Conciliation and ad hoc mandate: anticipating difficulties before going to court

Cash flow is tightening, an important customer is slow to pay, a bank repayment date is approaching and the manager can feel the balance becoming fragile. Many wait until the last moment, when insolvency (cessation des paiements) has already occurred and administration (redressement judiciaire) or compulsory liquidation (liquidation judiciaire) has become unavoidable. Yet French law offers two discreet and powerful tools to deal with difficulties early, under the authority of the president of the court but without the stigma of collective insolvency proceedings (procédure collective): the ad hoc mandate (mandat ad hoc) and conciliation. This guide explains what they involve, what distinguishes them, why their confidentiality is decisive, and how a manager can use them to negotiate with creditors before the situation tips over.

Two amicable procedures at the heart of preventing difficulties

The ad hoc mandate and conciliation belong to Book VI of the French Commercial Code, which governs the treatment of business difficulties. They fall within what are known as prevention procedures, as opposed to collective insolvency proceedings (safeguard, administration, compulsory liquidation).

The difference is fundamental. Collective insolvency proceedings are public, they freeze prior debts, they partly divest the manager of control and they leave a visible trace for business partners. Amicable procedures, by contrast, remain confidential, leave the manager in charge and rest on negotiation, not compulsion. They do not automatically suspend creditors' enforcement actions, but they open a space for discussion under the aegis of a neutral third party appointed by the court. The conduct and effects of safeguard, administration and liquidation proceedings are presented in our guide to collective insolvency proceedings.

These arrangements were substantially reworked by the Business Safeguard Act (Law No. 2005-845 of 26 July 2005), then by Ordinance No. 2021-1193 of 15 September 2021, which transposed European Directive (EU) 2019/1023 of 20 June 2019 on restructuring and insolvency. The guiding idea has not changed: the earlier a difficulty is dealt with, the higher the chances of saving the business.

Preventing business difficulties rests on a simple statistical finding, documented by Ministry of Justice studies: where the manager acts before insolvency, the business's survival rate is markedly higher than that observed after administration proceedings are opened. That is the whole point of these amicable procedures.

The ad hoc mandate: a flexible, tailor-made intervention

The ad hoc mandate is governed by Article L611-3 of the French Commercial Code. It is the most flexible of the prevention procedures, and often the first step when difficulties are still diffuse.

Who may request it and on what conditions

Only the manager may request an ad hoc mandate. The request takes the form of an application to the president of the commercial court (for traders and commercial companies) or of the judicial court (for others, in particular the liberal professions and farmers). No creditor and no employee can impose it.

The law sets no size threshold and no rigid financial condition. An ad hoc mandate may be opened whatever the nature of the difficulty, subject to a single practical reservation: the business must not be in a state of insolvency. Insolvency is defined in Article L631-1 of the French Commercial Code as the inability to meet liabilities that are due out of available assets. Once that threshold is crossed, the ad hoc mandate is no longer the appropriate tool and one must move to conciliation or to collective insolvency proceedings.

The manager may propose the name of the ad hoc agent (mandataire ad hoc) in the application. In practice, this is frequently an experienced court-appointed administrator (administrateur judiciaire). The president freely sets the purpose and duration of the assignment, since the law imposes no maximum duration, which clearly distinguishes the ad hoc mandate from conciliation.

The role of the ad hoc agent

The ad hoc agent has no power of decision or compulsion. The assignment is to facilitate negotiation between the manager and its main creditors or partners. The agent acts as a trusted third party, credible because appointed by the court, who helps build a solution acceptable to all.

Take a concrete example. Imagine a construction SME of around sixty employees that has lost an important contract and is left with supplier debts and a bank overdraft that it will not be able to meet on the scheduled dates, without yet being unable to pay its immediately due debts. The manager requests an ad hoc mandate. The agent brings together the bank, the factoring company and two strategic suppliers, and negotiates a rescheduling of the overdraft and a moratorium on invoices. Nothing is imposed: each creditor agrees because it prefers staggered repayment to collective insolvency proceedings that would reduce its chances of recovering its claim.

The ad hoc mandate does not necessarily lead to a formal agreement approved by the court. It often results in bilateral contractual agreements, documented between the business and each creditor, without further intervention by the judge.

Conciliation: a more structured framework, aimed at an overall agreement

Conciliation, provided for by Articles L611-4 to L611-15 of the French Commercial Code, is more formal than the ad hoc mandate. It aims to obtain an amicable agreement between the debtor and its main creditors, possibly validated by the court. It is the pivot of conciliation as an amicable collective procedure in the broad sense, even though, legally, it remains a prevention procedure and not a collective insolvency procedure.

Conditions for opening and duration

Conciliation is intended for businesses experiencing a legal, economic or financial difficulty, whether established or foreseeable. Unlike the ad hoc mandate, it allows for a state of insolvency, but on a strict condition laid down by Article L611-4: the insolvency must not date back more than forty-five days. This period corresponds exactly to the one within which the manager must otherwise declare insolvency in order to open administration or liquidation.

The procedure is triggered by an application from the manager alone to the president of the court. The president appoints a conciliator (conciliateur), whose name the manager may again propose.

