Debt Collection Procedure

Debt Collection Agency in France

March 13, 2020

Debt Collection in France


  • In France, the payment conduct of domestic companies is good but has some room for improvement as the average DSO does not comply with the standards set out in recent legislation, which specifically transpose EU payment criteria into national law.


  • In general, French courts are fairly effective in dealing with disputes in a timely manner.


  • The French law calls for a complete set of turnaround measures when a business encounters financial difficulties, but when liquidation proceedings are initiated, the prospects of debt collection are very small.


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1. Summary


1.1. General financial information


1.1.1. The disclosure of company records in France is strong and businesses will send their balance sheets to the Commercial Courts even though, in fact, some of them tend to ignore this requirement in order to preserve secrecy. New rules proposed at the beginning of 2014 could make it possible for small companies to no longer report their financial statements. The cases shall be recorded in the Register of the Commercial Courts and in the Official Journals.


1.2. Key legal structures


1.2.1. The liability for business debts is determined by the legal structures described as follows:


  • Individual enterprises are increasingly run through Sole Proprietorship (Entreprise Individuelle, EI), a business entity contributed and owned by a person acting on their own behalf and which may be held liable for all debts incurred. In certain cases, specific undertakings may also be organized through the Single Individual Limited Liability Corporation (Entreprise Unipersonnelle à Responsabilité Limitée, EURL), in which case legal responsibility is limited to the obligation of the applicant.


  • The Partnerships (Société de Personnes) are formed by at least two partners who are jointly and severally liable for the liabilities of the firm, but the Limitation of Liability may be enforced by Limited Partnerships, which include one or more managing members jointly liable for the activities and debts of the business, together with silent partners, who are liable only in respect of their capital investment.


  • Limited Liability Companies (Société à Responsabilité Limitée, SARL) are very common for medium-sized companies as there is no minimum capital limit and the arrangement may be controlled by up to fifty owners, who can only be held liable for the obligations of the company in proportion to their capital expenditure.


  • Public Limited Companies (Société Anonyme, SA) are the most common structure for bigger companies, as it allows more shareholders to be involved. These can also be found in condensed formats (Société par Action Simplifiée, SAS) and entity formats (Société par Action Simplifiée Unipersonnelle, SASU).


1.3. Regulatory framework


1.3.1. Commercial courts (Tribunal de Commerce) are responsible for handling conflicts involving the company. This authority is administered by non-professional judges selected by their colleagues, and is effective in making judgments within acceptable timeframes.


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2. Receiving payments


2.1. DSO - Days Sales Outstanding


2.1.1. The 2012 law (Law no. 2012-387 of 22 March 2012 on the simplification of the law and relief of administrative procedures) transposing the 2011/7/EU Recast Directive into French law entered into force on 1 January 2013. Payment of business-to-business transactions must now take place within 30 days after the receipt of the goods or services however, where contractual agreements stipulate differently, the payment terms may be expanded to 60 days after the invoice is given. The DSO continues to be quite high with an average of 73 days in 2016.


2.1.2. In many instances, French law exists for foreign regions and dependencies, except for the specifics of the tax law.


2.2. Late interests


2.2.1. The debtor may be charged interest on late payment, assuming that the appropriate interest rate is stated in the contractual agreement (15 percent per annum would be acceptable), although the interest rate of the European Central Bank (reconsidered every six months) may be applied automatically if the parties refuse to do so.


2.2.2. Beware: failure to note these statutory requirements in invoices will expose the applicant to criminal prosecution and an invoice fine of up to EUR 75,000 or 50 percent. In practice, interest is collected and negotiated in the amicable phase when a payment plan is put in place.


2.2.3. Otherwise, it is very difficult to get them to pay interest when the debtor is paying the debt. In the procedural process, the court will apply for interest and any other substantive punishment. French law permits the court to suspend or extend the fine by up to two years(' délais de grace' as provided for in Section 1244-1 of the Civil Code, if the condition of the debtor so requires).


