Mandat ad hoc and conciliation allow the director of a French business in difficulty to renegotiate its debts with its banks, landlords and main suppliers, under the aegis of a professional appointed by the president of the court, without publicity and without its customers, employees or competitors knowing. Conciliation remains open to a business that has been unable to pay its debts as they fall due for less than forty-five days. Beyond that, the only route is the court. When one acts decides almost everything.
An industrial joinery business in the Vendée, 48 employees, 9 million euros in turnover, has just lost its main customer, a developer that accounted for 30% of its business and is itself in difficulty. It owes 1.4 million euros to its two banks under equipment loans, its timber stock was bought on credit at the top of the market, and the treasurer forecasts a cash shortfall in December. For now, every instalment is being paid. The chairman would like to reschedule the loans and obtain a six-month deferral from two large suppliers, without the news spreading through a trade where everyone knows everyone.
This is exactly the situation these procedures were designed for, and it has an advantage the director will no longer have in three months: the business is not insolvent (in cessation des paiements). This page explains what mandat ad hoc and conciliation are, how to choose between them, what can be obtained from creditors and how to bring them to it, the difference between an acknowledged and a court-approved agreement, and the way out when negotiation fails.
1. Two confidential procedures, opened at the director’s sole request
Mandat ad hoc is the more flexible of the two. At a debtor’s request, the president of the court may appoint a mandataire ad hoc and define his task; the debtor may propose a name (Commercial Code, art. L. 611-3). The text sets no duration and no substantive conditions; in practice it is reserved for businesses that are not insolvent. The competent court is the commercial court for a commercial or craft business, replaced by the economic activities court where that pilot scheme runs, and the judicial court in other cases. The debtor need not inform the works council.
Conciliation is more structured. It is open to debtors facing a legal, economic or financial difficulty, actual or foreseeable, who have not been insolvent for more than forty-five days (art. L. 611-4). The president is seised by an application setting out the debtor’s economic, financial, social and asset position, its financing needs and the means of meeting them; he appoints a conciliator for up to four months, which he may extend provided the total does not exceed five months (art. L. 611-6). A new conciliation may not be opened within three months of the end of the previous one.
Both procedures share the feature that gives them their value: anyone called to the mandat ad hoc or conciliation, or who learns of it through their functions, is bound by confidentiality (art. L. 611-15). Creditors invited to the table, banks in particular, may neither disclose the procedure nor use it against the business. And any clause that worsens the debtor’s obligations or reduces its rights under a current contract solely because a mandataire ad hoc was appointed or conciliation opened is deemed unwritten (art. L. 611-16): the bank loan’s acceleration clause triggered by opening the procedure does not bite.
2. Mandat ad hoc or conciliation: the insolvency test
The choice depends first on cash. Insolvency, in the French sense of cessation des paiements, is the inability to meet debts due out of available assets. A director who reaches it must apply to open collective proceedings within forty-five days, unless within that period he has applied to open conciliation (Commercial Code, art. L. 631-4). Conciliation is therefore the only amicable procedure open to a business that has just tipped over. Mandat ad hoc assumes it has not.
In comparable situations, mandat ad hoc suits targeted negotiations, with no imposed deadline, with a small number of partners: one bank and one landlord, for instance. Conciliation is better where negotiation must succeed quickly, involves several creditors, and the director wants legal levers, in particular the option of having the agreement approved by the court and obtaining time against a reluctant creditor. Many cases start as a mandat ad hoc and continue as a conciliation once agreement takes shape and must be secured. For the Vendée business, which is not insolvent but must reach terms before December with two banks and two suppliers, a conciliation opened now is the safest route.
3. What can be obtained, and how
The conciliator’s task is to help the debtor and its main creditors, and where appropriate its regular contracting partners, reach an amicable agreement to end the business’s difficulties (Commercial Code, art. L. 611-7). The agreement may contain whatever the parties accept: rescheduling of loans, capital repayment holidays, partial write-offs, debt-for-equity swaps, new financing, maintenance of short-term facilities, deferral of rent. Tax and social security authorities may grant write-offs and time to pay on the conditions set by the Code. At the debtor’s request, the conciliator may also prepare a full or partial sale of the business to be carried out in later proceedings, known as a prepack sale.
