Highlights on takeovers for companies facing major labor issues

23/10/20
Highlights on takeovers for companies facing major labor issues

The takeover of a distressed company may offer real opportunities for investors or companies wishing to grow externally. This article provides an update on the social implications of these operations.

Identifying the extent of the economic difficulties of the company that you may wish to take over:

  • If the distressed company is subject to a safeguard procedure, no suspension of payments is required and only a partial sale is possible.
  • If the distressed company is subject to a court-ordered reorganization or winding-up proceedings, payments are suspended, and a partial or total transfer may be made.
 

Identify where the company's difficulties originate in order to determine whether a recovery is viable:

  • Potential buyers should consider whether there are external causes for the company's current difficulties, such as the economic situation, aggressive competition or the failure of a business partner.
  • Potential buyers must be particularly concerned if it emerges that internal causes, such as poor internal management, poor strategic orientation or the financial structure of the company, are at the root of the company's existing difficulties. In such cases, buyers should determine whether he or she is able to resolve them in the context of the takeover.
 

Run a social audit:

  • Potential buyers must identify social practices and benefits, the relevant collective agreement, the existing company-level agreements, paid holidays and days of reduced working hours acquired, seniority and remuneration of employees, as well as potential internal conflicts, wage claims, and the human potential of employees.
 

It is essential to bear in mind the principle of the automatic transfer of employment contracts under Article L.1224-1 of the French Labor Code:

  • This automatic transfer is waived for the benefit of potential buyers of distressed companies in order to facilitate the takeover, not to discourage potential buyers and, above all, to encourage the continuation of the activity of the company concerned.

    Applicants can thus adapt the wage bill in their takeover offer, by providing for job cuts or stopping a number of redundancies, or arrange the occupational categories affected by these redundancies and the activities included in the takeover.
  • On the other hand, when a distressed company is sold as a stand-alone asset representing an autonomous economic entity, for example in the context of an exclusive sale of a business including the company's employees, the buyer is obliged to take over all the employees attached to the business. The buyer is not in a position to arrange the takeover of the payroll as in the case of a total or partial sale plan.
 

Making its takeover offer the most attractive:

  • The quality of the business plan as well as the social aspect (number of employees maintained, employment conditions offered, etc.) should not be neglected, as these are critical criteria for the Court's choice of the takeover offer. The takeover candidate must be as convincing as possible in terms of the continuity of the business and jobs, and not only present himself as the highest bidder in terms of price.
  • Potential buyers make their offers more attractive through the proposal of charges increasing the transfer price, such as the payment of paid holidays and days of reduced working hours acquired by the employees taken over before the court ruling on the sale plan (in principle, these rights are not the responsibility of the purchaser but of the bodies involved in the proceedings) or the payment of support measures in favor of employees not taken over, such as a contribution to their employment protection plan or proposals for redeployment positions.
 

Managing post-takeover issues:

  • Employment contracts of employees taken over are automatically transferred to the purchaser, leading to the continuation of the contractual elements of the employment relationship, with the maintenance of the employee's salary, working conditions, seniority, coefficient and professional qualification prior to the transfer.
  • Collective agreements in force within the company prior to the transfer are automatically affected. The purchaser has then 15 months to negotiate alternative agreements to replace the questioned ones.

    He or she also has the option of concluding agreements with the social partners in advance, so that new agreements can be negotiated to replace the old ones as soon as they come into effect, if his or her offer is accepted by the court.
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