2.3. Costs of debt collection in France


2.3.1. A recovery fee of EUR 40 may also be applied as from January 2013. Extra payments may also be sought where the effective cost of selection is greater than the flat number. Failure to mention the EUR 40 flat fee in terms of agreed settlement would subject the applicant to a potential penalty of up to EUR 15,000.


2.4. Protecting ownership


2.4.1. The statute entitles a retailer to retain ownership until the customer has paid the relevant invoice in full, such that a signed Retention of Title (RoT, Réserve de propriété) arrangement has been established between the parties. Additional details can be found in the next portion of Insolvency Proceedings.


2.5. Payments


2.5.1. The most common methods of payment are as follows:


  • Bank transfers from Sepa are commonly used. They are quick, secure and practical through the banking network for both domestic and international payments.


  • Late payment interest: interest on late payment may be paid to the purchaser, given in the contractual agreement the relevant interest rate is specified.


  • Transfers are usually guaranteed for export transactions by way of Standby Letters of Credit (a bank guarantees the credit worthiness and recovery capability of the debtor) which can be effective assurances.


  • Checks are also a growing form of payment that, whether they stay unpaid, constitutes a debt identification term. The recipient can receive a certificate recognised as an enforceable order(' commandement de payer' under Article L 131-73 of the Financial and Monetary Code) according to certain requirements after two failed payments.


  • Exchange bills are still an enticing means of payment for domestic businesses, although less popular nowadays, because they are a type of short-term funding by discounting or transfer. These are particularly appropriate for installment payments.

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3. Collecting Payments in France


3.1. Amicable action


3.1.1. It is best to first find amicable mediation options as an alternative to structured trials, whereas French courts are effective. It is also essential to be aware of the solvency status of the debtor before starting legal proceedings against a debtor: if insolvency proceedings have been initiated, enforcement of a debt will indeed become impossible.


3.2. Legal proceedings


3.2.1. Ordinary proceedings. Several proceedings are available. When the debt is fairly modest and unchallenged, a payment order (injonction de payer) may first be obtained from the Commerce Court. Such fast-track prosecutions are inexpensive (less than EUR 75, except fees for bailiffs) and effective, attendance in court is not needed and there is no need for a lawyer (avocate). The judge can then issue a formal payment order (payer injunction ordinance). The claimant must be notified within six months of this ruling, and has one month to appeal. If not, a bailiff can usually impose the payment order directly.


3.2.2. If the debt is unchallenged but the amount at stake is significant, fast-track' reféré' proceedings are also very efficient insofar as they allow judgments (orders) to be obtained without delay. The judge's decision is immediately enforceable although part of the dispute remains to be settled through an ordinary lawsuit.


3.2.3. In contested and complex cases, ordinary prosecutions (Procédures au fond) are reserved. Lawsuits are launched by issuing the defendant's summons (assignment) through a bailiff (huissier de justice) before filing a claim with the case. The court will then decide whether the argument is admissible (mise en état), rely on the facts and views of the plaintiffs by proceedings (audiences), and then come to a decision. If the defendant refuses to lodge an appeal, depending on the claimant's claims, a default judgment may be made ex parte.


3.2.4. Provided that the debt is undisputed, the courts can issue European Payment Orders enforceable in all the countries of the European Union (except Denmark) without exequatur (Regulation 1896/2006/EC).


3.2.5. Required documents. The general rule is that the claimant bears the burden of evidence and must therefore provide the court with documents proving the debt to its fact and its amount, i.e. proof of both request and execution, contracts, general terms and conditions and all communications shared with the obligor. It should be remembered that the local courts find the signing of contracts progressively important. It's important, above all, for recoveries overseas. In the departments of overseas courts are much more demanding when it comes to document signing.


3.2.6. Time limits. As a general rule, legal cases must be taken before the court within five years (Article L.110-4 Code of Commerce), beginning from the date on which the evidence that triggered the case happened or on which the claimant acquires awareness of the circumstances that led to the lawsuit. Disputes relating to transport and communication must be brought in within one year.


