First introduced by the amended Finance Law of 23 March 2020^[2], the PGEs are made available to companies of all sizes and in all sectors with the aim of providing support for their cash flow. The corresponding mechanism to mitigate the impact of the second lockdown was established by the 4^th amended Finance Law of 30 November 2020^[3]. It provides for a mobilization of an additional €20 billions to the €300 billions initially planned. This strengthening of the mechanism is in line with the European Council’s recommendations of 13 October 2020^[4].

While remaining largely unchanged compared to the PGE of 2020 scheme, the law nevertheless extends the application of these loans until 30 June 2021 and allows, for current PGEs, borrowers to make the request to the lending banks for an additional year’s deferral of repayment.

Indeed, new PGE operate under the same scheme as the old ones: the loan period is limited to a maximum of 6 years, companies are divided between “mass scheme” or “large company scheme” (more than 5,000 employees and a turnover above €1.5 billion) and are subject to the absence of difficulty condition at 31 December 2019, it being noted that the notion of difficulty is provided by EU legislation. On this point, the French scheme bases its state guarantee solely on the criteria of the absence of insolvency proceedings and seems to exclude the other European criteria. Similarly, the lenders covered by the extension of the scheme remain unchanged. They are mainly credit institutions and finance companies, excluding funds (securitisation undertaking and specialised financing undertaking) but also, since the decree of 6 May 2020, crowdfunding intermediaries.

In the event of assignment of the loan receivable, the state guarantee is forfeited unless the assignee is a credit institution belonging to the same group as the one granting the loan, or if the assignment is made in the context of a monetary policy operation.

The amount of the PGE granted is always capped at 25% of the company’s turnover or at 2 years of payroll if the company was created after 1 January 2019. However, there are exceptions benefiting certain seasonal or aeronautical companies.

An accumulation with a guarantee or real security is only possible within the framework of the PGEs within the large companies scheme and not within the one of the mass scheme. The loan coverage rate is 90% for the mass scheme and drops to 80% for the large companies scheme if the turnover is less than €5 billions, and to 70% for large companies for which the turnover is greater than €5 billions. The state guarantee can only be granted on condition that the total financing provided by the lending institution to the company has not decreased at the time the guarantee is granted compared to its level on 16 March 2020.

The state guarantee can be called upon in the case of a credit event or a payment default where the indemnifiable amount is not known. In this case, the lender has the right to obtain, at the latest within 90 days following the call on the guarantee, a provisional payment corresponding to an estimate of the amount of the losses likely to be borne by the lending institution. The State is subrogated in the lender’s rights.

One of the new main features of the Amended Finance Act of 30 November 2020 is that companies with a current PGE that are unable to repay their PGE by 1st March 2021 will now benefit from a 12-month grace period, in addition to the mandatory 12 months provided for in the initial PGE scheme. In a press release dated 29 October 2020, the French Banking Federation (FBF) stated that lenders would undertake to offer personalised amortisation terms that best meet borrowers’ needs. Such deferred amortization will be studied on a case by case basis with the relevant lender. This deferral should not systematically lead the lender to consider the borrower to be in default of payment.

On a practical level, if the current PGE contract does not provide for a deferral of amortization for more than one year or does not open an option for a deferral on the part of the borrower, an amendment agreement must be drawn up, or at the very least, it must be documented by a series of letters that are equivalent to an amendment. If this was provided for in the original contract, the option will be exercised as agreed. Thus, at the end of the first year, the one-year grace period and the extension of the loan over an additional period of 1 to 5 years will be carried out at the same time, always within the maximum limit of 6 years.

[2] Amended Finance Law n° 2020-289 dated 23 March 2020

[3] Amended Finance Law n°2020-1473 dated 30 November 2020

[4] Council recommendation (EU) 2020/1475 of 13 October 2020

The 2^nd amended finance law for 2020^[5] set up a system of equity loans. Complementary to the PGE, granted directly by the State and financed via the Economic and Social Development Fund (Fonds de Développement Economique et Social, FDES), the aim of this scheme is to support the cash flow of very small and small businesses (fewer than 50 employees) weakened by the coronavirus crisis while improving their balance sheet structure and thus promote investment and recovery.

The equity loan is granted from the lender’s available long-term resources and is assimilated to equity. It may be granted to different borrowers such as agricultural, craft, industrial or commercial companies and associations or foundations engaged in an economic activity (as defined in Article 1 of Law n°2014-856 of 31 July 2014) but excluding private real estate companies (Société civile immobilière).

In addition to its qualification as quasi-equity, the main characteristic of the participating loan lies in two distinctive features: (i) in the event of amicable liquidation, judicial liquidation or receivership of the borrower, participating loans are repaid only after all other preferential or unsecured creditors have been fully paid; and (ii) the fixed interest on the participating loan may be increased, in particular by the inclusion of a clause providing for a share in the borrower’s net profit.

