Since 24 December 2015, the 17 African Member States of the organisation for the harmonisation of business law in Africa (OHADA) have benefited from modernised, streamlined collective proceedings designed to preserve viable companies, enhance predictability and maximise recoveries for creditors. Largely inspired by French law, the reforms create a new preventive proceeding, introduce a new money privilege, clarify existing legal provisions and provide for the cross-border recognition of insolvency proceedings. It is expected that these reforms will encourage international trade and improve access to finance for businesses located in OHADA Member States.

OHADA's new legal framework to boost turnaround and creditor recovery

On 10 September 2015, the 17 Member States of the Organisation for the Harmonisation of Business Law in Africa (OHADA) adopted a new Uniform Act codifying collective proceedings (the "U.A."), which replaces the legislation adopted in 1998.

Directly and broadly applicable, the U.A. came into force on 24 December 2015. It provides a clear legal framework designed to (i) safeguard viable companies through preventive proceedings and extrajudicial agreements, (ii) ensure the swift liquidation of non-viable companies, (iii) maximise creditor recoveries by following the creditor payment waterfall and (iv) regulate judicial representatives, such as insolvency administrators. Finally, it provides for a high level of cooperation in international insolvencies.

With greater predictability for insolvency proceedings, it is expected that the reforms will increase the attractiveness of OHADA states and enable their businesses to benefit from better financing conditions.

We examine below the U.A.'s most significant provisions.

1) Avoiding the cessation of payments through preventive proceedings

The new U.A. defines the cessation of payment as a situation where the debtor is unable to pay its outstanding liabilities with its current assets1.

This notion, directly inspired by French law, is the dividing line between preventive and curative proceedings: a company in cessation of payments can no longer initiate preventive insolvency proceedings and must resort only to the OHADA curative proceeding, judicial recovery, or file for liquidation.

There are two preventive, consensual proceedings in OHADA law: the conciliation proceeding and the preventive settlement, both designed to avoid a cessation of payments.

a) The Conciliation proceeding

This confidential proceeding was introduced into OHADA law by the U.A. and is initiated in case of actual or foreseeable difficulties on the part of the debtor. It is opened for 3 months, and can last up to 4 months.

The conciliation is a confidential and consensual proceeding in which an independent conciliator is appointed by the president of the commercial court to help the company to negotiate and reach an agreement with its main creditors on a financial or operational restructuring, in order to cure debtor difficulties and avoid the cessation of payments. Participation in such an agreement is done on a voluntary basis: the conciliator has no power to compel stakeholders. The executed agreement may be filed in the original sections ("minutes") of a Notary or homologated by the Commercial Court without any publicity.

b) The Preventive Settlement

The U.A. has modified some important provisions of the preventive settlement. This proceeding is now initiated when the company faces "serious financial or economic difficulties". In support of its claim to open the proceeding, the debtor (sometimes alongside some of its creditors) must provide a draft of a preventive settlement agreement, which shall mention the contemplated restructuring (sale of part or all of the assets, termination of employees' contracts) and refinancing (renegotiation of the terms of payments of debts). If this draft appears to be viable, the commercial court will open the preventive settlement and appoint an expert for a period of 3 months (with a possible extension to a further month).

The expert will examine the situation of the debtor and will facilitate negotiations with its creditors in order to reach a settlement agreement on the basis of the draft provided to the court. Once the settlement is executed, the expert will file its report with the commercial court which will homologate the settlement agreement.

2) Granting a New Money privilege

According to the new U.A., creditors having contributed new money to the debtor or provided new goods or services in order to maintain its business as part of an homologated conciliation agreement, either in an homologated preventive settlement agreement or in an homologated recovery statement (in the course of a judicial recovery), are granted priority in the creditor payment waterfall if the debtor is later subject to a liquidation proceeding.

This privilege is more extensive under OHADA law than it is under French law as new money creditors are paid before any other creditor, including costs relating to judicial proceedings and super-privileged employees, and of course any secured creditors.

