The objective of judicial recovery is to recover the outstanding debt with the power of Court. The judicial recovery process can last months and sometimes years. 2 factors are decisive: the solvency of the company and the Court’s order (full payment, partial payment or non-payment).
A project is considered in judicial recovery when:
The amicable recovery has failed and October has taken judicial actions against the borrower.
The company is in insolvency proceedings.
Who is in charge of judicial recovery?
October’s local recovery team (2 persons in 🇫🇷, 1 in 🇪🇸, 1 in 🇮🇹 and 1 in 🇳🇱) along with an external local recovery partner handle the judicial recovery process. Both teams work closely with the involved parties (receiver, attorneys, etc) and follow up with the process. They are also in charge of updating the activity page of the projects in default, giving information to lenders about the reason of the default and the recovery actions taken. You will receive an update by e-mail on the day of its publication.
Litigation
If the amicable recovery procedure fails, October can decide to take legal actions against the borrowers to recover the outstanding debt. This is usually done with the help of an external recovery agency. Below, we present you with an overview of the different procedures in France, Spain and Italy.
🇫🇷 France
Legal actions that can be undertaken by October to reclaim the unpaid debt in France are:
1. A formal order to pay,
2. A judgment at the Commercial Court, which may be accepted or dismissed by a judge. If the judge rules in favor of lenders, there is a waiting period of one month after the judgment during which the borrower may appeal. After this period, the bailiff will execute the judgment by:
By sending a formal notice to the borrower claiming the payment,
Seizing the borrowers’ receivables,
Immobilising the assets of the borrower and sell them in order to repay it.
Etc.
If, despite these actions, the funds have still not been recovered, the bailiff may then decide to go as far as the summons for judicial liquidation. The borrower’s assets are then liquidated to repay the debts.
🇪🇸 Spain
In Spain, the recovery team usually follows the process below:
1. A formal notice to claim the lenders’ outstanding debt is sent to the borrower through registered mail.
2. If the company does not react to the formal notice, the Recovery team records the borrower’s default on ASNEF. ASNEF stands for National Association of Financial Credit Institutions and is the most extensive register for debt defaults in Spain. Appearing in the register can make it more difficult for a borrower to be granted a next loan.
3. The next step is to notify the company of the early termination of the loan contract and claim the complete repayment of the outstanding capital and interests.
4. If these actions failed to bring results, the ultimate attempt to recover the debt is to file a lawsuit with the Commercial Court. After reviewing the case, the judge will have two options:
Convene a trial to find a resolution to the lawsuit. It is a long process that can last several months.
Declare the enforcement of the debt. In this case, the judge recognises the debt and orders the payment, by seizing the debtor’s goods.
🇮🇹 Italy
Hereunder, we describe the judicial recovery process in Italy:
1. First, a letter with notice of default is sent to the debtor by registered mail.
2. If the company does not react, the second action is to demand for legal action or summary judgment (“Ricorso per decreto ingiuntivo”): October files a demand of payment to the Court. When the Court agrees to the decreto ingiuntivo, the borrower is notified by the creditor and has 40 days to contest this demand. If they do not contest, October can ask the judge for a confirmation of the decree, after which a writ (“Atto di precetto”) can be applied for. Depending on the region, the court’s confirmation can take 1 to 9 months.
3. The following action to be taken is to issue a writ (“Atto di precetto”). A writ can be issued when a creditor is in possession of a “decreto ingiuntivo”. If the client fails to pay within 10 days after notification, a bailiff can be instructed to seize all assets of the debtor. The assets must be sold through a public offering to repay the creditor. This procedure can take up to several months.
4. Immediate request for bankruptcy (“Istanza di Fallimento”): it is also possible for a creditor to file an immediate request for bankruptcy proceedings against the debtor. An immediate request for bankruptcy is the starting point for an insolvency proceedings, which will be described below.
Insolvency proceedings
There is no one insolvency proceeding applying to all companies. It depends on the financial and operational situation and the country of origin. Financially troubled companies can voluntary request insolvency proceedings, by appointing an external administrator, or forced into receivership by its private or public creditors. During insolvency proceedings, repayments are frozen as the administrator take control of the borrower’s accounts and expenses.
We detail hereunder the steps of the insolvency proceedings in the different countries where October operates.
🇫🇷 France
There are three types of insolvency proceedings in France, depending of the solvency level of the company.
1. Safeguard proceedings (“Procédure de Sauvegarde”): the safeguard procedure takes place before the suspension of payments. It aims at restructuring the company facing financial difficulties in order to keep on with its economic activity, maintain jobs and pay its debts. This preventive procedure generally leads to the elaboration of a continuity plan.
2. Receivership (“Redressement Judiciaire”): the receivership procedure must be implemented by any French company in suspension of payments whose recovery is deemed possible. Likewise the safeguard proceedings, it allows the company to continue its activity and maintain jobs.
3. Liquidation proceedings ("Liquidation Judiciaire”): liquidation proceedings are intended to put an end to the company's activity or to liquidate the debtor's assets through a global or separate assignment of his rights and property.
These procedures begin with a 6-month observation period in which the administrator, along with the borrower, draw up an economic, social and environmental report of the company and prepare a recovery plan depending of the company’s possibilities and the financial resources available. This observation period can be renewed twice by a judge if needed.
There are 2 possible outcomes to these procedures:
A continuation plan staggering the Lenders' debt,
The company’s liquidation. The company’s life is not viable and all of its assets are liquidated. The proceeds from the sale of assets is used to repay creditors, based on their order of priority*.