The basis of repayment of the loan is freely determined by the parties. Such repayment is made in cash according to the schedule set up at the outset. However, a clause for conversion of the debt into shares can be established at the beginning of the contract, which can be an interesting alternative. Reimbursement may be deferred.

Such exceptional equity loans can be granted between 14 October 2020 and 30 June 2021.

Eligible entities shall meet the following criteria: (i) demonstrate real prospects for the recovery of their activity; (ii) not to be subject to one of the collective insolvency proceedings provided for in the French Commercial Code on 31 December 2019 or at the time the loan is granted (if this was the case, they must then have become in bonis at the time of the loan application); and (iii) be up to date with its tax and social security obligations.

The amount of the loans varies according to the type of the company and can be up to 100,000 euros. The maximum repayment period is 7 years with a fixed interest rate set by decree at 3.5% for which a participation clause is compulsory. It can also be envisaged that it will be accompanied by an early repayment clause or a one-year grace period. The lending State may also request additional guarantees and security interests to secure its repayment.

[5] Amended Finance Law n°2020-473 dated 25 April 2020

The European Banking Authority (EBA) decided on 2 December 2020 to revise and reactivate its guidelines on legislative and non-legislative moratoria on loan repayments^[6]. The purpose of this decision is to allow credit institutions to relax their criteria for granting moratoria and to ensure that loans can benefit from repayment moratoria if this had not previously been the case. They also add certain safeguards against the risk of an undue increase in unrecognized losses on the banks’ balance sheets.

Under normal circumstances, a loan that is not repaid after three months is automatically considered non-performing. The bank must then make a provision in its accounts. Thanks to these guidelines, banks can grant additional moratoriums without affecting their balance sheet, provided that certain conditions detailed in the guidelines are met, in particular: (i) the moratorium was launched in response to the Covid-19 pandemic; (ii) it has to be broadly applied and (iii) has to apply to a broad range of obligors, regardless of their credit assessment; (iv) the same moratorium shall offer the same conditions; (v) only the schedule of payments can be modified and (vi) it does not apply to new loans granted after the launch of the moratorium.

To limit the effects of these measures to liquidity shortages and to ensure that there are no operational constraints on the continuous availability of credit the EBA introduced two safeguards:

• only loans that have been subject to moratoria of less than nine months (including previously granted payment holidays) and that have been suspended, postponed, or reduced in this context will benefit from this temporary relaxation of the rules (excluding those granted before 30 September 2020); and
• credit institutions are required to document to the supervisory authorities their plans to assess and monitor that exposures subject to a general payment moratorium do not become unlikely to pay.

These amended guidelines apply as of 2 December 2020 and will continue to apply until 31 March 2021.

[6] EBA/GL/2020/02, originaly issued on 2 April 2020

The law of 14 November 2020 authorising the extension of the state of emergency also made it possible to issue ordinances relating to companies in difficulty and in particular in relation to insolvency proceedings. These texts notably extended the measures adopted to mitigate the first wave of the covid‑19 pandemic.

In this context, the Ordinance dated 25 November 2020[7] announced that conciliation proceedings initiated between 24 August 2020 and 31 December 2021 may be extended once or several times, as long as the total duration thereof does not exceed 10 months. Furthermore, the law of 7 December 2020[8] extended until 31 December 2021 the date of the proceedings for which, when a creditor called to conciliation does not accept the conciliator’s request to suspend the due date of his receivable during the proceedings, the president of the court may, at the request of the debtor : (i) stop or prohibit any legal action on the part of the creditor seeking to order the debtor to pay a sum of money or to terminate a contract for failure to pay a sum of money; (ii) stop or prohibit any enforcement proceedings on the part of that creditor on movable or immovable property as well as any distribution proceedings not having an attributive effect prior to the request; (iii) postpone or stagger the payment of the sums due.

The law of 7 December 2020 with effect until 31 December 2021 provides that in the event of an accelerated safeguard procedure or accelerated financial safeguard procedure opened after 21 May 2020 that fails and for which no plan has been drawn up, the court may open recovery or liquidation proceedings.

Until 31 December 2020, the court may extend the duration of the safeguard or recovery plan for a maximum of 2 years, upon application by the public prosecutor or the commissioner for the execution of the plan. Thus, the maximum duration of the safeguard or recovery plan may be extended to 12 years in case of substantial modification, or to 17 years when the debtor is a person exercising an agricultural activity. The court may also, until the end of the proceedings, order that the deferred instalments will bear interest at a reduced rate or be charged prior to the capital.

In addition, until 31 December 2021 a new safeguard or recovery privilege similar to the new money privilege applies for the benefit of persons making a new cash contribution to the debtor during the period of observation or undertaking to do so for the execution of the safeguard or recovery plan.

[7] Ordinance n°2020-1443 dated 25 November 2020

[8] Law n°2020-1525 dated 7 December 2020