law on the Action Plan for Business Growth and Transformation aims to simplify the legal framework for economic activities.

Its goal is to release productive forces by removing unnecessary regulations and restricting useful regulations to the strict minimum.

Facilitation of professional recovery (Article 57) – The PACTE promotes the cancellation of debts for companies that have no employees and hold less than 5,000 euros in assets. The professional recovery procedure is facilitated by the obligation of the commercial court to examine the possibility for the bona fide entrepreneur to benefit from it.

Previously, it was the latter’s responsibility to request its opening, which he did not do in most cases, not out of refusal but out of ignorance of both the procedure and his eligibility to it. However, the procedure remains subject to the consent of the beneficiary.

The mandatory review by commercial judges of the possibility to apply personal recovery concerns the following cases :

  • during a back up or legal redress procedure, following the finding of a suspension of payments;

  • following an application for legal redress, where the debtor is in such a state of suspension of payments that it clearly renders impossible the requested redress to be granted;

  • following an application of judicial liquidation.

Before the reform, the possibility of personal recovery presupposed that no collective proceedings were ongoing.

Standardization of compulsory simplified judicial liquidation (Article 57) – The legislator intends to make the exception the norm by extending the obligation to use a simplified judicial liquidation procedure.

Before the reform, the law divided the simplified judicial liquidation into two procedures, one was optional, the other mandatory. The lack of practice relevance of the distinction combined with the will to speed up judicial liquidation procedures to allow the entrepreneur concerned to rebound more quickly motivated :

  • on the one hand, the abolition of the opening criteria of the former optional regime in favor of the mandatory regime;

  • on the other hand, the adoption of the opening criteria of the former optional regime which were more inclusive than those of the former mandatory regime.

The simplified judicial liquidation procedure must be completed within a maximum period of time:

  • from 6 to 9 months for a company with less than 2 employees and a turnover of less than 300,000 euros;

  • from 12 to 15 months for a company with at least 2 employees and a turnover of less than 750,000 euros.

These time limits are to be related to the average duration of 30 months of a non-simplified judicial liquidation procedure, during which the entrepreneur concerned cannot rebound in the sense that he is not authorized to engage in a new activity.

Hunting down stigmatizing or vexatious measures – the PACTE reverses the norm that prevailed until now on the remuneration of executives facing legal redress. Previously, it was up to the bankruptcy judge to determine the value of this remuneration by a specially reasoned decision.

This prerogative, which was poorly perceived because of he mistrust it tended to establish towards the executive, becomes the exception to the opposite principle, which consists in no longer interfering unless there is a duly justified exception in determining his remuneration. In addition, the judicial review of the latter may only take place at the request of the designated administrator.

In a similar way, the legislator has deleted the reference in sections 1 and 2 of the judicial record of the judicial liquidation pronounced against a natural person (Article 59). Since this procedure can strike perfectly honest leaders, it was not justified to stigmatize them. This is not the case for personal bankruptcies and management prohibitions.

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