When faced with persistent non-payment or a client’s deteriorating financial health, initiating legal proceedings is not always the most effective solution. The conciliation procedure offers a structured alternative, governed by company law, which enables a dispute to be resolved amicably whilst preserving the business relationship.
What is conciliation?
Conciliation is an amicable and confidential procedure, provided for in Articles L. 611-4 et seq. of the Commercial Code, which allows a company facing financial, legal or social difficulties to negotiate an agreement with its main creditors, under the auspices of a neutral third party appointed by the president of the court.
Please note: a distinction must be made between commercial conciliation and civil conciliation conducted before the ordinary courts, which falls under the Code of Civil Procedure and deals with common interpersonal disputes.
Used by businesses to protect themselves against payment defaults, commercial conciliation is exclusively reserved for professionals:
- traders,
- craftspeople,
- farmers,
- self-employed professionals
- and any legal entity governed by private law) carrying out an economic activity.
The objectives of conciliation for businesses
The conciliation procedure has two fundamental objectives, making it a safeguard for both the debtor and the creditor.
For the debtor company, conciliation enables:
- obtaining a moratorium or rescheduling of its debt,
- securing new financing,
- renegotiating its contractual obligations,
- avoiding the initiation of insolvency proceedings, receivership or compulsory liquidation, which would further weaken the company.
For creditors, conciliation enables:
- securing their debt collection by negotiating directly with the debtor, in a confidential setting, before the situation escalates into collective proceedings.
- obtaining additional guarantees, consolidating their priority ranking through the conciliation privilege, and avoiding the delays and losses inherent in legal proceedings.
The conciliation procedure: how does it work?
The initiation of a conciliation procedure is subject to two cumulative conditions.
- The debtor company must first be experiencing proven or foreseeable difficulties of a legal, economic, financial or social nature, but must not have been in a state of suspension of payments for more than forty-five days. This time limit is crucial: beyond this, only judicial reorganisation or liquidation remain available.
- The application must be submitted, by confidential petition, to the President of the Commercial Court (for commercial and craft businesses) or to the President of the Judicial Court (for the liberal professions and farmers). The President then appoints a conciliator, whose mandate is set for an initial period of up to five months, extendable by a further month in exceptional circumstances.
Once their mandate is confirmed, the conciliator assesses the debtor’s situation, interviews the main creditors (credit institutions, key suppliers, tax authorities, social security bodies) and attempts to reach an agreement on the terms for settling the debt.
This may involve granting new payment terms, partial write-offs, new lines of credit, or disposing of non-strategic assets to restore the necessary liquidity.
At the conclusion of the negotiations, two options are available. If an agreement is reached, it may be:
- simply recorded by the presiding judge (a swift and entirely confidential procedure),
- or approved by the court.
Approval, which presupposes that the agreement ensures the company’s long-term viability and does not infringe upon the rights of non-signatory creditors, offers the debtor and signatory creditors enhanced legal protections, starting with the privilege of conciliation.
The conciliation privilege: a decisive advantage for creditors
Creditors who agree to provide the debtor, under an approved conciliation agreement, with new cash injections (for banks) or new goods or services (for suppliers) benefit from the conciliation privilege (Article L. 611-11 of the Commercial Code).
This privilege grants them a higher priority ranking than other creditors in the event of subsequent collective proceedings: they will be repaid before prior creditors, but after super-priority creditors (employees) and once legal costs have been settled. This constitutes a compelling argument to encourage financial partners to participate actively in the amicable resolution.
What are the advantages of conciliation over litigation?
Opting for conciliation rather than initiating litigation offers several structural advantages:
- Confidentiality: unlike a court judgment, the agreement reached remains confidential (unless the approval is published). The debtor’s reputation and the commercial relationship are thus preserved, which often fosters a more open and constructive dialogue.
- Speed: the maximum duration of five months compares favourably with the timeframes of ordinary legal proceedings, which can stretch over several years. For the creditor, the need to recover their investment quickly often justifies accepting a partial write-off rather than waiting for the outcome of an uncertain legal dispute.
- Preserving the business relationship: as mentioned, in a B2B context, supplier-customer relationships are long-term. Settling a dispute amicably allows, in many cases, for the continuation of a partnership that would resume on a sound footing once the debtor has recovered financially.
- Control over the outcome: unlike a court ruling which is binding on the parties, a conciliation agreement is the result of negotiation. Each party can include bespoke clauses: additional guarantees, instalment payment terms, or clauses providing for repayment upon improved financial circumstances.
The role of the conciliator in conflict resolution
The conciliator is an experienced professional, most often:
- a former executive,
- a chartered accountant
- or a specialist lawyer.
They are appointed intuitu personae by the president of the court for their knowledge of the economic landscape and their ability to establish dialogue between parties with divergent interests.
They act neither as a judge nor as an arbitrator: they do not impose any solution, but facilitate negotiation by proposing realistic avenues for agreement and helping the parties to prioritise their interests.
The conciliator’s mandate is strictly limited in time and scope. They are bound by confidentiality and may not disclose any information obtained in the course of their duties. They must also report regularly to the president of the court who appointed them. If negotiations fail, they draw up a statement of non-agreement: the debtor company may then apply for the opening of safeguard proceedings or, if it is in default of payment, for administration proceedings.
When should conciliation be chosen in a commercial dispute?
In terms of customer risk management, it is essential to know when it is wiser to initiate a conciliation process or, conversely, in which cases to be wary of it
Conciliation is particularly suitable in three scenarios:
- when the debtor demonstrates a sincere willingness to find a solution and has realistic prospects of recovery: a structurally sound company experiencing a temporary liquidity crisis is an ideal candidate.
