Restructuring businesses in distress has not proven very successful over the years, in spite of efforts to create an appropriate framework for recovery, including legislative reform. It is well established that addressing potential difficulties before the enterprise becomes insolvent is the only successful method of restructuring a business without losing the trust of employees, banking partners, suppliers, and customers. Once insolvency has been declared, one or several of these confidence factors are certain to be destroyed, and the recovery chances become tenuous.

Since 1994, case law has promoted the development of mediation to encourage troubled business to restructure their operations in partnership with creditors, and thus to save the enterprise. This "partnership" approach has allowed many companies to rebound successfully, particularly in real estate.

It is clear that this method should be used in the largest possible number of cases. It is also clear that early treatment maximizes the chances of success. It suffices to observe the success rate achieved by Anglo-Saxon systems, where between 70% and 90% or all restructuring procedures are said to be successful. This rate does not compare directly with the 5% success rate achieved by court-supervised restructuring plans in France, where legal and economic circumstances are very different. Anglo-Saxon legal systems do not impose a mandatory cessation of payments, as defined in the French legal system. Consequently, Anglo-Saxon banking institutions can rely on "floating charges" (a form of collateral) to intervene long before the company's situation has deteriorated beyond repair, while imposing restructuring measures on the business and its management for the benefit of all stakeholders.

French mediation seeks a similar approach, albeit gentler and less authoritarian. Mediation's success rate matches the performance reported by Anglo-Saxon systems.

26/01/04 - The ad hoc mediator Isabelle Didier The ad hoc mediator: an efficient solution Is it advisable to cut off a business in distress, to reorganize it under court supervision or, even worse...