3.2.7. Provisional measures (conservatory measures) that can be taken to protect the interests of clients are conservative seizures (from bank accounts or receivables for trade). The court will sanction such interventions and a bailiff manages them. As conservatory measures, they are taken to protect the interests of the claimant and remain provisional: the latter will have to bring a legal action('référé' or' assignation au fond') within one month from the date of enforcement of the protective order. Once a definitive decision is reached by the judiciary, protective orders may be either revoked or validated (for example, defensive attachments may be turned into a forced sale). Notwithstanding any effort by the claimant to file an appeal, protection orders must be executed within three months when a judgment has been reached.

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3.2.8. Appeal lodging. The losing party is allowed to lodge an appeal before the Court of Appeal within one month of notice (three months if the defendant is based abroad), so that the demand reaches EUR 4000. Appeal hearings have a suspenseful effect (unless the decision of the first case is enforceable temporarily), ensuring compliance is postponed while the evidence and legal issues are checked.


3.2.9. Decisions issued in the second instance (arrêts) may also be brought before the Supreme Court (Pourvoi en Cassation) in two months ' time. The court is split into civil, education, business and financial divisions, and the Court of Appeal specializes on faulty law cases. Therefore, it never re-examines the reasons assessments. Quashed rulings would then be referred back to the Court of Appeal with an appeal to review the argument on its merits, but there is no surprise impact on the process.


3.2.10. International arbitration awards can not be appealed in contrast to domestic arbitration awards. Nevertheless, annulment may be regarded for different reasons (lack of authority, defective process, etc.).


3.2.11. Awards enforcement. Unless the court ruling is enforceable temporarily, enforcement may begin once a court ruling is final (i.e. if no appeal is lodged within one month) and must take place within ten years of the court ruling notification.


3.2.12. If the losing party fails to satisfy the decision, it may order automatic compliance. Payment obligations would be imposed by connection (bank account, assets) or garnishment (orders enabling the borrower to collect debt payment by a third party owing money to the debtor), commitments to send or return would be enforced through arrest. Commonly, obligations to do or refrain from doing something would be enforced through pecuniary sanctions. A bailiff will normally administer these hearings.

3.2.13. The duration of a judicial action. Obtaining a reimbursement warrant can take three to six months, while on average protective orders may be given within a month. First-instance court proceedings that differ from court to court but would tend to take an average of one year if the debt is challenged. It may take up to two years to challenge proceedings. Enforcement is usually fairly swift (on average, two to three months).


3.2.14. There is no distinction between domestic and transnational cases, but the claimant may try to gain any time in disputing the confiscated court's jurisdiction or the applicable law. It is therefore very necessary for the borrower to adjust the general terms and conditions to this effect.


3.2.15. Legal actions can be very lengthy overseas regions-three times longer than in continental France. Getting an injunction for payment can take six months to a year. It needs about two months in continental France.


3.2.16. The costs of the procedure. As a general rule, the successful party can require that the losing party pay part of its court fees and legal costs. In fact, full liability is never given. In France, court fees are very low: filing an appeal for a reimbursement order costs only EUR 50. This process does not require an advocate, and only the bailiff fees (around EUR 300) are required. Conditional contracts are strictly prohibited that lawyers are not paid up front and obtain a fixed sum after completion.

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3.3. Alternatives to Legal Action


3.3.1. Alternative Dispute Resolution Procedures (ADR). The use of alternative methods of dispute resolution (such as conciliation, consultation and arbitration) in France is commonplace, but is somewhat rare in regards to debt collection since the courts are effective in making prompt judgments. However, a system for cross-company mediation has recently been developed to promote the contact and payment conflicts between debtors and creditors. Eight out of ten mediations on average result in peaceful treaties. Likewise, a credit conference was also put in place with the intention of addressing funding problems and resolving financial conflicts.


3.3.2. Foreign forums. Often rare is the use of global platforms. Nevertheless, it can be said 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 can, by mutual agreement, choose the law applicable to that contract and choose the court which will have jurisdiction over conflicts.