When homologating an agreement, the court ascertains whether the conditions for granting this privilege are met (in particular, the privilege must not be detrimental to the interests of creditors who are not part of the agreement) and mentions the privilege in its decision and the relevant amounts covered by this privilege.

3) Clarifying the ranking of creditors

Under the U.A., a liquidation has to be concluded in a reasonable timeframe and the ranking of creditors is clarified as follows2:

a) Creditors with new money privilege;

b) Creditors' costs relating to judicial proceedings;

c) Creditors' costs incurred prior to judicial proceedings to preserve the debtors' assets (only for movable properties);

d) Creditors benefitting from a super-privilege (such as due salaries);

e) Mortgage creditors and creditors secured by a lien / pledge;

f) Creditors with respect to receivables having arisen in the regular course after the initiation of the proceeding;

g) Creditors with a general privilege;

h) Unsecured creditors in possession of a writ of execution.

i) Unsecured creditors not in possession of a writ of execution

Please note that the monies arising from the sale of immovable property and the monies arising from the sale of movable property are distributed separately to the relevant creditors, under the abovementioned waterfall.

4) Providing a legal framework for the mission of judicial representatives

Whether they intervene as experts in preventive settlements (see above) or as trustees ("syndics") in preventive settlements, judicial recoveries or liquidations, judicial representatives ("mandataires judiciaires") play a vital role in conducting insolvency proceedings.

Pursuant to the U.A., judicial representatives must be registered on a national register of "mandataires judiciaires" in order to be nominated in the abovementioned proceedings. This implies that they meet certain personal requirements (no civil or criminal sentences) and should be chartered accountants. They should also be independent, neutral and impartial and have no personal interest in the matter at hand.

Also, they are liable to the debtor, the creditors and third parties, submit to disciplinary proceedings and are accordingly sanctioned in case of any breach.

Judicial representatives are paid from the debtor's assets. In preventive settlements, their remuneration is determined by the relevant jurisdiction upon termination of the proceeding and such remuneration is based on time spent and on the number of creditors in the estate. In the course of a judicial recovery and a liquidation, their remuneration depends on time spent, the revenue of the company, the number of employees, the debt recovery ratio and the difficulty and duration of the proceeding. In this last case, the remuneration cannot normally exceed 20% of the overall value of realized assets.

In summary, the U.A. aims to ensure the skills and ethics of judicial representatives and aims to prevent them absorbing a substantial part of the debtor's assets.

5) Ensuring a cross-border recognition in international insolvency proceedings

The U.A. adapts the applicable UN model law (UNICTRAL) and applicable French case law to the OHADA Member States as far as international insolvency proceedings are concerned. For instance, where curative insolvency proceedings (or the foreign equivalent) are pending in respect of the same debtor in both an OHADA Member State and a non OHADA Member State, the U.A. provides for cooperation between the relevant institutions and jurisdictions with a view to:

  • strengthening legal certainty for trade activities and for foreign investments;
  • protecting the interests of all creditors as well as that of the debtor.

The U.A. also provides for:

  • the recognition of decisions opening or terminating an insolvency proceeding in one OHADA Member State in another OHADA Member State (or a conflict arising from such insolvency proceeding); in this respect, the trustee must advertise the abovementioned decisions relating to insolvency proceedings in the other OHADA Member State(s) concerned;
  • the recognition of insolvency proceedings opened in a non OHADA Member State in an OHADA Member State; although only a foreign trustee representing the debtor in insolvency proceedings may apply for this recognition before the OHADA Member State's commercial court; if this recognition is granted by the court, any claims against the debtor are suspended, as well any transfer of its assets or any creation of security on its assets. However, the opening of an insolvency proceeding in the OHADA Member State whose commercial court has recognised foreign proceedings relating to the same debtor is possible if the latter owns assets in the relevant OHADA Member State.

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1However, a company is not in a state of cessation of payments if its financial reserves and/or the payment terms granted by creditors enable it to meet its outstanding liabilities.

2This ranking is without prejudice to the exercise of retention rights of exclusive right to payment in the case of movable property.


Didier Bruère-Dawson

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