A right to make mistakes in the offing for legal entities
Philippe Chemouny, head of his law firm, is a specialist in business restructuring. He is currently campaigning for legal entities to be given the right to make mistakes.
What are your skills within your law firm?
For over twenty years, I was a partner in a niche firm that specialised in business restructuring. As of 1st February 2016, I created a firm which pursues similar activities and also focuses on business litigation.
You are said to pay close attention to developments in the law and even to be proactive by proposing reforms …
Reform is a big word! I currently have the chance to be corresponding with an MP belonging to the presidential majority on the possibility of transposing to legal entities certain principles attached to natural persons.
Which principles do you wish to transpose?
At the present time, we have difficulty acknowledging errors on the part of a legal entity. The past still permeates our law too much, a very vindictive past essentially geared towards the responsibility of the director based on his acts of mismanagement or specific breaches. On the contrary, I am campaigning for the legal entity’s right to make mistakes. One could go even further and say the right to have things forgotten …
Why this right to have things forgotten?
If a company has been forced into applying for the opening of protective or recovery proceedings in the event of insolvency, it should have the right for this to be forgotten once it is subsequently able to show the court that its continuing activities allow it to permanently pay off its past debts.
What reforms are you suggesting?
I don’t want to cause an outcry in the banking world, but it has to be recognised that at the present time a company whose recovery plan appears on its K bis extract (certificate of incorporation) from the Trade and Companies Register will have great difficulty borrowing. It will often be forced to continue its activities with so-called ‘law court’ banks that have agreed to finance it during the bankruptcy proceedings.
What needs to be done?
There needs to be joint reflection so that banks stop refusing or examining credit applications merely because the company is subject to a plan to ensure its protection or continuation that is mentioned on its K bis extract. If the company has become solvent again through the enforceable judgement of a court, it must be able to have its credit request examined under the same conditions as that of a company which has never been subject to bankruptcy proceedings.
How can banks be made to change their practices?
One solution might be no longer to refer to the opening of bankruptcy proceedings and subsequent court rulings on the K bis extract once the company’s recovery plan has been finally adopted by the court. It is entirely normal that third parties should be informed when proceedings are opened, and it is not intended that the publicity measures provided for at that time should be called into question. But once a restructuring solution has been found, companies should be able to have the reference to the opening of bankruptcy proceedings and subsequent references retroactively removed. Past court rulings relating to the company should disappear retroactively from its K bis extract. As the law currently stands, a company that wishes to have such references removed has no choice but to negotiate new write-offs with its creditors and/or honour all payment deadlines in its recovery plan ahead of time. In other words, it must forfeit the optimisation of its bankruptcy proceedings, which allow it to benefit from a moratorium of at least ten years without late payment interest.
This is perhaps a little drastic …
Yet, there are three types of criminal record extracts for natural persons, which are not subject to the same rules of dissemination and from which it is possible to delete references to previous convictions. Why shouldn’t be recovering companies benefit from a similar option? Banks should be encouraged to respond to credit requests from a restructured company according to objective criteria (debt ratio, self-financing capacity, etc.). In my opinion a reform is necessary now in order to try to change behaviour.
How far has such a project got?
It is still at its beginnings, but I hope that I shall soon have the chance to discuss it with MPs and representatives of banks as part of a future project to reform company law.
Interview conducted by Jean-Christophe Collet