Understanding the French Prepack Cession: A Fast-Track Restructuring Tool for Distressed Businesses

International investors exploring opportunities in France’s distressed M&A market should be familiar with the “prepack cession” – a powerful tool in the French restructuring and insolvency framework. A prepack cession (literally a “pre-packaged sale”) allows a company in financial difficulty to pre-negotiate the sale of its business and then execute that sale swiftly through a court-supervised insolvency proceeding. Introduced by an ordinance in 2014, this procedure bridges the gap between France’s confidential pre-insolvency workouts and formal bankruptcy proceedings. The result is a fast, efficient, and legally secure mechanism to transfer a distressed business to a new investor while preserving its value. In this article, we explain what the French prepack cession is, how it works, its advantages and limitations, recent developments (including prospective EU-wide adoption), and key considerations for international buyers.

What Is a Prepack Cession in France?

A prepack cession is a hybrid restructuring procedure that combines the confidential negotiation benefits of conciliation (an amicable pre-insolvency process) with the binding effect of a court-approved insolvency sale. In essence, the sale of a troubled company (or its business assets) is arranged in advance during a confidential phase, and then finalized via a “flash” judicial proceeding. French Commercial Code Article L.611-7 expressly permits initiating a prepack cession as part of a conciliation process.

This tool was inspired by U.S. “pre-packaged” sales and formally codified by the Order of 12 March 2014. It exemplifies the modern trend in French insolvency law of bridging out-of-court resolutions with formal court procedures. The goal is to maximize business value and continuity by pre-negotiating a takeover deal behind closed doors, then quickly transferring the business under judicial authority before the company’s situation deteriorates.

How does it differ from a standard insolvency sale? In a classic insolvency plan de cession (transfer of business plan), the sale process only begins after the court opens bankruptcy proceedings, which often means a very tight timeline, limited marketing, and rapid value erosion. By contrast, in a prepack cession the heavy lifting – finding a buyer and negotiating terms – is done in advance during a calm period (before the company is formally declared insolvent). Once the groundwork is laid, a formal proceeding (such as receivership or liquidation) is opened simply to approve and implement the pre-agreed sale. This two-stage structure gives the process its name: “prepack” refers to the deal being pre-packaged before the court packs it into an insolvency proceeding for execution.

How the Prepack Cession Works: Two Phases and Court Involvement

Phase 1 – Confidential Preparation (Conciliation)

The first phase takes place under court-sanctioned confidentiality as a prevention proceeding. The company’s management approaches the president of the relevant Commercial Court to request the opening of a conciliation (or ad hoc mandate) and to appoint a conciliator (a court-appointed professional). During conciliation, the conciliator’s mission can be formally extended to organize a sale of the business in anticipation of a possible insolvency filing. This step is voluntary and initiated by the debtor company – neither creditors nor the court can impose a prepack sale without the debtor’s request.

Once the mission is extended, the conciliator works closely with the company (often alongside investment bankers or M&A advisors) to identify potential buyers and solicit offers. Importantly, this process is conducted discreetly to avoid alarming employees, customers, or suppliers. The conciliator may reach out to a targeted list of investors under NDAs and even publish anonymous notices of the opportunity (for example, a blind ad in a financial newspaper or an industry bulletin) to ensure a sufficiently broad marketing of the sale. In one notable case, over hundred potential bidders were identified and dozens contacted confidentially, demonstrating that even under secrecy the net can be cast wide. Candidates are given access to information (e.g. a data room) and carry out fast-track due diligence, since time is of the essence. They then submit binding offers to the conciliator detailing the assets, contracts, and employees they would take over (the offers must meet legal criteria and essentially “cherry-pick” the desired parts of the business).

Throughout this phase, the court maintains oversight through the conciliator. The conciliator must report to the court on the steps taken to seek offers, ensuring that the sale process, while confidential, has been sufficiently transparent and competitive given the company’s business sector. This is a delicate balance: preserving confidentiality is critical to value, yet French law requires that enough potential acquirers are contacted to achieve a fair price. In practice, this means the conciliator and company must walk a fine line – conducting a quiet auction of the business.

If one or more viable offers emerge, the company will choose a preferred bidder (often negotiating improved terms) and prepare for the next step. If no satisfactory offer is found, the company may abandon the prepack approach and consider alternative restructuring solutions. Notably, because conciliation is time-limited (up to 4 months, extendable to 5 months), the window for deal-making is broader than a typical insolvency sale, but still finite – creating urgency for all parties to come to the table.