🇪🇸 Spain
In Spain, the insolvency law contemplates two different procedures:
1. The pre-receivership (“Preconcurso de acreedores”): the borrower can request a 3-month protection period from the Commercial Court to start amicable negotiations with its creditors and reach a viability plan, aimed at maintaining business activity and meeting its obligations. If the company does not present a viability plan or it is not unanimously accepted by the creditors, the company has one month left before it enters receivership.
2. Receivership (“Concurso de acreedores”): contrary to the pre-receivership, the outcome of this procedure is handled by a judge. The judge appoints an administrator to manage the company, determine its viability, enable it to continue its activities and to look for ways to come back to solvency. By the end of the procedure, there are two possible outcomes:
Agreement: the company is considered viable. The judge can decide to cancel part of the company debt or delay the repayments to enable the firm to repay part of its debts, according to a repayment schedule agreed on by the involved parties.
Company liquidation: the company’s life is not viable and all of its assets are liquidated. The proceeds from the sale of assets is used to repay creditors, based on their order of priority*.
🇮🇹 Italy
In Italy, the law contemplates reorganisation and bankruptcy proceedings.
1. Insolvency proceedings:
Settlement with creditors (“Concordato preventivo”): procedure allowing a company in financial difficulty to propose a plan to restructure its debts. The debtor initiates the procedure by filing a petition with the Bankruptcy Court, with a proposed plan certified by an expert opinion confirming its feasibility and the truthfulness of the accounting data. If the Bankruptcy Court allows the registration of a settlement with creditors, it will issue an order appointing a judge to supervise the proceeding, as well as a judicial commissioner. The proceedings must be concluded within six months from the date of filing the petition. This period can be extended by the Bankruptcy Court for an additional two months. Once the plan has been approved by the creditors and the Bankruptcy Court, it is binding and must be fulfilled.
Debt restructuring agreement (“Accordi di ristrutturazione dei crediti”): this procedure is defined by the Bankruptcy law but is handled outside of the Court. This agreement by and between the company and its creditors (accepted by at least 60% of them) aims at restructuring the company's debts. The debtor can request a moratorium during the negotiations of a debt restructuring agreement and must file documents with the competent Court. The debtor must provide an expert report on its ability to pay the remaining creditors in full, who otherwise can challenge the agreement before the Bankruptcy Court by requiring verification that their claims will be paid as normal. There is no fixed time limit for this sort of proceeding, as the length depends on the duration of the negotiations with the creditors.
Certified rescue plans (“Piani di risanamento attestati”): this procedure is defined by the Bankruptcy law but is handled outside of the Court. The purpose of the procedure is to allow the restructuring of the company's debts to ensure rebalancing of its financial situation, without the intervention of the Courts. This type of agreement must be based on a plan prepared by the company. The proceedings end with the implementation of the contents of the expert's report and the fulfilment of the actions contained in the certified rescue plan.
2. Bankruptcy proceedings (“Fallimento”): it is initiated when the company is deemed to be insolvent, meaning it is no longer able to regularly meet its obligations and pay its debts. The procedure is started by an order of the bankruptcy Court and is carried out and supervised by a receiver, a deputy judge, and a creditors' committee representing all the creditors. The receiver has 60 days from the inventory date to deliver the proposed liquidation plan. Bankruptcy proceedings can last several years. The receiver must liquidate all the company's assets and distribute the proceeds to the creditors to have the proceedings formally concluded.
🇳🇱 The Netherlands
Also in The Netherlands, the law contemplates what happens in case of the inability of the borrower to repay debts.
Suspension of payments (“Surseance van Betaling”): The borrower can, proactively or in a reaction to the bankruptcy file, declare their inability to repay their creditors to the court. The borrower will then file for a suspension of payments. If the judge honours the request, the borrower will be placed under supervision of an administrator. During this suspension of payments, the borrower has the time to regularise their situation and reach an agreement with its creditors about a new payment schedule or a payment of part of the debt. When an agreement is reached, the borrower can resume activities as per the agreement and the suspension period ends.
Bankruptcy: October or another creditor (supplier, tax authority, etc.) have the ability to file for the bankruptcy of a company, when a borrower does not repay its debts. The judge has to determine the legitimacy of the request. For a request to be legitimate, at least 2 of the company’s creditors have to file for bankruptcy. If the judge honours the request, the borrower will be declared bankrupt and a curator will be assigned to liquidate the borrower’s assets to repay the creditors*.
The judge can also reject the bankruptcy of the borrower. October will then have to find another way to reclaim the money.
*Important note: lenders’ repayments are conditioned by several factors, including the creditors’ order of priority. The creditors to be paid first are the employees , then the State, then the secured creditors and finally the unsecured creditors (such as October lenders).
How is October involved in the process?
October declares the lenders’ debt to the administrator. When a borrower is declared insolvent, all creditors must declare their debt to the administrator to be taken into account in the outcome of the insolvency proceedings.
To ease the process, October declares the outstanding debt on the October lenders’ behalf to the receiver, in accordance with the loan agreement signed at the beginning of the project. Besides, October pays for the costs associated with the debt declaration.
Follow up with the administrator: October contacts the administrator to ensure that the outstanding debt has been taken into account and follows up with him. The administrator shall indicate the steps of the insolvency proceedings and the next contact date with October.
Confidentiality of recovery updates
Information about the recovery procedure is only addressed to the concerned lenders and is confidential.
To what extent can the diffusion of information from recovery e-mails be damaging for lenders?
Judicial procedures are based on the principles of fair trial, rationality and fairness in the debates. If lenders were to say defamatory statements in public, going against the presumption of innocence or belittling the borrower, he/she could turn against them before the competent judge. More generally, all information publicly diffused by lenders can be used by the other party during the procedure. It is not forbidden to discuss these subjects but one should bear in mind to stay factual and tempered in his/her sayings.