The most effective tool is often the least known. During conciliation, the debtor may ask the judge who opened it to apply Article 1343-5 of the Civil Code, which allows up to two years’ time to pay, against a creditor that has served formal notice or sued, or that refused, within the period set by the conciliator, to suspend enforcement of its claim; in the latter case, the judge may even defer or reschedule claims not yet due for the duration of the conciliator’s task (art. L. 611-7). A creditor that refuses to talk knows it may have imposed on it what it would not negotiate. That prospect is often enough to bring a bank back to the table.
The file presented to creditors matters as much as the law. An eighteen-month cash plan, a credible business plan explaining how the business will replace the lost customer, and a precise request for each creditor (what each gives up and what it gets in return) turn a plea for help into a business proposal. The conciliator, often a court-appointed administrator or a former commercial court judge, brings authority and knowledge of banking practice. The business’s lawyer prepares the file, negotiates and drafts the agreement.
The negotiation itself has its own grammar. The conciliator first meets creditors separately, to gauge what each is prepared to concede, then together once agreement takes shape; he often obtains from the banks a de facto standstill during the talks, and from suppliers continued deliveries, because each understands that a break in supply would tip the business over, that the collective proceedings that followed would reduce its claim to an uncertain dividend paid over ten years, and that the effort asked today, a six-month deferral or a rescheduling over five years, costs far less than the likely loss of a customer it has supplied for years and hopes to go on supplying. Enlightened self-interest does the rest. The law only makes it visible.
4. Acknowledged or court-approved agreement: confidentiality versus protection
An agreement reached in conciliation can take two routes. On the parties’ joint application, the president of the court acknowledges it and makes it enforceable, on the basis of a certified statement by the debtor that it was not insolvent when the agreement was concluded, or that the agreement ends its insolvency; that decision is not published and cannot be appealed (Commercial Code, art. L. 611-8, I). Confidentiality is fully preserved.
At the debtor’s request, the court may instead approve (homologuer) the agreement, if the debtor is not insolvent or the agreement ends its insolvency, if its terms are likely to ensure the business’s survival, and if it does not harm the interests of non-signatory creditors (art. L. 611-8, II). The approval judgment is published (art. L. 611-10): confidentiality is lost. The counterpart is the conciliation privilege, known as new money. Those who, in the approved agreement, provided new cash or a new good or service to keep the business going are paid, if collective proceedings are later opened, ahead of other claims for the amount of that contribution (art. L. 611-11). A bank willing to lend fresh money to a fragile business almost always asks for it.
The choice between the two routes therefore turns on what is asked of creditors. A simple rescheduling of existing debt is acknowledged. New financing, which will only be granted with the privilege, is approved. The rule is simple: conciliation protects secrecy as long as no new money is requested.
5. When negotiation fails
Conciliation does not always succeed. If one or two creditors block an agreement the others accept, the debtor may, during conciliation, apply to open accelerated safeguard, short collective proceedings in which a plan prepared during conciliation can be adopted by the classes of affected parties and imposed on dissenters (Commercial Code, arts. L. 628-1 et seq.). The work done is then not wasted: it becomes the basis of the plan. If the position has deteriorated to the point where the business has been insolvent for more than forty-five days, the route is receivership, which the director must apply for himself, failing which he may incur personal liability.
Failure also has a cost for those who caused it. A creditor that refused any concession in conciliation will find itself, in receivership, facing a plan that can impose up to ten years’ time to pay and, in liquidation, a derisory dividend. Banks know this, which is why conciliation works in the great majority of cases where it is opened in time.
6. And the director? Time limit, guarantees and liability
Conciliation also protects the director, in three ways. The first concerns the time limit. The director of an insolvent company must apply to open collective proceedings within forty-five days, unless he has applied within that period to open conciliation (Commercial Code, art. L. 631-4); a conciliation application filed in time protects him from the complaint of late filing.
