Restructuring in France : Lessons to learn from the BVA insolvency
Gilles Podeur and Louis Renucci
On 13 January 2021, the court of appeal of Toulouse rendered a very interesting decision ruling upon the outcome of the insolvency proceedings of BVA, a well-known research and consulting firm.
Context – The specific feature of this insolvency case was the fierce competition to take over the company’s assets (together with the assets of three other entities of the group) between the bidders: (i) Alcentra, a major creditor of the group (having granted an EUR 140 000 0000 unitranche financing in 2017), whose bid had been chosen by the court of first instance and (ii) the existing managers and key shareholders of the group, who had set up their own takeover bid through of special purpose vehicle named XPage, and whose bid ultimately prevailed before the court of appeal.
• On the one hand, it is quite unusual to see creditors bid for assets in insolvency proceedings, all the more as they are not allowed to offset the price they offer for the assets with the amount of their claims against the company. Lender-led transactions are more frequent at an earlier stage of the financial difficulties, where creditors take control of the debtor entity through a debt-to-equity swap.
• But on the other hand, it is equally unusual to see managers being allowed to bid for the company’s assets. The French commercial code expressly prohibits managers to participate in the bid process, unless they obtain a specific authorization from the court, which can be granted only in the event that the public prosecutor so requests (this rule was temporarily amended during the COVID crisis, until 31 December 2020, so that the managers themselves or the insolvency administrator were also entitled to make such request).
First instance ruling – In a judgment dated 15 September 2020, the commercial court of Toulouse had chosen Alcentra’s bid. It is worth noting that in the course of the insolvency proceedings, in July 2020, Alcentra had already taken control over some US assets of the group, through a security enforcement.
• In a “normal” case, things would have stopped there. The right of appeal against a decision selecting a bidder in insolvency proceedings is very restricted by law and must be exercised within ten days from the decision. Unfortunate bidders, such as XPage in this case, are barred from raising an appeal.
Appeal by the public prosecutor – But the public prosecutor decided otherwise and did file an appeal against the commercial court’s decision – which is highly uncommon.
• The fact that the appeal was made by the public prosecutor is absolutely key here, because an appeal by another party would not have stayed the enforcement of the judgement, and Alcentra would have immediately taken control over the business, until the court of appeal’s decision.
Appeal by the debtor – BVA also filed an appeal.
• Interestingly, the public prosecutor’s appeal ended up being rejected on procedural grounds (the public prosecutor having made a procedural mistake), but the court of appeal nevertheless remained in position to rule on the case because of the appeal filed by BVA itself.
Appeal ruling – The court of appeal of Toulouse overturned the judgment of first instance and chose XPage’s bid, on the grounds that (i) it was widely supported by the employees of the group, and that (ii) the governance to be put in place by Alcentra was potentially detrimental to the French rooting of the group and the preservation of jobs in France. The court also took the view that XPage’s bid was superior to that of Alcentra in terms of sale price.
• Aside from the purely legal aspects of the case, this decision is also another example of a current trend of French public authorities’ interventionism in situations where the acquisition of significant French business is contemplated by foreign investors, especially in a context where they are weakened by the COVID crisis.