The European Commission's Expert Group, reporting in 2003, found that of the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems, France had fully adopted 15, almost fully adopted 10, partially adopted 14, and failed to adopt 2. Philippe & Partners and Deloitte & Touche reported in 2002 that the French system was unfavorable to creditors and a 2005 PricewaterhouseCoopers report found that reforms had been enacted that philosophically favored rescue and restructuring of at-risk debtor firms. Further reforms were embodied in the 2005 Law on Safeguards of the Enterprises, which included provisions modeled on the U.S. Chapter 11 proceedings.

General Overview

In 2002, the European Commission set up an Expert Group on Restructuring, Bankruptcy, and a Fresh Start to collect data on the legal and social consequences of business failure. In 2003 the Expert Group published a final report, which considered, among other issues, European Union countries' compliance with the Principles and Guidelines for Effective Insolvency and Creditor Rights Systems developed by the World Bank in 2001. According to the 2003 Final Report, France has fully adopted 15 of the World Bank's Principles and Guidelines for Effective Insolvency and Creditor Rights Systems, has almost fully adopted another 10 of the principles, and partially adopted 14 of them. Two principles have not been adopted. France is a member of the United Nations Commission for International Trade Law (UNCITRAL). However, the UNCITRAL website discloses that France has not as yet adopted legislation based on the UNCITRAL Model Law on Cross-Border Insolvency.

Philippe & Partners and Deloitte and Touche (PP&DT) were also commissioned to conduct a study, titled "Bankruptcy and Fresh Start," which was also published in 2002. One chapter was devoted to the degree to which France observed the World Bank's established principles and guidelines on the subject. The report concluded that French bankruptcy law was "not favorable to creditors" (p. 23), who fell third in the three-fold priorities of the legal regime, behind saving the financially troubled firm and avoiding the loss of jobs. The report also noted that bankruptcy specialists appointed by the court system have been accused of having too much latitude and of being too susceptible to be influenced by the courts. Regardless of the philosophical intent (to minimize business failures), the report found that 90% of bankruptcy proceedings ultimately ended up with the debtor company's liquidation. One recommended reform offered by the PP&DT report was to supplement the practice of appointing business people as judges on the Commerce Courts by adding professional judges to work alongside them. To enhance the goal of preventing outright liquidation, provisions to strengthen the early-warning function of statutory auditors, the Commerce Court clerks, and the public prosecutor were also suggested. In addition, amendments to the language of the 1985 law were suggested, particularly in order to tightening the definition of "liquidation." Further suggestions to improve the 1985 law included simplifying the procedures for the liquidation of small-asset firms and "a reinforced role for the public prosecutor during the observation period" (PP&DT, p. 25). Finally, the PP&DT report noted that, in 1998, a reform was introduced that would strengthen the oversight of liquidators and receivers and strengthen the statutory auditor's role. It would also require liquidators to draft reports for the public prosecutor and insolvency judge when requested to do so, and require them to immediately deposit all liquidation proceeds into an account at the Caisse de Deposit et Consignations.

Reforms to the bankruptcy and insolvency system in France took place in 1984 and 1985, according to a report published by the International Insolvency Institute in 2003. The new laws sought to encourage the reorganization of financially at-risk businesses. Jurisdiction over bankruptcy cases generally falls to Commerce Tribunals, presided over by members of the business community who are elected to the post of judge on the basis of their expertise by local Chambers of Commerce and who serve part-time on the bench. The law accords them broad discretionary powers. The 1984 reform legislation calls for increased and earlier financial audits and reporting by companies, in order to provide early warning of potential bankruptcies. In such cases, a conciliator may be appointed by the Commerce Tribunal to work with a company' creditors to seek arrangements -- including negotiated debt reduction or extended repayment schedules -- that could help keep an at-risk business afloat. The 1985 reform law streamlined the bankruptcy process and removed the adversarial emphasis of prior law. The new law specifically prioritizes the goals of the insolvency process, first, to permit business rescues, second, to preserve jobs, and third, to provide satisfaction to creditors. Reporting in 2005, PricewaterhouseCoopers noted that a new piece of bankruptcy legislation was passed in 2005, which aimed to facilitate out-of-court settlement of bankruptcy claims. The law provides increased protections for lenders and other creditors and incorporates provisions modeled on the U.S. Chapter 11 proceedings.

On its "Doing Business in France, 2008" web page, the World Bank compared the efficacy of French insolvency proceedings with the averages attained by member states of the Organization for Economic Cooperation and Development (OECD) along three performance dimensions: time required for completion (in years), cost of proceedings (as a percentage of the debtor estate), and creditor recovery rate (expressed as cents on the dollar). In France, it takes an average of 1.9 years to close a business, as compared to the OECD average of 1.3 years. The cost in France averages 9% of the estate, compared to 7.5% in OECD countries. The recovery rate in France is 47.4 cents on the dollar, whereas the rate in OECD member states averages 74.1 cents on the dollar.