- when the amount of the debt justifies the investment of time and resources involved in formal negotiations.
- when the commercial relationship is worth preserving (strategic client, critical supplier) and an abrupt termination of the contractual relationship would prove more costly than a negotiated settlement.
Conversely, conciliation reaches its limits when dealing with a debtor who has already been in default for more than forty-five days, is acting in bad faith, or whose situation is irreparably compromised. In such cases, judicial debt recovery or credit insurance is the most appropriate course of action.
Conciliation and mediation: what are the differences?
Confusion between these two alternative dispute resolution methods is common. What they have in common is that they are amicable, confidential and voluntary processes. However, their foundations and scope of application differ significantly.
Mediation is a flexible process, not codified in the law on companies in difficulty, in which a neutral third party (the mediator) helps the parties to find their own solution, without actively proposing compromises. It applies to a very wide range of disputes: contractual disputes, commercial litigation, conflicts with a customer or supplier, regardless of any situation of default. Business mediation, offered by the Directorate-General for Enterprise (DGE), deals specifically with disputes between businesses and can be accessed free of charge.
Commercial conciliation, as defined by the Commercial Code, is reserved for businesses in financial difficulty and involves more active intervention by the conciliator, a precise procedural framework, and potentially significant legal consequences (conciliation privilege, suspension of legal proceedings during the process). It forms part of a strategy to prevent company insolvency, whereas mediation aims primarily to resolve a dispute between parties that remain solvent.
Creditors faced with a request for conciliation: what stance should they adopt?
Participating in conciliation proceedings is not a legal obligation for the creditor, who may refuse to do so.
However, refraining from negotiating may lead to a less favourable insolvency procedure, where the claim will be treated with a lower priority and often a lower recovery rate.
The rational decision is therefore to assess the debtor’s financial situation, the prospects for recovery and the guarantees obtained, before deciding whether or not to participate in the conciliation. Support from specialist debt collection services enables creditors to approach these negotiations with the maximum amount of information and leverage.
The legal and financial implications of conciliation
From a legal perspective, conciliation has two significant effects from the moment it commences. Firstly, any insolvency proceedings initiated by a creditor are suspended for the duration of the process. Secondly, limitation and foreclosure periods are suspended, which protects the rights of the participating creditor without them having to initiate parallel legal proceedings.
From a financial perspective, conciliation obliges the creditor to make a provision for their trade receivable as soon as the debtor’s situation reveals a significant risk of non-recovery. This provision for doubtful debts, recognised as an expense, impacts the profit and loss account and financial ratios. The conciliation agreement, when it results in a credible and guaranteed repayment schedule, may justify a partial or full reversal of this provision, with a positive effect on results. This is an accounting and tax consideration that must be factored into the decision on whether or not to enter into negotiations.
Finally, credit insurance is the most effective tool for protecting against such situations in advance: by covering the risk of the buyer’s insolvency, it safeguards the creditor company’s trade receivables, regardless of the outcome of the amicable procedure.
FAQ
Is conciliation quicker and less expensive than mediation?
Both procedures are (above all) comparatively quicker and less expensive than litigation. Commercial conciliation is subject to a maximum time limit of five months, which gives it considerable predictability. Its cost depends on the conciliator’s remuneration, set by the president of the court, and the fees of the legal advisers involved. Mediation is often less formalised and can be quicker, but it does not produce the same legal effects (notably the absence of a conciliation privilege) and is not suitable for situations of proven default.
When is it preferable to choose conciliation rather than legal proceedings?
Conciliation is the appropriate course of action when the debtor is acting in good faith, their recovery is realistic and the commercial relationship is worth preserving. Legal proceedings are preferable when the debtor is irremediably insolvent, refuses any dialogue, or when the urgency of the situation requires immediate protective measures, such as seizures and payment orders. It should also be noted that if the state of suspension of payments has lasted for more than forty-five days, this closes the door to conciliation and necessitates collective proceedings.
What are the criteria for successful conciliation?
The success of conciliation depends on several factors: the debtor’s good faith and transparency in disclosing their financial information; the responsiveness and consistency of creditors in their demands; the quality of the conciliator and their ability to propose creative solutions; and the realistic prospects for the company’s recovery.
Conciliation initiated too late, in a situation that is already irreparably compromised, is doomed to failure. This is why the early detection of warning signs of default, via corporate information tools, remains an essential prerequisite for any customer risk management strategy.
Can conciliation be imposed by a court?
No. Commercial conciliation is voluntary: it is the debtor themselves who makes the request to the president of the court. Creditors cannot be compelled to participate, nor to accept the proposed agreement. The court may, however, in certain ordinary civil proceedings, direct the parties towards an attempt at conciliation prior to the hearing; but this is a separate mechanism, governed by the Code of Civil Procedure, and has no connection with the conciliation provided for under the law on companies in difficulty.
What are the differences between the ad hoc mandate and conciliation?
These two procedures are complementary preventive tools, both falling within the scope of insolvency law.
However, the ad hoc mandate is more flexible than conciliation:
- it does not require the debtor to be in default of payment,
- it imposes no specific time limit or formal requirements,
- it remains entirely confidential.
Conciliation, however, goes further by offering the possibility of having the agreement ratified, which gives it enforceable status and a ‘conciliation privilege’ protecting creditors who agree to make further contributions.
The choice between the two depends on the degree of formality required and the debtor’s situation.