International Insolvency – France – Sandra Esquiva-Hesse

We advise on corporate restructuring, distressed M&A and crisis situations, special M&A (M&A with symbolic price or negative price). We provide advice in respect of debt restructuring, insolvency, restructuring of financing, enforcement of security in a distress situation with a distressed debtor, and issuance of legal opinion on the insolvency aspects. We also provide advice with straightforward pre-insolvency and insolvency proceedings and the litigation that goes with that. This may include liability of the various stakeholders that have caused the company to go into a distressed situation, or the creditors to recover on their receivables.

It is important to have a correct diagnosis of the situation. We often work with an internal team and external auditors, including financial auditors, to get a good appraisal of the magnitude/origins/reasons behind the distress situation in order to address possible remediation. The environment is moving constantly, so even when we have made our determinations, we need to continually adjust. This complexity of the environment is one of the key challenges because we do need to work with experts externally and internally for our clients to have a clear audit. There are also specifications in France in relation to labour laws and the lack of flexibility of our labour legal environment. For businesses that face huge loss of income, this can make it more difficult to re-adjust quickly, and so this requires more anticipation, which may or may not happen. The less anticipation we have, the more hurdles we face, and the fewer options we have available. Another complication that we have in France is that the market is not as mature as other markets, such as the United States and England, in terms of financial institutions and financing of the market. There are a lot of businesses that lack capital investment, and financial support has not been adapted to their needs. Typically, they will use short-term financing to support medium-term needs, which is a separate set of issues that we see in France. There is this lack of sophistication of the market, and a lack of appetite of some investors, because each file requires a lot of time, meaning that the size of the ticket may be smaller. Another difficulty is that we have specificity in France with the intervention of public law. There are a lot of businesses that are dependent on, or intertwined, with public law or public players, which is a set of laws and administrative code within the various industries we are called into. For example, players that are suppliers of public entities or semi-public entities – such as redwood, energy and nuclear companies – may face a hurdle in that context. One of the last issues we face is the problem of instability of our tax and legal environment.

Like many lawyers in France right now, we have been pulled into questions related to the Rallye case, a holding company of the Casino Group. Rallye is involved in court proceedings, together with its parent and grandparent entity, to determine about 3 billion euros of investment. There are many, many creditors with different structures of financing, from overdraft to syndicated loans, to bond holders and derivative counterparts, whom have all been hit by this proceeding. We are getting a lot of questions regarding this case, which will be one of the landmark proceedings of 2019.

I have some interesting questions in relation to a group of companies that have reinvented the way to work in certain sectors. One such company in the public toilet industry is the only one to perform their type of services in the European market, wherein they are enhancing the experience with nice, clean public toilets where you don’t need to touch anything, with built-in sensitivity technology, hosting facilities, and repair facilities. Some public actors have been very keen to improve their customers’ experience using this new supplier. We face big issues with prior employees who used to provide cleaning facilities, and so this has incurred strikes, an action that is very widespread in France. We have official regimes – constitutionally protected rights – and so when you have strikes starting, it may very well hinder the quick turnover of the companies that are targeted by the strike. Because our environment changes, and these new professional services are being invented, we are facing a situation where the old world sometimes does not understand the changes and resists them, which endangers these game-changers. Simmons & Simmons had the opportunity to support these game-changers in this specific industry, and to turn around the situation, negotiating a positive outcome to the strike, which basically ended the transition to this new type of service. These are the things that are very interesting from an economical and social standpoint, because we are in a world of change, and so being one of the players that provides support with easing into these changing phases – to meet the customers’ wishes and expectations – will always win at the end of the day and makes the job all the more interesting.

We don’t find that they are considered as important as they should. In the aforementioned case where we were presented with this game-changer, we helped this improvement to progress. But the public stakeholders that requested this game-changer to become their supplier had not anticipated the problems that were going to come their way by improving this service; hence why they faced the strike, because they did not plan ahead to prepare their own workforce for the change. I can also see this issue repeated in the automotive industry, wherein we know that certain types of cars will phase out, that there will be more and more electric cars, so all of the suppliers of the automotive machines that do not provide electrical services are in danger. The transitioning of their services should have taken place already, because automotive programmes are usually planned three to five years ahead. The next phase of the auto industry is going to touch upon cars without drivers and the connection between highways and cars. Considering that the auto suppliers have not necessarily transitioned yet to the clean energy cars, I am not very hopeful that they have planned head for this even newer tech. A few players do, but not the vast majority of them.