The second concerns his personal commitments. In small businesses, the director has almost always guaranteed the company’s bank loans. Co-obligors and those who gave a personal guarantee may rely on time to pay granted to the debtor by the judge during conciliation, and on the terms of the acknowledged or court-approved agreement (Commercial Code, art. L. 611-10-2). The rescheduling obtained for the company therefore also applies to the guarantor: a bank that has agreed to spread its claim over five years cannot at the same time demand immediate payment from the director. For a director-guarantor, this is often the decisive reason to open conciliation rather than wait.
The third concerns his liability in liquidation. Where liquidation reveals a shortfall of assets, the director may be ordered to bear it in whole or in part if he committed a management fault that contributed to it, mere negligence being excluded since the law of 9 December 2016 (Commercial Code, art. L. 651-2). Letting debts grow without trying anything is one of the complaints most often upheld. Having opened conciliation in time, with a serious plan, is the best proof to the contrary. The rules on this liability are discussed in the article on director liability in liquidation.
7. Cost and timetable
The fees of the mandataire ad hoc or conciliator are set by the president of the court on appointment, with the debtor’s agreement, by reference to time and complexity; they are borne by the business. The lawyer’s fees come on top. These costs bear no comparison with those of receivership, or with the loss of value caused by publicity of collective proceedings in a trade where customers and suppliers cut their exposure as soon as they hear of it. As for a clause charging the debtor with the fees of creditors’ advisers, the Code sets a limit: any share exceeding the proportion fixed by ministerial order is deemed unwritten (art. L. 611-16).
The timetable, for its part, is dictated by cash. A conciliation opened in October, with a shortfall forecast for December, leaves time to negotiate; opened in December, it becomes a race against the clock, with a real risk of tipping into insolvency during the talks. For the Vendée business, the application should go out in the next few days.
The firm assists directors of small and mid-sized businesses in preparing applications for mandat ad hoc and conciliation, negotiating with banks, landlords and suppliers, and drafting acknowledged or court-approved agreements. Its page on business law describes this work, and the contact form allows a situation to be outlined in full confidence.
Further reading: France’s economic activities courts: what changes for companies in litigation.
Frequently asked questions
What is the difference between mandat ad hoc and conciliation?
Both are confidential and opened at the director’s sole request. Mandat ad hoc has no statutory duration and is in practice reserved for businesses that are not insolvent (Commercial Code, art. L. 611-3). Conciliation lasts up to four months, extendable to five, remains open to a business insolvent for less than forty-five days, and allows the agreement to be acknowledged or approved by the court (arts. L. 611-4, L. 611-6 and L. 611-8).
Are creditors obliged to accept an agreement in conciliation?
No, the agreement is amicable. But the debtor may ask the judge to grant time to pay under Article 1343-5 of the Civil Code against a creditor that has served formal notice or sued, or that refused to suspend enforcement of its claim at the conciliator’s request (Commercial Code, art. L. 611-7). Where a minority blocks, accelerated safeguard may allow the plan to be imposed.
Can the bank accelerate the loan because the business is in conciliation?
No. Any clause that reduces the debtor’s rights or worsens its obligations under a current contract solely because a mandataire ad hoc was appointed or conciliation opened, or requested, is deemed unwritten (Commercial Code, art. L. 611-16).
Is a conciliation agreement made public?
Only if it is approved by the court. An agreement acknowledged by the president of the court is neither published nor open to appeal. An agreement approved by the court is published, but it gives creditors who provide fresh money a payment privilege in any later collective proceedings (Commercial Code, arts. L. 611-8, L. 611-10 and L. 611-11).
Can conciliation be requested if the business is already insolvent?
Yes, if it has been insolvent for less than forty-five days (Commercial Code, art. L. 611-4). Applying for conciliation then relieves the director, within that period, of his duty to apply for receivership (art. L. 631-4). Beyond it, only collective proceedings are possible.
On the same subject: the director’s personal guarantee since the 2021 reform; director liability for a shortfall of assets in liquidation; shareholder deadlock at 50/50, how to break it.