13/04/2016

How to deal with a default in France?

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Agustín Tizón Gutiérrez, Partner in Business Law. AGM Avocats

 

In cases of default on commercial debt, French law offers several possibilities for recovery, which could be classified into 2 different groups:

 

UNILATERAL PROCEDURES (not contradictory)

 

These are procedures in which there is no prior discussion between the parties because the debtor does not have any knowledge of the proceedings until the moment when the decision is notified.

 

1. Injunction of payment

 

1.1. Objective

 

Similar to the Spanish payment procedure, it is a quick procedure (2 months on average) and it is simplified, in which a provisional legal title recognizing credit is obtained.

 

1.2. Conditions

• The debt must be accredited with documents (invoices, order, email exchanges, etc.).
• The debt must be the result of a contract, a legal obligation or an obligation of statutory nature (contributions).
• The amount of the debt has to be determined.
• The debtor is in France and is not involved in proceedings of cessation of payments or bankruptcy.

 

1.3. Process

 

There are 4 distinct phases:

• 1st phase: the creditor submits to the President of the competent Commercial Court –the one related to the registered office of the debtor– which is called requête, request, where the following is exposed: the claimed amount, the items that comprise the debt and its legal basis.
• 2nd phase: the President of the Court examines the documentation and decides whether the request has merit, or whether it has to be rejected. If the requête/application is rejected, the creditor will not be able to appeal the decision, but may initiate your claim by ordinary procedure (procedure au fond).
• 3rd phase: if the requête/the debt recovery request is supported and the debtor is required to pay, the creditor has a period of 6 months to notify the debtor’s decision in order to proceed with the payment. The debtor has 1 month from the notification, to oppose the payment order. The notification of the decision is made by an act of bailiff/bailiff manager.
• 4th phase: if the debtor does not oppose the payment order, the creditor may then request the enforcement of the judgment. If the debtor refuses, the procedure becomes an ordinary judicial proceeding.

 

2. Preventive seizure (saisie conservatoire)

 

2.1. Objective

 

This is a provisional measure taken by the Court to prevent the risk of disappearance of the debtor’s assets and thus safeguard the right of the creditor to collect the debt.

 

2.2. Background conditions

• Appearance of debt (the debt must be based at least in appearance).
• There must be a certain risk of debt default (it has to be demonstrated that there are circumstances that may threaten the recovery of debt).

 

2.3. Process

 

There are 2 different cases, with or without prior judicial authorization:

• Exemption from prior judicial authorization:

 

A number of cases in the law in which the creditor may proceed to execute the seizure directly to the debtor without prior judicial review are planned:

1. The creditor has an enforceable title or a court decision not equipped with enforceable.
2.  Existence of a bill of exchange accepted.
3. Note.
4. Cheque.
5. Existence of a lease contract.

 

• The need for prior judicial authorization:

 

This one will be required if the creditor does not have any of the abovementioned titles.

 

This judicial authorization shall be requested by the creditor through a requête, which will be presented either before the Judge in charge of the execution or before the President of the Commercial Court.

 

In the application, the personal data of the debtor and the creditor ones shall be collected, as well as the demand, the situation of the goods that are intended to be seized and the justification of why the measure is requested.

 

The non-contradictory character of the process is a benefit for the creditor; it allows to safeguard the rights considered as a threat.

 

This protective measure, once authorized by the Judge, shall be executed within 3 months from the notification.

 

ATTENTION: the creditor is required to raise the recovery lawsuit within one month after obtaining the seizure.

 

CONTRADICTORY PROCEDURES

 

3. Urgency demand (assignation in référé)

 

3.1. Object

 

Emergency judicial procedure, aiming to obtain a provisional judicial title.

 

3.2. Background conditions

 

The Judge may take this action on a number of assumptions:

• In case of emergency, the Judge can pronounce certain measures to evidence possible default, which are those that justify the issue in concerned.
• The judge may also order provisional measures or rehabilitation, which are accurate to avoid damages or disrupt certain unlawful actions that are being carried out.
• The Judge is competent to arrange a provision on a debt whose existence is not debatable.
• Finally, the Judge may impose measures of instruction (for example, Expert opinion) when there are legitimate reasons to preserve evidence of facts that will determine the dispute resolution.

 

3.3. Process

 

In this case the creditor requests the President of the Commercial Court to take all provisional measures needed to ensure the payment of the debt, of which there is clear evidence that ti will not be satisfied.

 

The president will decide by provisional author; it is a temporary decision that can be modified if circumstances changes.

 

Being an emergency procedure, it will not be extended in time, being foreseen a resolution within approximately 2 months.

 

The Judge will decide once the parts at a public hearing have been Heard.

 

4. Procedure background(assignation au fond)

 

4.1. Object

 

Debt recovery. It is similar to the Spanish declaratory procedure. The demand is interposed in order  the judge to rule on the merits of the case.

 

4.2. Background conditions

 

To be demonstrated:

• The existence of a certain and unpaid debt.
• This one must be justified.
• The period for payment of such debt has been expired.
• The amount must be determined or determinable.

 

4.3. Process

 

It is a contradictory proceeding, in which once the demand has been filed, it makes way to an exchange of statements and documentary evidence for each of the parties in support of their positions.

 

Several hearings per record have to be foreseen and an average duration of approximately from 6 months to 1 year.

 

Once both parties have reported all pleadings and forms of evidence, it will be in a position to litigate the matter. At this time a judge, called Juge Rapporteur, will be appointed, making way to a final oral hearing.