France

Risk assessment

Probable recession in 2013

After the stagnation recorded in 2012, a slight recession is to be feared in 2013. The rise in unemployment (which affects 10.8% of the active labour force in February), low business profitability, loss of confidence on the part of the economic actors and, above all, the significant fiscal shock on the way suggest that there will be a fall in domestic demand. Household consumption (58% of GDP), in particular, which traditionally stands up well due to the rigidity of wages, could slow more markedly than in 2012 in response both to more job losses, lower purchasing power and the reduction in spending on household equipment. The drop is, however, expected to be contained, as households can still draw on their savings (16% of disposable income). Investment, which stagnated in 2012, is expected to fall more sharply than consumption. Moreover, the increase in exports is expected to remain weak because of a still difficult economic situation in Italy and Spain and slower growth in Germany. This increase is, however, expected to remain above that of imports. Meanwhile, despite the rise in gas and electricity tariffs at the beginning of the year, inflationary pressures are likely to be very limited in 2013.

Adjustment efforts undertaken but difficult to achieve

Despite the weaknesses of the economy, investors have until now kept their appetite for French debt, which is currently traded at historically low rates of return. The benevolence of the markets takes into account government efforts to cut the public deficit, improve business competitiveness and provide greater job protection for workers, while providing companies with greater flexibility. The subdued economic conditions, already partially responsible for the slippage in public accounts observed in 2012 (deficit at 4.8% of GDP rather than the forecast 4.5%), have forced the government to postpone by a year its 3% deficit target for 2013 and to intensify efforts to control public spending (over €60bn of savings need to be made over the five-year term). Spending is bordering on 57% of GDP, one of the highest levels in the OECD, and there is now much less room for manoeuvre to increase taxes.

Financially weak businesses

Businesses, whose profit margins are at their lowest levels since 1985 (28%) and whose rate of self-financing is weak (65%), are seeing a sharp decrease in their ability to rebound. Moreover, borrowing conditions are becoming harder, which primarily affects the SMEs. Too small, compared with their German counterparts, French companies remain generally short on innovation and too few of them export. They are inadequately represented on the strongly growing emerging markets. The difficulties they are experiencing in reducing their production costs in order to resist international competition in the middle and lower range of goods or to go more up-market do not augur well for a real reversal of the trend despite the “competitiveness pact” (that includes a tax credit of €20bn over 3 years for businesses) and the agreement on labour market flexibility. In this context, French businesses could continue to lose export market shares.

Persistent payment difficulties, increasingly costly bankruptcies

Payment incidents recorded by Coface continued to increase in 2012 at more or less the same rate as in 2011. The number of company failures has remained high since 2010, but relatively stable. However, the financial cost for suppliers and the resulting job losses rose sharply in 2012 (+11% and +8.5% respectively) due to the increasing size of the failing businesses. The sectors most affected are construction, services to individuals and businesses, distribution and automotives/transport. Risks are increasing in agrifood, electronics/IT-telecoms and chemicals. However, textiles/clothing, paper/wood and metals are relatively unscathed.

Payment incident index

Insolvency trends

MEANS OF PAYMENT AND COLLECTION METHODS

Among methods of payment, the bank card is now the instrument used most in France, dethroning cheques, which are nonetheless still widely used.

In 2010, bank cards represented 43.3 per cent of the payment transactions cleared through the interbank system against nearly 19.1 per cent for cheques ⁽¹⁾.

For cheques remaining unpaid over 30 days from the date they were first presented for payment, the beneficiary may immediately obtain an enforcement order (without need of further procedural act or cost) based on a certificate of non-payment provided by his banker after a second unsuccessful presentation of the check for payment and where the debtor has not provided proof of payment within 15 days of formal notice to pay served by a bailiff (article L 131-73 of the monetary and financial code).

Bills of exchange, a much less frequently used mode of payment than cheques, have been in virtually constant decline in terms of number of operations with volume remaining essentially steady in value terms.

Bills of exchange, a much less frequently used mode of payment than cheques, have been in virtually constant decline in term of numbers of operations with a volume remaining essentially steady in value terms.

Bills of exchange are attractive for companies insofar as they may be discounted or transferred, thus providing a valuable source of short-term financing. Moreover, they allow creditors to bring legal recourse in respect of “exchange law” (droit cambiaire) and are particularly suitable for instalment payments.

Still lagging behind cheques, the use of transfers stabilized in 2010 representing about 14.8 per cent of total interbank transactions.

In value terms, however, cheques and transfers still represent most of script payment transactions with 28.2 per cent and 44.7 per cent respectively of the total amount processed ⁽¹⁾.

Bank transfers can be made within France or internationally via the SWIFT electronic network used in French banking circles, which offers a reliable platform for timely payment subject to mutual trust and confidence between suppliers and their customers.

The directive 2007/64/EC (in force since 1^st November 2009) on “payment services in the internal European market” sets the legal basis for the creation of a single area for payments in Euros (SEPA), in order to harmonize the rules applicable to the different types of payment (transfers, direct debits, payment cards).

Since the ‘New Economic Regulations Act’ of 15 May 2001, commercial debts automatically bear interest from the day after the payment due date shown on the invoice or specified in the commercial contract. Unless the terms and conditions of sale stipulate interest rates and conditions of application, the applicable rate will be the interest rate applied by the European Central Bank’s in its most recent refinancing operations, raised by ten percentage points as of 1^st January 2009.

Serving the debtor with formal notice to pay the principal claim and contractual or legal interest, nonetheless remains a precondition for any legal action taken by creditors.

Since 19 June 2008, the current limitation period, in civil and commercial matters, was reduced to 5 years and the limitation starts “from the day where the right holder has known or should have known the facts to allow him to apply for such right”.

Where a debt claim results from a contractual undertaking and is both liquid and undisputable, creditors may use the injunction-to-pay procedure (injonction de payer), a flexible system based on the use of pre-printed forms not requiring applicants to argue their case before the court of civil instance (tribunal d’instance) or competent commercial court – the court having jurisdiction in the district where the debtor's registered offices are located.

Via that procedure, creditors can rapidly obtain a court order to be served subsequently by bailiff.

The defendant has one month to dispute the case.

A fast track procedure (référé-provision) provides creditors with a rapid  means of debt collection, even in routine cases lacking any real urgency, provided the claims are not subject to substantive dispute; in such cases, the judge can grant a provisional payment in favour of the applicant than can represent up to 100 per cent of the claim.

However, this fast track procedure requires the presence of an attorney to represent the creditor in court.

If a claim proves to be litigious, the judge competent to rule on special urgency (juge des référés) evaluates whether the claim is well founded. As appropriate, the judge may then declare himself incompetent and, based on his assessment of the apparent validity of the case, invite the plaintiff to seek a ruling on the substance of the case through the formal court process.

Formal procedures of this kind permit having the validity of a claim recognized by the court, a relatively lengthy process lasting about a year or more owing to the emphasis placed on the adversarial nature of proceedings and the numerous phases involved in the French procedural system: submission of supporting case documents, written submissions by the litigants, examination of the types of evidence, various recesses for deliberations, and at last, the hearing for oral pleadings (audience de plaidoirie).

If justified by a claim’s size and the uncertain solvency of the debtor, legal action may include a petition to obtain an attachment order on available assets and thereby protect the plaintiff's interests pending completion of the proceedings and enforcement of the court's final judgment.