Vol 13 (2016) - Issue 3

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France: The Cassation Court Sets Ground Breaking Precedent to Preserve the Confidentiality of Pre-insolvency Preventative Proceedings

Pre-insolvency preventative proceedings (mandat ad hoc and conciliation) (the 'Proceedings') have existed for a long time in France and largely been used to good effect by practitioners. The efficacy of such Proceedings relies on the maintenance of confidentiality – a recent decision of the French Cour de cassation (the 'Decision') ruled that the duty of confidentiality applicable to parties involved in Proceedings also applied to third parties, which included the foreign financial press. This decision has further clarified the confidentiality regime relating to Proceedings.

1. Key aspects of the duty of confidentiality in Proceedings
Whereas a judgement commencing insolvency proceedings (sauvegarde, redressement and liquidation judiciaire) in France is published in the official gazette, Proceedings (governed by articles L.611-3 and L.611-4 et alia of the French Code de commerce) impose a statutory duty of confidentiality on the parties involved in such Proceedings and on the persons who are aware of the Proceedings by virtue of their functions. This duty of confidentiality has for years been viewed as a key contributor to the success of Proceedings as it incentivises the debtor to provide a wide range of information to its main creditors with the aim of swiftly reaching agreement consensus. The confidentiality and the speed of the Proceedings also has the effect of preventing the other ordinary or trade creditors, not involved in the Proceedings, from amending their payment terms in a manner that could adversely affect the debtor at a moment where it is the most vulnerable.

2. The facts of the Decision
A French holding company of around a hundred subsidiaries (the 'Holding Company'), which had been acquired by a large cap investment fund, applied for the opening of mandat ad hoc proceedings in July 2012 (which would be subsequently be converted into conciliation proceedings). The mandataire ad hoc’s appointment consisted in 'reaching a new agreement with the debtor’s main lenders (senior, second lien and other concerned party), or any operation enabling the debtor and its subsidiaries to remain viable and maintain its operations, whilst taking the concerned parties’ interests into account equally and ensuring the strict confidentiality of the future negotiations by any legal means'.
Following the appointment of the mandataire ad hoc and thereafter of the conciliateur, a media company providing online information globally to the corporate and financial world (the 'Respondent') published several detailed articles on the Holding Company and its subsidiaries’ financial situation, the implementation of Proceedings and the evolution of the on-going conciliation. This information had clearly been provided to the Respondent by a party with inside information and involved in the Proceedings.
The conciliateur, the Holding Company and several of its subsidiaries then decided to begin legal proceedings against the Respondent. This followed the Respondent publishing further information on the on-going conciliation following receipt of a notice to cease any publication regarding the on-going conciliation from the conciliateur.