Conciliation is limited in time. Article L611-6 sets a maximum duration of four months, which the president may extend by one further month at the conciliator's request, making five months in total. Once that period has passed without agreement, the assignment ends and a new conciliation cannot be opened before a period of three months has expired.

Negotiating payment deferrals during conciliation

If a creditor called to the conciliation refuses to suspend its enforcement actions and serves formal notice on or sues the business during the negotiations, the debtor is not without resources. Article L611-7 allows the conciliator to apply to the president of the court to grant payment deferrals on the basis of Article 1343-5 of the French Civil Code, within the limit of the duration of the assignment. This is a useful lever for neutralising a recalcitrant creditor without freezing all the liabilities.

Recorded agreement or approved agreement: a decisive distinction

When the negotiation succeeds, the agreement may follow one of two routes provided for by Article L611-8, with very different effects.

A recorded agreement (accord constaté) is validated by a simple order of the president of the court, on the joint application of the parties. This recording makes the agreement directly enforceable, which allows it to be enforced in the event of default, while fully preserving confidentiality. The recording order is neither published nor communicated to third parties.

An approved agreement (accord homologué), by contrast, results from a judgment of the court. Approval requires three conditions laid down by Article L611-8: the debtor is not in a state of insolvency or the agreement ends it, the agreement ensures the continuity of the business's activity, and the agreement does not harm the interests of non-signatory creditors. The approval judgment is subject to publicity. Confidentiality is therefore partly lifted: the existence of the agreement becomes public, even though its detailed content remains protected.

Why choose approval, which is heavier and less discreet? Because it brings two powerful advantages: it makes the state of insolvency unenforceable (inopposable) for the prior period (the manager cannot be blamed for having delayed), and above all it opens access to the conciliation privilege.

The conciliation privilege, a magnet for financing

Article L611-11 establishes what practitioners call the conciliation privilege or new money privilege. Creditors who, under an approved agreement, provide new cash funding or supply new goods or services to continue the business receive a privileged payment ranking if collective insolvency proceedings are subsequently opened. In concrete terms, whoever provides fresh money during an approved conciliation will be paid before most other creditors in the event of later failure.

This mechanism changes the psychology of the negotiation. A bank or investor is naturally reluctant to put funds back into a weakened business. The new money privilege reassures it and unlocks financing that would otherwise never materialise. It is one of the strongest arguments in favour of approval.

Ad hoc mandate or conciliation: how to choose

The two procedures share the same philosophy, but respond to different situations. The choice depends on several factors that the manager must weigh with its adviser.

• Whether or not there is insolvency: if the business has been unable to pay its due debts for less than forty-five days, only conciliation is available, the ad hoc mandate being reserved for earlier-stage situations.
• The urgency and scale of the restructuring: conciliation, limited in time and able to lead to an approved agreement with the new money privilege, suits heavy financial restructurings; the ad hoc mandate, with no statutory duration, lends itself to longer, more exploratory or more targeted negotiations.
• The need to secure the agreement legally: conciliation offers recording and approval, with direct enforceability and the financing privilege, whereas the ad hoc mandate leads to purely contractual agreements.
• The need to bring in an investor: the conciliation privilege, specific to the approved agreement, is decisive in attracting fresh money.

In practice, the ad hoc mandate and conciliation are often used in sequence. The manager opens an ad hoc mandate to take stock, structure a first round of discussions and prepare the negotiation, then moves to conciliation when the restructuring takes shape and an agreement needs to be secured or the new money privilege activated. This sequencing is common and perfectly accepted.

One common point deserves emphasis: in both cases, the initiative belongs exclusively to the manager. No creditor can trigger these procedures. It is a tool of the business owner, not a constraint imposed from outside.

Confidentiality, the cornerstone of amicable procedures

Confidentiality is probably the most valuable asset of these arrangements, and the first reason a manager prefers them to collective insolvency proceedings. It is enshrined in Article L611-15 of the French Commercial Code.

Any person who is called to the conciliation procedure or to an ad hoc mandate or who, by reason of their functions, has knowledge of it is bound by confidentiality.

This obligation applies to everyone: the agent, the conciliator, the creditors called to the negotiation, the advisers, and of course the debtor. It prohibits any disclosure, including in the press.

Why does this matter so much? Because premature disclosure of difficulties often triggers a devastating chain reaction. Suppliers demand cash payment, the credit insurer reduces or withdraws its cover, customers turn away for fear of a break in service, the best employees leave, the bank tightens its terms. A viable business can thus be pushed into insolvency by rumour alone. Secrecy protects the negotiation from this vicious circle.

The case law takes this confidentiality very seriously. The courts accept that disclosure of information covered by Article L611-15, in particular by a press outlet that has obtained documents relating to a conciliation, may give rise to liability on the part of its author. The duty of confidentiality is therefore not a mere ethical principle; it is enforceable.

One limit must be known. The approved agreement is made public, as seen above, which partly lifts confidentiality as to its existence. The merely recorded agreement remains entirely confidential. This factor enters directly into the choice between recording and approval.

