Impact of COVID-19 on certain restructuring transactions during the state of public health emergency period

To take this situation into account, the French government has subsequently adopted an Order No. 2020-306 on 25 March 2020 (Ordonnance du 25 mars 2020 n° 2020-306) to reduce the difficulties that could be encountered with the closure of commercial courts and court registries. 

The Order No. 2020-306 applicable to "all deadlines and measures" allows the postponement of the term or deadline for all acts prescribed by law that had to be performed between 12 March 2020 and 23 June 2020 midnight (the "Legally Protected Period").

This Order applies in particular to all transactions with a creditor opposition period (mergers, Dissolution with universal transmission of assets and liabilities (TUP), partial contribution of assets, share capital reduction not motivated by losses), some of which will see their effects staggered over time.

The provisions of the Order of 25 March 2020 n°2020-306 organize an extension of the legal deadlines which will have numerous consequences on the restructuring transactions in progress or even initiated before the start of the state of public health emergency. 

On the extension of legal time limits

Article 2 of the Order No. 2020-306 provides, inter alia, that any act, appeal, legal action, formality, registration, declaration, notification or publication prescribed by law that should have been carried out between 12 March 2020 and 23 June 2020 midnight shall be deemed to have been done on time if it has been done within a period that may not exceed the time limit prescribed by law and within a limit of two months.

Consequently, an act or formality may be duly carried out within a new period with the same duration at the end of the Legally Protected Period. This additional period after the end of the legally protected period may not, however, exceed two months: either the initial period was less than two months and the act must be performed within the period provided by law or regulation, or it was longer than two months and must be performed within two months.

The first question that arises with regard to this extension of the legal time limits is to understand whether it is an extension of the time limits (the initial time limit resuming at the end of the Legally Protected Period) or a complete new time limit starting at the end of the Legally Protected Period.

The second option seems to be preferred according to the text of the Order and this has been confirmed with regard to the right of opposition of creditors by a note of the Ministry of Justice dated 14 April 2020: the opposition made within 30 days after the end of the Legally Protected Period will be deemed to be made in time. There are therefore two time limits for filing an opposition: a first time limit of 30 days which expires during the Legally Protected Period and a second time limit of 30 days beginning at the end of this period.

On the consequences of the Order on restructuring transactions with a creditor opposition period 

The rules governing certain transactions subject to a right of opposition by creditors are directly affected, in particular TUP, mergers and similar transactions and share capital reductions not motivated by losses.  

TUP: the possibility of carrying out or not a TUP during the Legally Protected Period is the subject of many debates

In principle, the completion date of a TUP is the date of the end of the 30-day opposition period for creditors to object. Logically, the TUP could only be carried out when creditors may no longer oppose the transaction, i.e. at the end of the new 30-day period. A position of the French National Council of Commercial Court Clerks (Conseil National des Greffiers des Tribunaux de Commerce) specified on 16 April 2020 that "the clerk can only proceed with the striking off of the company at the end of the 30-day period following the end of the legally protected period, the end of the period for creditors' opposition". Thus, it would seem that the deregistration of a company in the context of a TUP is refused by the registry upon expiry of the "initial" opposition period during the Legally Protected Period.

However, the French Ministry of Justice's note of 14 April 2020 seems to indicate that the transaction would be legally completed at the end of the same initial opposition period. For the Chancellery, the effect of the Order would simply be to declare valid an objection made out of time, but not to extend the time limit for creditors to object. The note concludes: "Therefore, the outcome of the opposition period is not changed”. In this case, the creditor having made an admissible opposition following the completion of the TUP would be able to assert his rights against the sole shareholder, as the absorbed company no longer has any legal existence. 

Harmonization and clarification of positions on this subject would therefore appear to be more than desirable for the legal certainty of current transactions.

Mergers: Merger transactions (and similar) are not affected because they are not, in principle, subject to the expiry of the opposition period. However, even in the absence of such a condition, a creditor may validly object to the transaction from a new 30-day period starting on 23 June and expiring on 24 July 2020.  

Share capital reduction not motivated by losses: The reasoning is the same as for the TUP because share capital reduction cannot be carried out during the period of opposition by creditors. 

The note from the French Ministry of Justice makes no mention of these transactions, but one might assume that the reasoning would be the same as for the TUP. However, for the same reasons, practitioners have reservations about the possibility of carrying out a share capital reduction not motivated by losses during the Legally Protected Period. 

To be read in conjunction with: 

Act No. 2020-290 of 23 March 2020 as an emergency measure to deal with the covid epidemic-19 (Loi n° 2020-290 du 23 mars 2020 d'urgence pour faire face à l'épidémie de covid-19).