3.3.3. France is also a signatory to the Hague Convention of 15 June 1955 on the law applicable to international sales of goods, which provides for contracts to be governed by the law chosen by the parties, the general spirit of the agreement and the circumstances of the case. Nevertheless, the court may exclude approved foreign law if it violates the public order and' the standards of fundamental justice,' or if the case relates to immovable property. It is necessary that the arrangement be distinguished by an external relation (e.g. one individual has chosen domicile in another country, or the place of execution is situated abroad), and that a provision of authority be drawn up expressly for this.


3.3.4. Foreign awards enforcement. As previously mentioned, it is rather rare to use international fora to secure enforceable rulings against French debtors.  Political rulings against political debtors may however be applied equally in France.


3.3.5. Different circumstances can apply. On the one side, decisions made in an EU country will profit from the especially favorable requirements for compliance. Apart from EU payment orders normally enforceable directly in domestic courts, the two main methods of enforcing an EU judgment in France are the use of a European Enforcement Order (EEO, as provided for in Regulation EC No 805/2004) where the claim is unchallenged or the registration of the judgment under the provisions of the Brussels I Regulation (44/2001).


3.3.6. If the judgement applies as an uncontested assertion, use of an EEO will explicitly implement it (i.e. without registration) because the debtor has established properties in the region. Similarly, a European Small Claims Process (as provided for in Regulation EC 861/2007) aimed at removing intermediate steps can be counted on while applying judgments of up to EUR 2000.


3.3.7. The procedure for registering an EU judgment with domestic courts is relatively simple, if the claim is disputed. In order for the judgment to be registered, the judgment holder must apply to the court concerned and provide the court with, among other documents, an authenticated copy of the judgment, a certified translation and, where interest is claimed, a statement confirming the amount and interest rate at the date of the application and forwards.


3.3.8. Once the judgment has been published, it can be applied as if it were given by domestic courts (according to Recast Regulation EC 1215/2012, such an exequatur action is no longer required as of January 2015). On the other hand, decisions made outside the EU in foreign countries will usually be accepted and applied if the originating country was a party to a bilateral or multilateral deal with France.

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3.3.9. In the lack of a reciprocity arrangement, the French courts must effectively guarantee that the awarding court had authority over the appeal, that the judgment is not inconsistent with the imperative of maintaining French public order, and that the decision was not fraudulently made. France is a signatory to the 1958 New York Convention on the Recognition and Compliance of International Arbitral Awards and its national courts should therefore accept and uphold awards given by international arbitration proceedings.


4. Managing insolvent debtors in France


4.1. Insolvency in France


4.1.1. The management of insolvent debtors Insolvency (state de cessation de paiements) in French law applies to the incapacity of a company to satisfy the obligations owing with its (immediately) usable funds. The regulations applied to businesses experiencing economic difficulties are found in the Commercial Code, which provides multiple opportunities for enabling protective or collaborative activities.


4.1.2. On the one side, protective measures(' mandate ad hoc' or' conciliation') are private, and only a limited number of investors or vendors will involve. On the other side, joint prosecutions may be initiated against firms experiencing difficulty in resolving economic (safeguard) challenges and businesses in a prolonged insolvency situation (judicial reorganization or liquidation).


4.1.3. The completion of a remedy, compensation or liquidation process inevitably resulted in the termination of particular proceedings and a prohibition on paying lawsuits. It should be noted that Article L.631-1 of the French Commercial Code stipulates that the object of insolvency proceedings is to enable the company's operation to be followed up, to optimize the protection of jobs and, respectively, to minimize the debtor's liabilities. There are various processes, based on the financial situation of the business and the desires of the stakeholders.


4.2. Insolvency proceedings in France


4.2.1. Debt restructuring. In the first case of debt restructuring proceedings secret protective measures may be relied upon. Ad hoc resolution (mandate ad hoc) is widely used when management issues or new economic difficulties place a company's ability to pay its debts in doubt. This helps the petitioning company to gain from a third party (mandataire) assistance authorised by the Commerce Tribunal.