Phase 2 – Court-Supervised Insolvency Sale

With a pre-negotiated deal in hand, the company then triggers a brief formal proceeding to legalize the sale. Typically, the debtor will file for redressement judiciaire (judicial reorganization) or, in some cases, liquidation judiciaire with continued business activity, immediately presenting the agreed takeover plan to the court. The court opens the proceeding and formally appoints an insolvency practitioner (administrator or liquidator) who will shepherd the sale through the legal process. At this stage, the sale process becomes public but accelerated – often concluded within a matter of weeks (hence the term “flash” proceeding).

The insolvency practitioner and the commercial court examine the offer(s). In many cases, the prepack’s chosen buyer will be the only serious candidate (given the prior phase’s efforts). However, the court may allow any last-minute competing offers from other bidders to ensure creditors and stakeholders get the best available outcome. All bids are evaluated according to statutory criteria – notably the sustainability of the business and preservation of employment, as well as the offer price. This means the highest bid isn’t always the winning bid; the court aims to select the proposal that best ensures the company’s long-term survival and protects jobs, while also fairly compensating creditors. In practice, though, a prepack cession’s pre-selected offer often has a strong advantage, as it was crafted with the business’s needs in mind and vetted during conciliation.

Once the court approves a transfer plan (plan de cession), the business or its assets are sold to the buyer under the court’s order. The beauty of this structure is that the sale is binding and enjoys legal certainty: it is sanctioned by a judicial decision, shielding the buyer from prior liabilities and creditor claims by operation of law. The transaction closes swiftly, allowing the buyer to take over operations almost immediately, and the insolvency proceeding for the selling company can proceed to wind down residual matters (distribution of sale proceeds to creditors, etc.).

Role of Court and Professionals

At each step, court-appointed professionals play key roles. In phase 1, the conciliator (mandataire ad hoc or conciliateur) is appointed by the court president and acts as a trusted intermediary, ensuring negotiations remain productive and fair. In phase 2, an administrator or liquidator (insolvency practitioner) is appointed to conduct the legal sale process and report to the supervising judge. The court itself (usually a panel of the Commercial Court) must ultimately authorize the sale and can exercise discretion to ensure that stakeholder interests (creditors, employees, etc.) are respected. This oversight provides comfort that the process, while expedited, respects the law and is not a mere insider deal. In fact, French law restricts certain closely related parties from buying the debtor’s business to prevent abuses, a consideration that the court will examine.

Advantages of Prepack Cession for Buyers and Debtors

A prepack cession can be a “win-win” solution for both the acquiring investor and the distressed debtor (as well as its employees and creditors). Key advantages include:

• uying a “Clean” Business: For buyers, acquiring through a court-sanctioned prepack sale means cherry-picking the desirable parts of the company – e.g. profitable divisions, key contracts, inventory, and selected employees – while leaving behind unwanted liabilities. The buyer does not assume the seller’s old debts or litigation risk (except what it explicitly agrees to take on), and even burdensome contracts can be excluded or assigned without counterparty consent under the court order. This free-and-clear acquisition is a major draw for investors.
• Turnkey Acquisition at a Bargain: Because the company is in difficulty, the entry price is often very attractive compared to a normal M&A deal. The prepack process frequently results in a lower purchase price and possibly financial support (e.g. creditor write-offs) embedded in the deal. Furthermore, the buyer can acquire the business quickly as a going concern, avoiding the lengthy delays of traditional bankruptcies. The transaction is essentially “ready to go” once the court green-lights it, reducing market risk.
• More Time and Information for Diligence: Unlike a fire-sale liquidation where bidders have only a few weeks or days to bid, a prepack cession gives prospective buyers a relatively extended period (up to several months) to evaluate the opportunity during conciliation. This leads to better-informed offers and a higher likelihood of a successful turnaround post-acquisition. Buyers can negotiate with key stakeholders (e.g. landlords, critical suppliers) during the conciliation to ensure continuity, something not feasible in a rapid judicial sale.
• Preservation of Business Value: For the debtor company and its stakeholders, the prepack approach helps preserve the going-concern value of the business. Because the sale is prepared behind closed doors and executed swiftly once public, the negative effects of an insolvency filing (loss of client confidence, reputational damage) are minimized. In a traditional proceeding, a company in bankruptcy might languish for months and see its value plummet; in a prepack, the company finds a new owner before its goodwill evaporates. This often means a higher sale price and better recovery for creditors than an emergency liquidation.
• Continuity for Employees and Partners: Prepack sales are often designed to maintain as much of the business operations as possible. From the start, the process encourages rescuing the company (or its viable parts) rather than piecemeal asset sales. This translates to jobs saved and continuity for customers and suppliers. Courts in France evaluate offers based on how many jobs will be preserved, which incentivizes bidders to maintain employment. For an international investor, this focus on continuity can be positive – you are buying a functioning business with an existing workforce and contracts, not just the scraps.
• Legal Certainty and Protection: Once the court approves the prepack cession, the deal has the full force of a judicial ruling. The buyer obtains the assets free of liens and past debts, and the sale cannot be easily unwound by disgruntled creditors. This legal certainty encourages investment, as the acquiring company can move forward without fearing successor liability claims. The prepack cession thus combines flexibility for the buyer with certainty of execution – a rare duo in insolvency scenarios.

