First, late payment penalties and the enforcement of penalty clauses that took effect before 12 March 2020 are "still suspended" from that date until the termination date of the legally protected period (24 June 2020).

Second, the Ordinance of 15 April 2020 amends the freezing mechanism for the clauses sanctioning the non-performance of an obligation due after 12 March 2020, during the legally protected period. The effects of these clauses are frozen (they are "deemed not to have come into force or effect") until the expiry of delay equal to the “period of execution of the contract impacted by the measures resulting from the state of health emergency.“

The obligee can no longer invoke these clauses during this period, and the obligor thus has a further delay. For instance, a penalty clause sanctioning failure to meet an expected due date ten days after the beginning of that period will take effect against the obligor ten days after the end of the legally protected period. 

This provision benefits any obligor who has breached one of its contractual obligations within a specified period, without distinction as to the cause of the breach: thus, unlike in the case of a Force Majeure event, the failure to perform or the breach does not have to be necessarily directly attributable to the health crisis in order to paralyze these clauses. It is deemed to be. It should not even have explored alternative solutions.

The Ordinance of 15 April 2020 also extends the freezing mechanism to clauses sanctioning an obligation falling due after the end of the legally protected period, i.e. after 24 June 2020. The extension will also be calculated after the end of the legally protected period according to the length of the execution period that will be impacted. Money bonds are expressly excluded. For the latter, companies facing financial difficulties are directed to other mechanisms under French ordinary law, such as grace periods or the rules relating to insolvency proceedings.

Article 5 of the Ordinance: extension of the period for termination and the deadline for notifying the termination of a tacitly renewable contract until 24 August 2020 (to date)

The Ordinance still refers to the case where the parties are entitled to terminate the contract during a given period and to notify the termination of a tacitly renewable contract within a given period.

As soon as this right to terminate or to notify expires between 12 March 2020 and "the expiry of a period of one month from the date of cessation of the state of emergency", it is extended by two months after this period, i.e. - to date - until 24 August 2020.

A "super force majeure" is thus implemented for the next four and five months. However, while Articles 4 and 5 of the Ordinance of 25 March 2020 constituted a real infringement of the binding force of contracts for a period of several months by allowing for a "temporary public order", the 15 April 2020 Ordinance now seems to mitigate this effect and opens the way for contractual freedom: the report mentions the possibility of overriding the provisions of Article 4 of the Ordinance by express clauses or by waiving the right to rely on these provisions. In view of the complicated scheme and the significant changes in its implementation, this solution will undoubtedly be preferred, provided that the parties take immediate actions on the performance of their contracts. 

More than ever, anticipating the end of this crisis shall therefore be a priority for companies.

Our Reed Smith Coronavirus team includes multidisciplinary lawyers from Asia, EME and the United States who stand ready to advise you on the issues above or others you may face related to COVID-19.

For more information on the legal and business implications of COVID-19, visit the Reed Smith Coronavirus (COVID-19) Resource Center or contact us at COVID-19@reedsmith.com

Client Alert 2020-259