New money privilege in conciliation (privilège de conciliation)

The conciliation privilege protects funders that bring new cash to a company during a conciliation. Article L. 611-11 of the French Commercial Code provides that, if safeguard, judicial reorganisation or judicial liquidation proceedings open later, the persons who made a new cash contribution under a court-approved agreement are paid, for the amount of that contribution, by privilege ahead of all other claims, at the rank set by articles L. 622-17 and L. 643-8. The same privilege covers the supplier of a new good or a new service. Three rules govern the mechanism. The court must have approved the agreement; when the president of the court only records the agreement, the privilege does not open. Contributions that shareholders make through a capital increase are excluded. Signatory creditors benefit from it for their fresh money and not for the facilities they granted before the conciliation opened. Article L. 626-30-2 adds that a safeguard plan imposes on claims secured by this privilege no write-off and no deferral that their holders have not accepted. For a private debt fund approached for a €20m to €50m loan during a renegotiation, this payment rank forms part of the risk and pricing analysis.

A distribution company in conciliation obtains €30m of new money from a private debt fund. The court approves the agreement. Eighteen months later, judicial reorganisation proceedings open: the €30m ranks ahead of the €120m of existing bank debt.

• Court approval of the agreement, the condition for the privilege (article L. 611-11).
• The exclusion of the signatory creditors’ earlier facilities and of capital increases.
• Protection in safeguard: no write-off or deferral imposed without consent (article L. 626-30-2).
• The precise identification, in the agreement, of the amounts that make up the new contribution.