Abstract EN:

The objective of French collective insolvency proceedings is to help companies avoid financial difficulties or, should that fail, to allow them to benefit from court-supervised reorganization or compulsory liquidation procedures. In order to achieve this goal, insolvency laws prevent creditors from bringing proceedings against a company after the opening judgment has been pronounced. Paradoxically, however, creditors enter into security and guarantee agreements precisely because they want to shield themselves from any potential losses arising from insolvency and financial difficulties. In principle, the onset of financial troubles automatically triggers those agreements. In essence, the right to insolvency protection for the debtor and a creditor's right to rely on its security and guarantee agreements exist concurrently and are, as such, tightly related. In order to prevent any abuse, the insolvency regime overrules all the provisions of the law relating to security. As a result creditors must bring any court proceedings to a halt and debtors are prevented from paying any outstanding debt. It can be said, therefore, that collective insolvency procedures supersede the rights of creditors contained in any debt security instrument. Despite their weakened status, however, the effectiveness of personal and real property collateral devices ultimately depend on the opening judgment. Their effectiveness therefore changes depending on the facts of each case. Their strength and intensity primarily vary with the type of proceeding in which they are used. Where a conflict arises between collective insolvency proceeding provisions and the law of security interest, the former generally prevails. The changes introduced by the 2006 Act have profoundly altered the operation of the provisions of the law on debt security and guarantee instruments.