Executory contracts in insolvency: The French perspective

Abstract

In France, executory contracts are mostly dealt with in Articles L622-13 and L641-11-1 of the Commercial Code. Insolvency proceedings do not automatically terminate executory contracts and the Code requires the counterparty to perform their obligations, irrespective of the debtor’s failure to perform theirs before insolvency proceedings are opened. Executory contracts remain binding on the debtor and its creditors pending their assumption or rejection by the insolvency practitioner. Generally, the French insolvency regime is geared towards promoting the rescue of businesses at an early stage, with a view to preserving employment. It is a comprehensive body of law with no less than five corporate rescue procedures. However, as a result, France has been internationally known for its pro-debtor nature and the rather low involvement of creditors in preventive restructuring proceedings, even following regular reforms aiming at increasing the role and rights of creditors in proceedings. The Ordinance of September 2021 transposing EU Directive 2019/1023 has, however, significantly changed the French restructuring and insolvency law landscape, making France more attractive to financial investors, notably by increasing the protection offered to creditors. In a similar vein, the trend in relation to the treatment of executory contracts has been to increase the protection afforded to debtors’ counterparties.