4.2.2. This process refers to a contractual document being concluded, and can not proceed if the applicant has stopped payment. Instead, if the claimant has stopped making contributions (for less than 45 days) and/or if the parties need a tribunal to insure their respective rights are secured, they can benefit from a very specific conciliation process. Formal joint, non-confidential hearings may also start.


4.2.3. After 2006 (Nouvelle loi de Sauvegarde des entreprises du 26 juillet 2005), debtors wishing to prevent a termination of the contract condition (severe insolvency proceedings) can in effect seek the value of a protection process as long as they can "prove that they have financial difficulties which they are unable to resolve." This allows the Commerce Tribunal to create an anticipatory restructuring plan: a supervisory judge (Juge-Commissariat) would be named by the court to oversee the trials, an administrator (Administrateur judiciaire) to supervise the company's management, and a lawyer for the creditor (Mandataire judiciaire). The creditors must then lodge their claims (declaration of credits) within two months-or four months for foreign creditors-after the opening decision has been released. The court will then set up two creditors ' committees (one for credit institutions, another for supplier creditors) for companies with a turnover of more than EUR 20 million or 150 employees.


4.2.4. After an observation period of no longer than six months, a reform proposal is then written, reversible annually. The prosecutor will meet the lodging charges during this time with the debtor's list of their vendors at the outset of the proceedings. Under the statute, the trustee will receive a reply within 30 days of receiving the letter they sent to the borrower from whom the debt is contested. The matter will be resolved by the supervisory judge in case of disagreement.

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4.2.5. Therefore, commercial courts confiscated outside the framework of safeguard proceedings with an insolvency claim usually come up with two alternatives. The first is to focus on a systematic judicial reorganization (Redressement Judiciaire), in order to restore the debtor to a viable role. In this situation, a third party insolvency practitioner appointed by the court, and to whom the parties must submit their claims within two months of notification, administers the company either directly or alongside the existing management. A second solution would be to liquidate. It should be stressed that, for up to ten years, a suspension may be provided in both safeguard and judicial reorganization proceedings to shield the saved corporation from concurrent compliance charges.


4.2.6. Two rulings (12 March and 26 September 2014) amended the Insolvency Act. The goal is to improve the talks with investors and speed up the proceedings. The analysis was carried out on three main themes:


  1. The' pre-pack cession,' which offers the debtor the possibility of arranging the transfer of business assets before insolvency proceedings are opened. A conciliation will be initiated and an insolvency process will be conducted to validate the transition of funds. In this situation, the needs of investors are overlooked, and only the security of jobs which would prevail.
  2. The qualified resettlement (personal resettlement), which is a simpler process for individuals working independently and on their own hands, with assets of less than EUR 5,000. This action has the purpose of canceling the debt to enable the debtor to start a new operation.
  3. For companies with a turnover of more than EUR 3 million and over 20 employees, the accelerated safeguard procedure. This would concern only specific creditors (banks or main suppliers).


4.2.7. Winding up proceedings. The courts may also mandate the liquidation of the claimant (Liquidation Judiciaire). In this case the assets of the debtor are realized by a liquidator appointed by the court. The investors would file their cases with the agent of the shareholders within two months of the announcement of the winding-up decision; otherwise they would be excluded from engaging in the litigation and from collecting their portion of the profits.


4.2.8. 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.


4.2.9. The duration of insolvency procedures. Insolvency proceedings may take up to ten years, but almost 90% of collective proceedings tend to terminate with a liquidation phase.


4.2.10. Protecting ownership. 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, enjoying a priority right during insolvency proceedings.


4.2.11. 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.


4.2.12. More sophisticated forms of RoT provisions aiming at maintaining ownership despite transformation or sale to third parties would not be recognized under French law. In France, RoT provisions are rarely used outside of insolvency proceedings and would thus not constitute a reliable means to exercise pressure on the debtor during the debt collection process.


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




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