Continuation of contracts under an insolvency proceeding governed by French law: Better be short!

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When a company is in good standing and healthy, the question of the renewal of a contract or its duration arises only in a competitive environment. In case of an insolvency proceeding, the situation is more complex, notably for suppliers whose payment remains uncertain. If challenging the decision taken by the judicial administrator imposing the continuation of a contract has little chance of success, one solution may lie in the nature and the terms of the original contract.

When a company is under an insolvency proceeding, the judicial administrator is entitled by law to decide, to the exclusion of any other parties, whether or not a contract should be terminated. The judicial administrator could therefore force a co-contractor to perform the contract entered into with the bankrupted company if the contract was entered into before the opening of an insolvency proceedings. The decision of the administrator to impose the performance of a contract is binding among all parties regardless of the status of the insolvency proceedings (e.g. Article L. 622-13, II, para. 1 of the French Commercial Code provides such power to the administrator in the event of a safeguard proceeding or a reorganization proceeding and Article L. 641-11-1, II, paragraph 1 of the French Commercial Code in the event of a liquidation proceeding).

The decision to pursue a contract may be challenged by the co-contracting party. The recourse against such decision being extremely limited, the co-contractor is left powerless and has no other choice than to accept such decision, decision taken to preserve the business of the company.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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