By François Devedjian, partner and Fabienne Kerebel, counsel
Among the series of first orders published on March 26, 2020 in application of the health emergency law of March 23, 2020 organizing the fight against the spread of Covid-19, order n ° 2020-306 attracts attention in that '' it modifies certain contractual clauses of private law: those sanctioning the non-performance of the debtor and those arranging the termination or renewal of the contract.
The scope of the development
Almost all private law contracts
Title 1 of Ordinance No.2020-036 as a principal right suspends the deadlines and measures prescribed by law or regulations and whose expiration occurs between March 12 and the period of one month from the end of the state of health emergency within the meaning of Article 4 of the Health Emergency Law of 23 March 2020 (the Suspension period).
This state of emergency having started on March 24, 2020 for a period of 2 months, the Suspension Period therefore runs from March 12 to June 24, 2020, the legislative extension or the early interruption by decree of the state of emergency being able to however, lengthen or shorten this Suspension Period.
Articles 4 and 5 of the ordinance extend this suspension to certain contractual clauses, for all private law contracts with the sole exceptions:
- certain financial obligations and related guarantees provided for in Articles L. 211-36 et seq. of the Monetary and Financial Code (limited number of contracts, for example those having as their object a transaction on financial instruments when at least one of the parties is a credit institution or a local authority in particular);
- contracts for which the deadlines have already been adjusted by the emergency law or in application of the latter; thus, for example, (i) the resolution of travel and accommodation contracts or (ii) for micro-enterprises, the payment and resolution of contracts for the supply of electricity, gas and water or payment of professional and commercial rents.
The following are therefore concerned, for example: commercial leases (other than those concluded by micro-enterprises), loan contracts, service provision contracts, insurance contracts, supply contracts, etc.
Certain contractual clauses
The ordinance undermines the inviolability of the contract, but by limiting its effects by suspending:
- not contractual obligations: they continue to have to be performed in accordance with the contractual deadline;
- but the consequences of a breach (i) on the one hand, by paralyzing the legal effects of penalties, penalty clauses, termination clauses and forfeiture clauses (article 4) and (ii) on the other hand, by extending the contractual deadlines termination or termination of a contract (Article 5).
However, the development remains significant and timely: the government seemed hesitant to take over private law contracts, having limited force majeure to public law contracts and the adaptation of private law contracts to certain co-contractors. , economically fragile or to certain sectors (supra).
The concrete implementation of the development
For penalties, penalty clauses, termination clauses, forfeiture clauses
These penalties and clauses, when their purpose is to penalize the non-performance of an obligation within a determined period:
- are deemed not to have started or produced effect if this period has expired during the Suspension Period;
- resume and take effect from the expiration of a period of one month after the end of the Suspension Period (from June 25, 2020 if the state of emergency ends on the scheduled date of May 24 2020) if the debtor has not performed his obligation before this term.
In our opinion, the legal suspension extends to guarantees accompanying the non-performance of the contractual obligation, with the exception of the guarantee on first demand because of its autonomy from the main contract.
Two concrete examples:
- (i) either a commercial lease stipulating the due date for payment of the rent for the 2nd quarter of 2020 and a termination clause in the event of default; the lessee does not fulfill his payment obligation
regardless of any legal mechanism allowing the policyholder to exempt himself from this obligation (for example for non-fulfillment of the obligation to deliver), the termination clause will not have any effect before June 25, 2020, the date on which it may produce effect if and only if the lessee has not paid the rent for the 2nd quarter of 2020 by this date
as the payment deadline is not postponed (only the effectiveness of the sanction being), the lessor remains free to issue a payment order aimed at the termination clause from April 1, 2020, which will then produce its effects from June 25, 2020 in the absence of payment by this date
- (ii) either a senior credit agreement stipulating a lapse of the term entailing early repayment of the credit in the event of non-delivery of financial information by April 30, 2020; the information is not available at this date
the early repayment of the credit is paralyzed until June 24, 2020 and will not resume until June 25, 2020 if the information has not been issued by that date
however, if the information required relates to the achievement of a minimum financial ratio as of March 31, 2020, the suspension of the effects of the early repayment clause does not have the effect of modifying the methods of calculating the financial ratio; in other words, the ratio to be communicated for June 24 is indeed the ratio calculated on March 31, 2020 and the failure to reach the floor ratio on this date allows the lender to obtain the early repayment from June 25, 2020, except to consider the non-achievement of the ratio as the consequence of a case of force majeure
In addition, the course of penalty payments and the application of penal clauses (excluding resolutive causes and forfeiture) that took effect before March 12, 2020 are suspended during the Suspended Period. Their course and effect are restored the next day (i.e. from June 25, 2020 in the absence of extension or early termination of the state of emergency).
Illustration
For termination or non-renewal clauses
The contractual period to terminate a contract or to notify its non-renewal, once it expires during the Suspension Period, is automatically extended to expire 2 months at the end of the Suspension Period (i.e. July 24 2020 in the absence of extension or early termination of the health emergency period).
A concrete example: a license contract concluded for a fixed period expiring on April 30, 2020 and renewable by tacit agreement unless terminated notified at least 1 month before its expiration. The co-contractor wishing to oppose the tacit renewal of the contract may do so until July 24, 2020.
Illustration
The objectives
The ordinance does not modify the contractual provisions but paralyzes, during the Suspension Period, some of the contractual effects associated with contractual breaches. The creditor of the unfulfilled obligation will thus be powerless to claim in court the sanction of the non-performance of an obligation before 1 month (penalty, penalty clause, termination clause, forfeiture clause) or 2 months (termination or denunciation clause ) following the end of the Suspension Period and provided that such non-performance has not been remedied beforehand.
The debtor, put in difficulty by the Covid-19 crisis, thus obtains a period of breathing, which he can take advantage of to negotiate, if necessary, a modification of the contractual obligation with his co-contractor.
François Devedjian
Partner
A specialist in stock market law and mergers and acquisitions, he is involved, in particular, in public offers and capital market transactions, as well as in mergers and acquisitions, whether or not involving listed companies.
He regularly advises companies whose securities are traded on a regulated market in France, large industrial groups and innovative companies with strong growth, both in their daily life and on specific transactions.
Fabienne Kerebel
Counsel
She has acquired a solid expertise in the law of listed and unlisted companies and its various components, in particular private equity and mergers and acquisitions.
As such, Fabienne advises companies and executives on their external growth operations, changes in their governance or shareholding, the incentive of key managers or the reorganization of corporate structures. She has developed an in-depth practice of financial securities transactions which allows her to support start-ups, SMEs and mid-cap companies in their fundraising as well as investors at all stages of their investment.
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