Insolvent companies : Safeguard first

The Casablanca Commercial Court validated some fifty safeguard plans in 2023. This legal regime forms the usual triad of procedures for ailing companies, alongside winding-up and receivership.
“The purpose of the safeguard procedure is to enable a company to overcome its difficulties in order to guarantee the continuation of its activity, the maintenance of employment, and the discharge of its liabilities”, reads the Commercial Code. It is important to note that lawmakers require that a company requesting protection under the safeguard procedure must not be in a situation of suspension of payments, hence the particularity of this procedure in force since April 20, 2018.

“The safeguard procedure covers an ailing company against the possible legal actions of its creditors without calling into question its legal liability. What’s more, the advantage of a safeguard plan is that it doesn’t push the company into receivership. This procedure has been very popular with the public since it was introduced six years ago”, explains business lawyer Salima Bakouchi. The management of a company thus obtains a protection against debts arising prior to the opening of the procedure. The management of the company also retains control over management, despite the insolvency trustee’s powers…
But beware: courts do not sign a blank cheque. If a company remains underperforming, the safeguard procedure is then cancelled. There were 24 such cases out of the 46 beneficiary cases recorded in 2023. Judicial practice seems to be quite demanding in this respect. “Despite all the enthusiasm for this safeguard procedure, commercial judges do not easily and automatically grant it. There are legal barriers to filtering out requests from ailing companies”, reports the practitioner, who is a member of the Casablanca bar.

Stroc Industries was the first listed Moroccan company to benefit from this procedure. The Casablanca Commercial Court’s decision was reached after a legal appraisal.
At the time, it had not explicitly confirmed the company’s insolvency (see L’Economiste digital edition of December 23, 2019). Among other conditions, business owners must specify “the nature of the difficulties” that could “compromise the continuity” of their business.

Before reaching a decision, a court hears the interested party, who has no right to invoke professional secrecy. By law, a safeguard plan must not exceed five years, during which time the courts keep a close eye on the insolvent company. Even after a ruling has been handed down, courts can still cancel a safeguard plan. This is the case when it appears that “a company was in suspension of payment on the date of the judgment” validating the safeguard plan. This partly explains the 24 cases recorded in 2023.

Faiçal FAQUIHI