Limitations and Safeguards to Consider

While prepack cessions offer many benefits, international investors should also be aware of their limitations and the safeguards in place:

• Not Universally Available: A prepack cession is only feasible if the company is still eligible for conciliation (generally, not yet irretrievably insolvent) and if the management proactively seeks this route. Companies that wait too long (past the 45-day cash insolvency limit for conciliation) or face sudden collapse may not have the luxury of a prepack. In such cases, a traditional insolvency sale without prepack is the fallback. Thus, timing is crucial – the tool works best when financial distress is anticipated early.
• Need for Debtor Cooperation: The process hinges on the debtor’s willingness and initiative. If owners or directors are in denial about the company’s difficulties or resist the idea of selling the business, a prepack won’t get off the ground. Additionally, extending the conciliator’s mission to organize a sale requires the debtor’s request, meaning creditors cannot force a prepack if management prefers a different solution. This makes prepacks a solution primarily when the company’s leadership actively supports a sale to save the business.
• Balancing Confidentiality and Transparency: By design, the conciliation phase is confidential, which is vital to protect the business. However, this secrecy could raise concerns among creditors or unsuccessful bidders about the fairness of the process. French law addresses this by obliging the conciliator to ensure “sufficient publicity” of the search for buyers, given the nature of the business. In practice, as noted, conciliators do reach out widely albeit discreetly. Still, the tension remains a point of contention – participants must trust that a robust (if quiet) market check has occurred. If a prepack sale appears too much like a sweetheart deal with no real competition, it could face challenges or objections in court. The supervising judge will scrutinize whether a genuine effort was made to obtain the best offer under the circumstances.
• Limited Number of Cases: Interestingly, despite being effective, prepack cessions have not been extremely common in France. Experts note that relatively few prepack plans are executed because many companies either resolve issues in purely amicable workouts or end up in standard proceedings without prepack. This means there is less established case law compared to other procedures, and each prepack deal may raise novel questions. Investors should engage experienced French counsel to navigate any gray areas.
• Restrictions on Buyers: International investors generally are welcome to participate in prepack deals, but be aware that certain insiders or related parties may be restricted. French insolvency law, for example, limits the ability of a company’s own management or close associates to buy the business out of insolvency in some cases. These rules aim to prevent conflicts of interest or fraudulent transfers. If you are a shareholder or lender to the distressed company, you’ll need legal advice on whether you can bid or if any extra scrutiny will apply. All buyers, of course, must satisfy legal eligibility and content requirements for their offers (such as committing to preserve jobs listed in the bid, etc.).
• Fast Court Process – No Last-Minute Surprises: Once the court proceeding starts, things move quickly. From an investor’s perspective, this is mostly positive, but it also means due diligence should largely be completed in Phase 1. The judicial phase is not the time for lengthy negotiations or discoveries – any serious bidder needs to have its financing and plans ready to execute. Moreover, while competing bids can theoretically emerge in Phase 2, the expedited timeline (often just weeks) means latecomers have a very limited window to intervene. Thus, if you’re eyeing a target that might go into a prepack sale, engaging early (during its conciliation) is key to not missing out.

Recent Developments: Towards an EU-Wide Prepack Regime?

The success of the French prepack cession has drawn interest beyond France. In fact, the European Commission has proposed to harmonize pre-pack proceedings across EU member states. On 7 December 2022, the Commission published a draft directive seeking to introduce pre-pack style procedures throughout Europe. This initiative, part of a broader effort to align insolvency laws, builds on the 2019 EU Restructuring Directive (which France implemented with new restructuring tools like classes of creditors).

