Sale plan (plan de cession): taking over a business at the bar of the court

An investor spots an industrial SME in court-supervised reorganisation (redressement judiciaire), whose order book remains solid despite drained cash. He or she wants to take it over, but quickly realises that there will be no negotiation with the director: it is the court that will decide, among several candidates, to whom the business is entrusted. Taking over a company at the bar of the court requires mastering a legal mechanism very different from a conventional acquisition, with its own rules for submitting an offer, its selection criteria and its specific risks. This guide sets out the sale plan procedure (plan de cession), the conditions for admissibility of an offer to take over a business in difficulty, how the court decides, and the pitfalls that await the purchaser once the plan has been adopted.

The sale plan, a mechanism distinct from a conventional acquisition

The sale plan is governed by Articles L642-1 et seq. of the French Commercial Code, in Book VI on business difficulties. It allows all or part of the activity of a business subject to collective insolvency proceedings to be transferred to a third party, with the aim, under Article L642-1, of ensuring the continuation of activities capable of standalone operation, of all or part of the jobs attached to them, and of clearing the liabilities.

This purpose changes everything compared with an ordinary acquisition. The purchaser does not buy a business to maximise a capital gain: he or she puts to the court a project that will be judged first by the standard of the employment preserved and the guarantees of performance.

Selling the assets, not the company

In a conventional acquisition, a buyer purchases the securities of a company (shares) and becomes owner of the legal entity, with its assets and liabilities. The buyer then negotiates a warranty of assets and liabilities (garantie d'actif et de passif) to protect against accounting surprises. The purchase of securities, the sale of a business as a going concern (fonds de commerce), the preliminary audits and the contractual tools of this transaction are presented in our guide to taking over a business outside collective proceedings.

The sale plan works the other way round. The purchaser does not acquire the debtor company, but buys a set of assets and contracts designated in the judgment: the business as a going concern, equipment, stock, the employment contracts attached to the activity, and commercial contracts judged necessary. The debtor legal entity, for its part, remains in the collective proceedings and will generally be liquidated. The pre-existing liabilities (supplier debts, tax and social security debts, loans) remain in principle in the estate of the transferred company and are not transferred to the purchaser.

This split between the business as an activity, which passes to the purchaser, and the indebted legal entity, which disappears, is the core of the mechanism and its main attraction: taking over an activity while wiping out the historic liabilities.

A judicial framework, not a private negotiation

The counterpart of this advantage is the loss of control over the timetable and the terms. The price, the scope, and the fate of employees and contracts are fixed by the court in its judgment adopting the plan, after hearing the public prosecutor's office, the creditors' representative (mandataire judiciaire), the administrator and, where applicable, the employee representatives. Taking over a business through the court takes place under the eye of a supervising judge (juge-commissaire) and requires complete transparency: the offer submitted becomes a public commitment, enforceable and irrevocable.

When a sale plan becomes possible

A sale plan arises only within collective insolvency proceedings opened by the commercial court or the tribunal judiciaire depending on the debtor's activity.

In court-supervised reorganisation, a sale is considered where the business cannot recover on its own through a continuation plan (plan de continuation). Article L631-13 of the French Commercial Code allows takeover offers to be submitted from the opening of the proceedings, during the observation period. How the observation period runs and the solutions that may result from it are described in our article on a company in court-supervised reorganisation.

In compulsory liquidation (liquidation judiciaire), Article L642-1 also allows a sale where the business has ceased trading or where its recovery is manifestly impossible but all or part of the activity can be taken over. This is then called a sale of a business in liquidation, often the quickest route. The distinction between a sale plan and the sale of isolated assets, and the purchaser's rights in the latter case, are covered in our article on auction sales in compulsory liquidation.

In both cases, the court-appointed administrator (or the liquidator) organises the search for purchasers, draws up a specification, sets a deadline for submitting offers and ensures publicity of the sale. It is this phase that everyday language describes as a takeover "at the bar of the court".