What the manager gains by acting early

Using an ad hoc mandate or conciliation before going to court, that is to say before collective insolvency proceedings are opened, offers the manager a series of concrete advantages.

The manager retains control of the business. Unlike administration proceedings, where an administrator may be given a supervisory or assisting role, amicable procedures leave the business owner fully in charge. The appointed third party facilitates; it does not manage in the manager's place. The conditions for opening administration proceedings and the company's position during the procedure are set out in our article on a company in administration proceedings.

Acting early also protects the manager's personal liability. A manager who lets the situation worsen and declares insolvency late is exposed to liability actions for insufficiency of assets, or even a management ban. Conversely, one who applies early to the court for a prevention measure demonstrates diligence. Approval of a conciliation agreement, by making the prior insolvency unenforceable, even offers a further form of security.

Finally, these procedures are flexible and quick. An ad hoc mandate can be opened within a few days on a simple application, and negotiation starts immediately. The cost, essentially the fee of the agent or conciliator set under the control of the president, bears no comparison with the economic and human cost of administration proceedings.

For a real estate business, for example a developer faced with a blocked project and bridging loan repayments it will not be able to meet, conciliation makes it possible to renegotiate with the lender and the firms working on the site, without revealing to the market difficulties that would drive away buyers and partners. The same reasoning applies to a private investor over-indebted across several rental properties and carrying on an activity falling within the jurisdiction of the commercial court: amicable prevention preserves the value of the assets far better than a liquidation.

Conclusion: prevention is a decision, not an admission

French culture still too often associates going to court with failure. That is an error of analysis. The ad hoc mandate and conciliation are not antechambers of bankruptcy; they are instruments of strategic management that the best-advised businesses use precisely to avoid collective insolvency proceedings. The real risk is not applying to the president of the court too early; it is waiting until the forty-five days of insolvency have passed, the point at which the choice of weapons narrows sharply.

The position is therefore clear: as soon as the first signs of strain appear, whether cash tension, loss of a major customer, a threatening bank repayment date, or a dispute likely to drain cash, a lawyer experienced in these procedures should be consulted to assess the appropriate tool. In concrete terms, before any application, have a precise diagnosis of the financial position prepared, check whether the insolvency threshold has been crossed and since when, and choose between ad hoc mandate and conciliation according to whether or not an approved agreement needs to be secured and fresh money attracted. It is this early action that makes the difference between a business that is saved and one that is liquidated.

Frequently asked questions

What is the difference between an ad hoc mandate and conciliation?

The ad hoc mandate (Article L611-3 of the French Commercial Code) is available to a business that is not in a state of insolvency, with no statutory duration, and results in contractual agreements. Conciliation (Articles L611-4 et seq.) allows for insolvency of less than forty-five days, is limited to four months extendable by one month, and may lead to an agreement that is recorded or approved by the court. Conciliation is therefore more structured and offers additional legal safeguards, including the new money privilege.

Is the ad hoc mandate really confidential?

Yes. Article L611-15 of the French Commercial Code imposes an obligation of confidentiality on any person called to the ad hoc mandate or the conciliation, or who has knowledge of it through their functions. This obligation covers the agent, the creditors, the advisers and the manager. Breach may give rise to liability on the part of its author, including a press outlet that has disclosed protected information.

Can a creditor trigger a conciliation procedure or an ad hoc mandate?

No. These two prevention procedures depend solely on the initiative of the manager, who applies to the president of the court. No creditor, employee or third party can impose them on the business. This is what radically distinguishes these tools from collective insolvency proceedings opened on a creditor's summons. On the creditor's initiative, see our analysis of summoning the debtor into administration proceedings and its use as a recovery lever.

Can a conciliation be opened if the business is already in a state of insolvency?

Yes, but on a strict condition: the insolvency must not date back more than forty-five days (Article L611-4 of the French Commercial Code). Beyond that, conciliation is no longer available and the manager must declare insolvency in order to open administration or compulsory liquidation. The ad hoc mandate, for its part, requires the absence of any insolvency.

What is the conciliation privilege or new money privilege?

Provided for by Article L611-11 of the French Commercial Code, it grants priority payment ranking to creditors who provide new cash funding or new goods or services under an approved conciliation agreement, if collective insolvency proceedings are subsequently opened. This privilege reassures banks and investors and facilitates the release of financing. It is reserved for the approved agreement and does not benefit the merely recorded agreement.

How long does a conciliation procedure last?

Conciliation is limited to four months by Article L611-6 of the French Commercial Code, with a possible extension of one month at most at the conciliator's request, making five months in total. If there is no agreement at the end of the assignment, no new conciliation can be opened before a period of three months has expired. The ad hoc mandate, by contrast, is not confined to any statutory duration.

Is an approved conciliation agreement made public?

The approval judgment is subject to publicity, so that the existence of the agreement becomes known to third parties, even though its detailed content remains protected. The agreement merely recorded by order of the president, by contrast, remains entirely confidential. This factor weighs in the choice between recording and approval, the latter being worthwhile only to obtain the unenforceability of the prior insolvency and the new money privilege.