The proposed EU rules (still under discussion as of 2024–2025) would establish common principles for prepack sales, including safeguards for transparency and creditor interests. For example, the draft envisions a court-appointed “monitor” to supervise the preparatory phase, ensuring that the process is fair and that a “best interest of creditors” test is met. This sounds very similar to the role French conciliators already play, and indeed many of the proposal’s features (two-phase structure, involvement of an insolvency professional, quick transfer of business) are already present in French law. A 2023 analysis by CMS Legal concludes that the EU draft “should not disrupt the French legal landscape” on prepacks, since France’s system is largely in line with the anticipated requirements. However, some adjustments may be needed – for instance, clarifying how to prove that a confidential sale process was sufficiently transparent, or aligning the rules on related-party buyers with any EU standards.

For international investors, the prospect of an EU-wide prepack framework is promising. It could mean more distressed investment opportunities in other European markets with the speed and efficiency that France’s prepack offers. France itself continues to refine its insolvency practices, but no major overhaul of the prepack cession has occurred since 2014 – rather, it’s a tool that has steadily gained traction and recognition. Recent high-profile cases and law firm commentaries (e.g. Option Finance in March 2024) suggest that market participants view prepack cessions as an effective solution to rescue businesses without value loss, and they are watching closely whether Brussels will make this tool a European standard.

Key Considerations for International Investors

Legal Certainty

The French prepack cession offers a high degree of legal certainty for buyers. The sale is sealed by a court judgment, which means you acquire assets free of prior liabilities and encumbrances. This clean-slate outcome is particularly attractive if you are concerned about hidden debts or lawsuits – in France, once the court approves the transfer, creditors are generally confined to claiming against the insolvency estate, not the sold business.

Speed and Efficiency

In cross-border investment, time is often of the essence. The prepack process is designed for speed – the preparatory phase gives enough time for proper due diligence, and the court phase can complete in a matter of weeks, not years. This swift execution not only preserves the business’s value, it also allows an investor to immediately start integration and turnaround efforts without protracted courtroom delays. From an ROI perspective, acquiring a French company via prepack means less downtime and faster access to the company’s cash flows and markets.

Transparency and Fair Play

Although much of the process is private, it’s not a closed club. As an international bidder, you have a fair shot if you engage in time. French law mandates a form of market test even in prepack deals. Ensure you work with local advisors to stay informed of companies in conciliation or looking for buyers. Often, distressed companies (through their bankers or lawyers) will quietly solicit offers – if you’re actively looking for French targets, make it known so you can be contacted during that confidential phase. Also, be prepared to demonstrate your seriousness and compliance (e.g. proof of funds, a solid business plan) to the conciliator, as the court will later review the offer’s credibility and benefits to stakeholders.

Cultural and Legal Nuances

France’s insolvency system has its own particularities. International investors should be aware that French courts value the social aspect of restructuring – maintaining employment can be as important as the price you pay. It’s wise to highlight in your offer how you will preserve jobs and know-how, as this will make your bid more attractive to the court. Additionally, keep in mind any regulatory approvals that might be needed (competition authority clearance, sector-specific approvals) must be factored into the rapid timeline. The conciliation phase is a good time to address these issues in advance.

Future Developments

Lastly, stay updated on the EU harmonization efforts. If an EU directive on prepack sales is adopted, the framework might evolve – potentially introducing a standardized “monitor” role or other new procedural tweaks. France is likely to adapt smoothly to such changes, but being ahead of the curve will help you navigate prepack opportunities not just in France but across Europe.

Conclusion

The French prepack cession procedure has proven to be an effective tool for transferring distressed businesses to new owners while preserving going-concern value. It combines the confidentiality of an M&A process with the finality of a court-approved sale, offering international investors speed, legal certainty, and the ability to acquire selected assets free of legacy liabilities.

That said, the landscape has evolved. Since the 2021 reform introducing creditor classes and new restructuring frameworks, the use of prepack cessions in practice has become limited. Courts and practitioners now more frequently rely on accelerated safeguard proceedings and class-based restructuring plans. The prepack cession remains available under French law, but it is a niche solution, typically considered when timing and confidentiality make it the best fit.

For international investors, understanding the prepack cession is still valuable — both because it illustrates France’s innovative approach to business rescue and because it may resurface in specific cases where a discreet, pre-arranged sale is appropriate. More broadly, investors should be aware that France now offers a wider restructuring toolkit, including class-based restructuring plans aligned with EU standards. Mastery of both frameworks — prepacks and modern restructuring tools — is essential for seizing distressed opportunities in the French market.