Submitting a takeover offer: form, content and deadlines

An offer to take over a business in difficulty is not a letter of intent. It is a formal legal act, the content of which is governed by Article L642-2 of the French Commercial Code.

Who may and who may not submit an offer

Any individual or legal entity may be a candidate, with the exception of the persons referred to in Article L642-3. The following are thus excluded: the debtor itself, the de jure or de facto directors of the legal entity in the proceedings, their relatives and in-laws up to the second degree inclusive, and persons who are or have been supervisors (contrôleurs) during the proceedings.

This prohibition aims to prevent a director from having a business that he or she led into default bought cheaply by a relative, stripped of its liabilities. A derogation remains possible: the court may, on the application of the public prosecutor's office and by a specially reasoned judgment, authorise such a sale, in particular where no other serious offer comes forward and takeover by the director is the only way to save the activity.

The mandatory content of the offer

Article L642-2 II requires the offer to be in writing and to contain a set of precise particulars, failing which it is inadmissible:

• the precise description of the assets, rights and contracts included in the offer
• the forecasts for activity and financing
• the price offered, the terms of payment, the identity of the providers of capital and, where applicable, of their guarantors
• the date of completion of the sale
• the level and prospects of employment justified by the activity concerned
• the guarantees given to ensure performance of the offer
• the forecasts for asset disposals during the two years following the sale
• the duration of each of the commitments made by the offeror

A candidate who simply writes “I propose to take over the business for an amount to be discussed” will see the offer rejected. The rigour of the file, in particular on financing and employment, is the first signal sent to the court.

A firm and irrevocable commitment

Once submitted within the deadlines set by the administrator, the offer can no longer be withdrawn. Article L642-2 specifies that it may be amended only in a direction more favourable to the objectives of the plan, and that it binds its author until the court's decision adopting the plan. It remains in place even if the hearing is postponed.

In practical terms, a purchaser who discovers a problem with the production equipment after the event cannot withdraw: the commitment was made as things stood. This irrevocability makes it necessary to carry out the takeover audits before submission, within a time frame that is often very tight, of a few weeks.

The court's criteria for selecting an offer

Where several offers are before it, the court does not mechanically select the financially highest. Article L642-5 provides that the court selects the offer that makes it possible, in the best conditions, to ensure the most lasting employment attached to the assets sold and the payment of creditors, and that offers the best guarantees of performance.

“The court selects the offer that makes it possible, in the best conditions, to ensure the most lasting employment attached to the assets sold, the payment of creditors, and that offers the best guarantees of performance.” (Article L642-5 of the French Commercial Code)

Three logics are therefore combined, and the order of the words is not neutral: lasting employment often takes precedence over the amount of the price.

Employment is assessed not by the number of posts advertised on the day of the takeover, but by the soundness of the economic project that is to sustain them over time. A candidate who promises to keep all the employees without a credible financing plan will be judged less serious than a purchaser who takes over a slightly smaller workforce but with a genuine industrial project.

Payment of creditors obviously carries weight, but a high but poorly financed price does not win the decision: the court favours certainty of performance. That is why the quality of the providers of capital, bank guarantees and the structuring of the financing count as much as the amount.

The guarantees of performance cover the purchaser's real ability to honour its commitments: bank guarantee, escrow of the price, experience in the sector, consistency of the business plan. An unknown investor with no track record will do well to secure the offer with tangible guarantees.

What the purchaser really acquires

Understanding the exact scope of the sale is decisive, because it determines both the value of the takeover and the risks incurred.

The assets and contracts transferred

The judgment adopting the plan designates the assets sold: buildings, equipment, stock, intangible elements of the business. It also designates, under Article L642-7, the leasing, rental and supply contracts for goods or services necessary for the continuation of the activity, which the court decides to transfer to the purchaser. The counterparty cannot object: the contract continues with the purchaser on the terms in force on the day the proceedings were opened, notwithstanding any clause to the contrary.