Digital technologies are likely to accelerate. The correct diagnosis of distress situations can prevent a drastic loss of margin. We are very attentive to the products of fintech too, because this may help a lot. The implementation of new serums in certain industries was itself a sponsor of distress situations, because some groups did not manage their figures. So, any tool to audit and identify where corporates’ problems lie will be helpful to address those problems ahead of time. I think as well that there is a need for changing mentality, but we are not there yet. Anglo-Saxons are more used to this perception that the stakeholder should see restructuring as an opportunity in itself. It may not only be bad news. And the use of the restructuring time may provide profitability if this is delegated to the experts in the field that know how to support their goal. These include restructuring auditors and restructuring attorneys. I see my role being increasingly requested in the context of M&A. In the French market, I have seen that the distressed M&A and recourse to restructuring lawyers in the M&A field is increasing; still, I would say that we are at a middle-age level compared to Anglo-Saxon companies.

It gives me a fantastic advantage because I have a marketing side, I have experts available, and our surroundings in Simmons & Simmons are very well tooled so that we are all connected to one another. We have an internal business guide, so we can chat to one another, we can call one another, we all have cameras on our computers to enable video calls. We don’t need to lose time travelling to have those meetings, as we can co-ordinate online. We are able to see who is available before we organise meetings with several experts, which provides access to great knowledge and insight at a fast pace.

I have recently been less active in the French-American Foundation, as I have several non-profit involvements, and so with the burden of the workload and the services to the client, there is only so much you can do. I am a member of numerous associations, but the ones I am most active with are Women’s Forum France, and a British hospital charity that is part of the Wallace Foundation. This allows me to interface with people that I wouldn’t necessarily cross paths with in my day-to-day work, and so it is a great opportunity to network with a different set of minds, people with a different set of problems, which keeps me in tune with the preoccupations of various tech players in other markets. The Women’s Forum has also been very active in France this year, promoting gender diversity, which is a biggie in many jurisdictions right now. In France, gender diversity is regulated. So, I am well aware of the regulation, but also the perception of this regulation and how hard it is to improve the situation in various institutions represented by the various members I meet and exchange with. It is very interesting to see the trends and to see which companies and institutions are the most active in promoting gender diversity. And behind gender diversity is diversity. It is difficult to be a promoter of gender diversity without being a promotor of diversity in general. Gender diversity is foremost, because with 52% of the population, if you don’t have a representative, you are missing insight on the ground of many, many people. But that is also the case when all the diverse parts of the population are not represented, because then you cannot benefit from the collective intelligence of all the people that make up society. This all provide a means to consider the global problems that might have inference on our society and economy, and to look at the trends. Plus, it is fulfilling to do something that is not for profit and contributes to the community.

We are active in INSOL, since we promote our cross-border expertise in the restructuring field. INSOL responds well as a not-for-profit organisation that has been standing for a long time and allows scientific exchanges on topics that are of interest to our expertise. My partners and I will attend the next INSOL conference in Denmark. A partner of ours, Erwin Bos, based in Amsterdam, will be a speaker at one of the panels. It is of interest to the firm to attend international conferences that provide a high quality of exchange in the expert field and industry sectors in which we are specialised. Simmons & Simmons has a high level of participation in the healthcare and life sciences aspect of international conferencing, and we do the same in the financial sector – funds and asset management – field. There is a high standard of recognition of the conferences that are organised, and the members of the firm that attend them benefit from this investment of their time.

The implementation of the Collateral Directive in France has been given its full force and effect under French case law, which is good news for the French market because it gives a sign of stability for the market of the derivative, which goes in the right direction of becoming more sophisticated and creditor-friendly. It is only the first step. We are far from being on a par with Anglo-Saxon jurisdictions, or other jurisdictions such as Luxembourg – and to a certain extent, the Netherlands – but we are going in the right direction.

Obviously the retail market is being hit hard, so we still have a lot of retail cases. We also have cases in the leisure industry field and the hotel field. In France, we expect to have more leveraged buyout cases, especially as we go into 2020-2021. On the healthcare lifestyle side, we follow investments relating to healthtech and fundtech. We are personally involved in cyber security as well as the tools to manage breach of security, especially for financial institutions or counterparties that are exposed widely because they host a lot of confidential data. We are careful to put preventative protocols in place in the interests of our clients, to avoid catastrophic scenarios – but we do not have a crystal ball, and so surprises can always come up.