Business difficulties in Moroccan Law

Collective procedures are measures taken to prevent business difficulties.

Image par Andrew Khoroshavin de Pixabay

Indeed, when a company faces events that threaten its operations’ continuity, management should take specific legal measures.

Before it reaches a state of suspension of payments, Moroccan lawmakers have established some preemptive procedures. The Moroccan commercial code outlines the procedures to take.

These procedures, whose purpose is to prevent business difficulties, are called “collective procedures”. These are procedures decided by a judge. They aim to redress or liquidate a company that is experiencing economic challenges. Measures to prevent business difficulties are judicial measures that aim to guarantee the continuation of activity. Besides, they strive to maintain employment while respecting the rights of creditors.

There are three forms of collective procedures depending on the degree of business difficulties encountered, namely:

  • First, the safeguard procedure,
  • Second, the receivership procedure
  • Finally, the judicial liquidation (or liquidation procedure).

Business difficultiesThe safeguard procedure

It is a legal recourse open to companies experiencing financial difficulties. It concerns companies that have not reached insolvency but are having problems. This procedure intervenes to protect companies from going bankrupt by suspending debts at the procedure’s opening.

Its purpose is to enable the company to overcome its difficulties to:

  • Firstly, guarantee the continuation of its activity,
  • Also, maintain employment
  • And finally, to settle the company’s liabilities.

Who are concerned, and who can initiate an application for opening a safeguard procedure?

The safeguard procedure concerns :

  • Traders who are natural persons
  • Commercial companies including P.L.C (Public Limited Company) & L.L.C (Limited Liability Company)

The management of the company can request the opening of a collective procedure.

How does the safeguard procedure work?

The head of the company requests the opening of a safeguard procedure. He files his request at the secretariat of the clerk’s office of the competent court. In this request, he must mention the nature of the difficulties that may compromise the business’s continuity. The application must include any document that can indicate the nature of problems encountered. Moreover, the head of the enterprise must accompany his application with a safeguard plan.

The court rules on the opening of safeguard proceedings 15 days after the application.

With the management’s assistance, the trustee analyzes the situation and draws up a detailed report. In this report, he specifies the financial, economic, and social position of the company. He then proposes the safeguard plan to the court for approval. The court rules either in favor of the safeguard project or on its modification. It can also order the recovery of the company in difficulty or its liquidation by court order.

Business difficulties – Receivership procedure

When a company faces significant financial difficulties, it may be in a state of suspension of payments. Such a state implies the company’s inability to meet its current liabilities. Significant economic problems occur when that its debts exceed its available assets.

Who can initiate an application for opening a receivership procedure?

The receivership procedure applies to any commercial company in a state of cessation of payments.

For the opening of this procedure, a request must be made by one of the following:

  • The head of the company
  • A creditor
  • The court, on its initiative, or at the request of the public prosecutor or the court’s president.

How is the receivership procedure executed?

When a debtor initiates an application to open a receivership procedure, the court rules on said proceeding after examining the situation. The judgment pronounces the opening of a receivership procedure.

For an interested party to apply for the opening of a receivership procedure, he must complete a declaration of cessation of payments. Then, the interested party files this declaration in the court. Once the court orders the receivership procedure’s opening, the company’s activity continues within a protective framework.

Then there is an observation period, which allows an assessment of the economic situation. Its objective is to analyze the origin, nature, and extent of the difficulties. It aims to study the different possibilities for the company’s recovery.

This procedure results in 4 different outcomes, namely:

  • Firstly, to implement a recovery plan. Such a plan aims to allow the company to continue its activity. A continuation helps safeguard the interests of the creditors and ideally maintain jobs. However, it may be necessary to reduce employees or require the departure of the company’s manager.
  • Then, the end of the receivership procedure if the company overcomes its difficulties. Indeed, when the company has sufficient funds to reimburse its creditors and settle the proceedings’ costs, the receivership procedure is deemed no longer necessary.
  • The partial or total sale of the company
  • A court-ordered liquidation if the situation of the company deteriorates during the observation phase. In such a case, the law considers conditions for liquidation to be met. The court can rule in favor of switching from a receivership procedure to judicial liquidation.

Business difficulties – Judicial liquidation

The liquidation procedure concerns companies whose situation is irremediably compromised.

This procedure intervenes when receivership has not been successful. Its objective is to put a definitive end to the company’s activity in difficulty while paying off the creditors.

Who are concerned, and who can initiate an application for opening a Judicial liquidation?

– The liquidation procedure is intended for companies that:

– Are in a state of suspension of payments

– Are virtually incapable to recover

Trades exclusively with small businesses

The court will order the opening of the procedure when it deems that the company’s situation is irrevocably compromised. This opening can be either systematical or at the request of the company’s management, a creditor, or the public prosecutor’s office.

Conduct of the liquidation procedure

The main actors of this procedure are the trustee and the bankruptcy judge.

As soon as the court opens the procedure, the company’s management divests himself of the administration. He also relieves himself of the disposal of his assets. The court appoints a trustee (in French “syndic”) to administer the company.

How is the liquidation executed?

Here, we start with the disposal of assets, which happens like this:

  • First, the sale of real estate will take place according to the prescribed forms of real estate seizure. By way of derogation, the bankruptcy judge can set the price and conditions of the sale;
  • Then, the production units that make up the movable assets may be subject to:
    • Either, a wholesale,
    • Or a sale in parts

For movable property, the bankruptcy judge has a choice. He may order their sale either by public auction or by mutual agreement.

Moreover, to promote transparency, the sale of real estate is always done by public auction.

There are two ways to dispose of assets:

First mode: sale in activity

According to this mode, it is an activity or the company’s whole activity that is mainly sold.

Second mode: sale in parts

In this mode, isolated assets are sold, and all employees are laid off.

Then there is the settlement of liabilities. The judgment that opens or pronounces the judicial liquidation leads to the forfeiture of the term. This mode means that debts that had not fallen due become payable.

The liquidation procedure can end in two ways:

  • Either all creditors are reimbursed. If the company still has money left, this is called a liquidation bonus, which the partners can distribute to themselves.
  • Or, it can be closed for insufficient assets. Indeed, this means that the business no longer has sufficient funds to reimburse all its creditors.

In the second case, the director is liable if the asset insufficiency results from mismanagement.

In conclusion, these procedures aim to protect and prevent bankruptcy and to manage business difficulties better.