This prerogative is powerful: it makes it possible to keep a strategic commercial lease or a key supply contract. But the court chooses the contracts transferred, and the purchaser must state precisely in the offer which ones it wishes to take over. A contract left out of the offer is not transferred.

The fate of employment contracts

The employment contracts attached to the activity taken over are, in principle, transferred automatically to the purchaser under Article L1224-1 of the French Labour Code. The purchaser therefore takes on the employees, with their seniority and acquired rights.

However, the judgment fixes the number of dismissals authorised as part of the restructuring, on the basis of the level of employment announced in the offer. These dismissals for economic reasons take place within the month following the judgment and benefit from a lighter procedural regime, because they have been validated beforehand by the court. A purchaser who announces that it will take over sixty employees out of eighty thus knows, from the judgment, what number of redundancies it is authorised to make.

What remains outside the scope

The liabilities pre-dating the opening judgment remain in the transferred entity: supplier debts, tax and social security debts, loans not secured on an asset sold. The claims of these creditors will be paid, if funds remain, from the sale price and the proceeds of the liquidation, in the order of priority. The purchaser, for its part, starts with an asset base “cleaned” of these liabilities.

Risks and pitfalls for the purchaser

The apparent simplicity of a takeover without liabilities conceals several risks specific to the sale plan, which the purchaser must anticipate before submitting an offer.

The burden of security interests over financed assets

Article L642-12, paragraph 4, provides for a major exception to the principle that liabilities are not transferred. Where an asset sold is subject to a security interest securing a loan used to finance that same asset, the purchaser is required to pay the loan instalments remaining due from the transfer of ownership.

In plain terms, if the business financed a machine or a building by a loan secured by a pledge or mortgage on that asset, and the purchaser takes over that asset, the purchaser also takes over the corresponding bank debt. This mechanism can significantly increase the real cost of the takeover. Analysis of the security interests registered over the assets sought is therefore an indispensable prerequisite before any offer is submitted.

Temporary inalienability of the assets taken over

To prevent a purchaser from buying the business solely in order to sell off its assets piecemeal, Article L642-10 allows the court to attach to the plan a clause of inalienability over all or part of the assets sold, for a period that it sets. During this period, the purchaser may not sell, let or give as security the assets concerned without the court's authorisation.

An investor whose project relied on a quick sale of real estate assets would therefore run up against this constraint. The duration and extent of the inalienability appear in the judgment and must be built into the takeover strategy.

No warranty and sale as it stands

The purchaser buys the assets as they stand, without a warranty of assets and liabilities, without the warranty against hidden defects under the ordinary law of sale, and without any undertaking from the seller as to the substance or profitability of the business. The purchaser has no recourse against a seller, since there is no true seller in the conventional sense: the sale results from a judgment.

This absence of a safety net reinforces the need for serious audits before the offer: a social audit to check the transferable employee liabilities, a contracts audit, a technical audit of the production equipment, and verification of the administrative operating authorisations.

Environmental liability and authorisations

Where the activity taken over falls within a classified installation for the protection of the environment (installation classée pour la protection de l'environnement), the purchaser becomes the operator and inherits the obligations attached to the site: bringing into compliance, restoration, monitoring. This environmental liability is not wiped out by the collective proceedings, because it falls on the operator of the day. A polluted industrial site can thus generate a clean-up cost unrelated to the takeover price. Verification of the administrative status of the site and of its environmental history is unavoidable.

The risk of termination of the plan

The sale plan is not an end point, it is a commitment to be performed. Article L642-11 allows the court, where the purchaser fails to perform its obligations, in particular payment of the price or compliance with employment commitments, to order termination of the plan. The purchaser may then be deprived of the assets sold, without necessarily recovering the sums already paid. The commitments made before the court (job retention, price, timetable) must therefore be calibrated to the real ability to meet them, and not to the mere wish to win the bid.

