Acquisition from an insolvent company in France

Publié le : 16/05/2006 16 mai mai 05 2006

The Act dated 26th July 2005Buying a company is always risky. The risks involved in acquiring a business from an insolvent company are even more so as there are fewer guarantees.

New provisions:

Thanks to the new Act, one may file an offer as soon as the Court has declared the target company insolvent according to the proceedings called “redressement judiciaire” (the company cannot pay its enforceable debts although it could be profitable again in the future).

The offer may be made for a part or the whole business.

Under certain conditions (prior authorisation of the Court and agreement of labour representatives), the purchaser may resale part of the assets included in the offer.

Obviously, there is a lot of work to be carried out in order to succeed in the take over (against other competitors and to make the business profitable).

To succeed in the take over

When you intend to make an offer do not forget the main criteria required by the Court:

- the number of employees you will keep
- the mid-term perspective of business
- the business will be run in the same location.

Legal, economic, financial and environmental audits are essential to reduce the risk and to succeed in the take over.

Remember that there is no liabilities and assets guarantee in such an acquisition.

The main issues to be dealt with are

- the stock,
- work in progress,
- advance payments,
- retention of title clause,
- penalties.

And current business agreements (commercial agency, leasing, supply agreements) that you choose to take over or not with the business.

Do not forget that if in the future you want to release the purchase option of a leasing agreement, you may have to pay the rents left unpaid by the insolvent company (the maximum amount being the value of the goods as assessed by the Court).

Another important issue regards the type of employees that you need for the business as a going concern (you may only be able to choose the employees by category and not on an individual basis) i.e.: Senior managers / managers / employees.

The retained professional categories of employees shall be passed onto the labour representatives before the Court decides to select the rescuer.

When you draw up your offer, do it as precisely as you can in order to avoid any misunderstanding afterwards. According to the principles of the law as defined in article L 642.2 of the French commerce code, your offer cannot be modified except in a more favourable direction for the insolvent company.

Do not forget to mention which company will sign the purchase agreement. Generally this is a new company to be formed, whose name has to be disclosed in the offer.

Explain in your offer:

- how you will deal with the recovery of the company to make it profitable,
- how your own company is complementary with the insolvent company,
- how much working capital you estimate necessary,
- what guarantees will be provided to make your offer solid.

To beat a competitor

· Economic and legal research on the strengths and the weaknesses of your competitor(s)
· Estimate the offer they would do given the state of the market and the added value the new company could give them
· The number of employees they are ready to keep on
· The future of the business run by them
· If you require assistance from suppliers or clients at the Court hearings, be sure that they will be good witnesses in your favour

Do not forget that the creditors of the bankrupt company will probably be your future partners.


Do not pay more than the market value of the company.

You will need cash available to invest in the new company.

It is always more expensive than expected to make the business of an insolvent company profitable again.

Cet article n'engage que son auteur.


Thierry CLERC


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