Financial Restructuring Plan: How to Fund the Liquidity Requirements of a French Continuation Plan
The adoption of a court-approved continuation plan is a decisive milestone for a company undergoing French judicial reorganisation proceedings. It establishes a framework for repaying existing liabilities and confirms that the business may continue operating.
However, it does not create liquidity.
A company may obtain an extension of its debt repayment schedule and still lack the cash required to purchase raw materials, fulfil customer orders, rebuild inventory or maintain essential equipment.
The risk is therefore clear: the company may have a legally viable plan without the financial resources required to implement it.
Preparing the financial restructuring plan must consequently address one essential question: how will the business fund its operations while rebuilding its performance?
A continuation plan does not fund ongoing operations
A French continuation plan, also referred to as a judicial reorganisation plan, is intended to support the continuation of the business, preserve employment and provide for the repayment of existing liabilities.
It may spread debt repayments over several years. While this reduces the immediate pressure created by historical liabilities, it does not automatically fund the requirements generated by ongoing operations.
The company must still meet:
purchasing and procurement costs;
payroll and operating expenses;
equipment maintenance costs;
essential capital expenditure;
essential capital expenditure;
expenditure required to fulfil customer orders;
the initial payments due under the plan.
The plan provides time. The company must still have sufficient liquidity to convert that time into an effective recovery.
A recovery in activity may increase liquidity requirements
New orders are generally regarded as a positive sign. However, they may temporarily increase the company’s funding requirement.
Before collecting the proceeds of a sale, the company may need to purchase raw materials, build inventory, incur production costs, deliver the order and then wait for the customer to pay.
The longer the operating cycle, the more cash the recovery is likely to consume.
A company may therefore face a paradoxical situation: its order book improves while its liquidity position deteriorates.
Projected revenue alone is not sufficient to demonstrate that the plan is viable. Each commercial assumption must be translated into cash receipts and payments using realistic timings.
Separate the requirements rather than seek a single funding amount
A general request for “additional liquidity” does not give a lender sufficient insight into the situation.
The amount sought should be broken down by purpose and timing. Three requirements should generally be considered separately.
Stabilising operations
The first requirement is to secure essential expenditure: critical suppliers, payroll, maintenance, energy, transport and production continuity.
This liquidity is often required immediately. Its purpose is to prevent an operational incident from undermining the recovery before the benefits of the plan can materialise.
Funding the operational restart
The second requirement relates to new orders and working capital.
It may include raw-material purchases, inventory rebuilding, production pre-financing or the period between delivery and customer payment.
The requirement should be linked to identifiable orders, contracts or cash flows.
Supporting implementation of the plan
The third requirement relates to the payments scheduled under the continuation plan.
These payments are added to ordinary operating expenses and the debt service associated with any new financing. The overall structure must remain affordable when all these obligations are considered together.
A solution that funds the operational restart but leaves the company unable to meet its first payments under the plan does not resolve the problem. It merely postpones it.
Building a credible cash-flow trajectory
A projected income statement is not sufficient to assess the funding requirement.
A company may return to profitability and still face a liquidity shortfall. The timing of cash flows matters as much as their amount.
The preparation should be supported by a regularly updated cash-flow forecast that includes:
expected receipts from significant customers;
payment periods observed in practice;
payments due to suppliers;
payroll, tax and social security liabilities;
payroll, tax and social security liabilities;
inventory requirements;essential capital expenditure;
payments due under the continuation plan;
debt service on the new financing;
an appropriate liquidity buffer.
The cash-flow trajectory should also be tested against less favourable scenarios.
What happens if a major customer pays two weeks late? If inventory turns more slowly than expected? If margins fall below plan? If the commercial recovery takes three additional months?
A credible financing structure must be able to absorb reasonable downside. It cannot rely exclusively on the most favourable scenario.
Making the funding requirement clear to a lender
A specialist lender will seek to understand:
the amount required;
when the funds are needed;
how the funds will be used;
the duration of the requirement;
the assets or cash flows that may support the transaction;
the source of repayment;
the risks that could affect the proposed scenario.
The quality of this presentation directly influences how the opportunity is assessed.
A general request intended to “support the continuation of the business” remains difficult to analyse. The requirement becomes clearer when it relates, for example, to inventory supported by documented orders, the pre-financing of receivables or the financing of identifiable equipment.
The objective is not to repackage the urgency. It is to demonstrate precisely what must be funded and how the financing can be repaid.
Which financing options may be considered?
When traditional banks are unable to increase their exposure, certain specialist solutions may be considered:
accounts receivable financing;
inventory financing;
financing secured against machinery or equipment;
sale and leaseback transactions;
refinancing secured against real estate;
private debt supported by an appropriate security package;
bridge financing linked to an order or a planned asset disposal.
These solutions are not interchangeable.
Their cost, tenor, security requirements and repayment terms must be compatible with the company’s trajectory and the payments due under the continuation plan.
The existence of an asset does not guarantee that it can support financing. Its ownership, economic value, liquidity and any existing security interests must be established.
An asset may be essential to the business while offering limited collateral value to a lender. Conversely, a properly documented asset may make the opportunity more understandable where traditional financial ratios have deteriorated.
Preparing the financing sufficiently early
Timing largely determines which options remain available.
A lender must be able to assess the financial position, forecasts, assets, existing security interests and constraints arising from the proceedings. This analysis takes time.
When the search for financing begins only a few days before a liquidity shortfall, the number of institutions capable of intervening falls significantly. Terms will generally become more demanding, and the company’s negotiating position will weaken.
The financing of ongoing operations should therefore be prepared alongside the continuation plan, rather than after its adoption.
Early preparation makes it possible to quantify the requirement, assemble the necessary documentation and approach potential financing partners in a coherent sequence.
Coordinating the financial and legal dimensions
In French judicial reorganisation proceedings, a financing transaction cannot be structured independently of the legal process.
It must be considered with the relevant court-appointed administrator, judicial representative and legal advisers. In particular, the rights of existing creditors, available security and any required authorisations must be reviewed.
The financial adviser performs a complementary role: establishing the liquidity trajectory, identifying available assets and cash flows, structuring the funding requirement and organising the lender engagement process.
This coordination helps prevent a financially attractive solution from proving legally unavailable or incompatible with the commitments made under the continuation plan.
Conclusion: funding the time required for recovery
A continuation plan may give a company the time required to restore a viable operating position. That time must still be funded.
The strength of the plan rests on four elements: a precisely quantified liquidity requirement, a realistic operational trajectory, properly documented assets or cash flows, and repayment capacity consistent with the payments due under the plan.
The objective is therefore not merely to restructure existing liabilities. It is to provide the company with the financial resources required to implement its recovery.
The earlier this work begins, the greater the company’s ability to select the appropriate counterparties, structure a coherent solution and protect the continuity of its operations.