Reed Smith Client Alerts

In light of the ongoing public health emergency, the French government has published several new pieces of legislation over recent days that have a direct impact on the rights and activities of debt funds under existing contracts with borrowers until at least summer 2020.
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  • The Moratorium Ordinance, published on 25 March 2020, provides for restrictions on lenders’ rights to accelerate their debt, terminate contracts or enforce their security until 24 July 2020. This legislation is immediately applicable to all existing contracts, including credit agreements between lenders and borrowers.
  • The Insolvency Ordinance, published on 28 March 2020, notably extends the duration of insolvency proceedings which are already opened and is also immediately applicable to ongoing proceedings.

Moratorium Ordinance

  1. The Moratorium Ordinance imposes a temporary moratorium on all indebtedness that would become due or which would otherwise mature at any time between 12 March 2020 and 24 June 2020 (the Moratorium Period)1.
  1. During the Moratorium Period, creditors are restricted from accelerating any debt owed to them, invoking any penalty clauses or terminating any credit arrangements due to a payment default2.

    The legislation is drafted such that it can be interpreted widely to be extended to other forms of creditor action such as claims under guarantees and letters of credit, and enforcement of security.

  1. This is a temporary moratorium and creditors will be able to apply contractual provisions (e.g. accelerate debt, claim damages) if the relevant company has not cured such default in the period up to one month after the end of the Moratorium Period – i.e. as from 24 July 20203.

    Therefore, the effect of the Moratorium Ordinance is not to provide a temporary waiver; debt remains due during the Moratorium Period.  Instead, the legislation provides a temporary moratorium until 24 July 2020 in respect of any indebtedness, which becomes due or matures during the Moratorium Period.