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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

11 SEP 2009

Tales from the Sorbonne - Professor David Graham QC's recent Parisian expedition

During a recent visit to Paris, Professor David Graham QC spent an afternoon in the Cujas library attached to the Law Faculty at the Sorbonne. Named after a celebrated sixteenth century jurist, the library is the largest of its kind in France providing magnificent facilities for research.

David also spent far too much time in several local law bookstores including the famous Dalloz. He brought back numerous works on the history of French insolvency law and, in particular, several works dealing with the latest developments in relation to business enterprises in difficulties.

As a result of major reforms in the 1960s and the 1980s the relevant laws were substantially modernised.  Since then there has been yet further amending legislation the latest of which came into force earlier this year. In consequence of so much legislation this part of French law has been described as being in a state of instability.

The emphasis is no longer on the culpability of directors but is primarily concerned with the social and economic consequences of a business failure. The courts are encouraged to facilitate turnaround situations whereby a variety of conflicting interests are reconciled.  These interests include that of the proprietor of the business since the 'redressement' of the business enables him better to revive its fortunes.

A second interest is that of the employees since they can hope to keep their jobs. A third interest is that of what is called "the collectivity" whereby the costs engendered by a closure and the loss to the exchequer are minimised. Yet another interest, of course, is that of the creditors since a turnaround situation enables them to keep a customer or client, particularly as all too often the prospects for any realistic payment for the unsecured creditors is often no more than minimal.

An excellent student textbook on the subject is entitled: "Procedures Collectives" by Phillipp Petel; The major pracitioners' work is: "Droit des Enterprises en Difficulte" by A Jacqemont. Both books were published this year. The second has an extremely important section on cross-border insolvency, together with the impact of the European insolvency convention, supported by a discussion of recent case law on the subject.

David has also acquired a copy of Balzac's "Cesar Birotteau". This famous work of French literature was published in the 1830s and is about the successful proprietor of a perfume store in Paris who, in 1818 is seduced into speculating in the local real estate market. Betrayed by his former friends and unable to obtain further bank credit he is ruined, becoming bankrupt. The book not only describes the emotional state he and his family suffered as a result but includes a lengthy description of the malpractices with which this branch of the law was then synonymous. A spoof circular urging creditors to accept a voluntary arrangement is so satirical that it deserves to be translated; David is hoping to do so.

David has also remembered that the draftsman of the English Bankruptcy Act of 1883 were fairly familiar with current insolvency trends in France and other parts of Western Europe. The first edition of Chalmers & Hough on Bankruptcy contains an illuminating section on Foreign law, but this was omitted from the last edition, published in 1938. The discussion of French insolvency law mentions that funds collected by syndics for assignees had to be deposited as soon as possible in a central bank; this procedure had been introduced in about 1807 and is probably the inspiration for similar requirements introduced in England during the 1830s.

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