After the plan has been adopted

Once the judgment adopting the plan has been given, the purchaser performs its commitments: payment of the price on the terms set, completion of the transfer documents, payment of the instalments of the loans transferred, and compliance with the announced level of employment. The plan supervisor (commissaire à l'exécution du plan) oversees the proper course of events.

Transfer of ownership of the assets takes place on the date provided in the judgment, after payment of the price or proof of the guarantees. From that moment, the purchaser operates the activity in its own name, under its own responsibility, with the contracts and employees transferred.

Conclusion

Taking over a business at the bar of the court is a real opportunity: acquiring a viable activity, freed of its historic liabilities, at a price often lower than that of a conventional acquisition. But the advantage has a hidden price. The purchaser loses control of the negotiation, commits irrevocably, buys without warranty, and bears specific burdens such as loans secured on the assets taken over, temporary inalienability or environmental liability. The court, for its part, is not looking for the best price but for the project that is soundest for employment and most reliable in its performance.

The success of a takeover offer is therefore not decided on the amount displayed, but on industrial credibility, the robustness of the financing and clarity about the risks transferred. Before submitting any offer, have a precise map drawn up of the security interests registered over the assets sought, the contracts to be taken over and the environmental liability of the site, then calibrate your employment commitments to your real ability to meet them over time: it is this rigour, and not the highest bid, that wins the court's decision and secures the takeover over time.

Frequently asked questions

What is the difference between a sale plan and a conventional acquisition of a business? In a conventional acquisition, the buyer purchases the securities of the company and takes over its assets and liabilities, with a negotiated warranty of assets and liabilities. In a sale plan within collective insolvency proceedings, the purchaser buys only a set of assets and contracts designated by the court, without taking over the pre-existing liabilities, but also without any warranty from the seller. The sale results from a judgment, not from a private negotiation.

Does the purchaser take over the debts of the business in difficulty? In principle no: the liabilities pre-dating the opening judgment (supplier, tax and social security debts) remain in the transferred entity and are not transferred. A major exception exists, however, in Article L642-12, paragraph 4 of the French Commercial Code: if an asset taken over is subject to a security interest securing the loan that financed it, the purchaser must pay the remaining loan instalments.

How is an offer to take over a business in difficulty submitted? The offer must be in writing and addressed to the court-appointed administrator or the liquidator within the time limit that he or she has set. It must contain the mandatory particulars of Article L642-2 II: scope of the assets and contracts taken over, price and terms of payment, identity of the providers of capital, level of employment, guarantees of performance and duration of the commitments. An incomplete offer is inadmissible, and an offer once submitted can no longer be withdrawn.

On what criteria does the court choose the takeover offer? Article L642-5 of the French Commercial Code requires the court to select the offer that ensures the most lasting employment, allows the creditors to be paid and offers the best guarantees of performance. The highest price does not win automatically: a credible project for employment that is soundly financed often takes precedence over a financially higher but poorly guaranteed offer.

Can an offer be withdrawn or amended after it has been submitted? Not withdrawn: once submitted within the deadlines, the offer is firm and irrevocable until the court's decision, even if the hearing is postponed. It may be amended only in a direction more favourable to the objectives of the plan, in particular better job retention or a higher price. That is why takeover audits must be carried out before submission.

Can a director buy his or her own business at the bar of the court? In principle no: Article L642-3 of the French Commercial Code prohibits the debtor, its directors and their relatives and in-laws up to the second degree from submitting an offer. A derogation remains possible, but only on the application of the public prosecutor's office and by a specially reasoned judgment of the court, generally where no other serious offer can safeguard the activity.

How long does it take to complete a takeover through a sale plan? The procedure is quick compared with a conventional acquisition: often only a few weeks pass between the call for offers organised by the administrator and the court hearing. This tight timetable obliges the purchaser to prepare its financing and audits in advance, because the deadline for submitting offers leaves little margin to analyse the target business in depth.