Business in Difficulty: Prevention, Safeguard or Recovery, How to Save Your Company

A drop in activity, a major customer who stops paying, tax and social security payments piling up: any business can go through a difficult patch. The most dangerous reaction is to wait. Since the 2018 reform, Book V of the Moroccan Commercial Code gives managers a range of tools to anticipate, negotiate and, where necessary, restructure their debts under the court’s protection. The earlier you act, the better the chances of saving the business.

Recognising the warning signs

Certain indicators should alert a manager:

• repeatedly negative cash flow and permanent overdrafts;
• late payments to the tax authority, the CNSS or suppliers;
• equity falling below a quarter of the share capital;
• losing a customer or contract that accounts for a large share of turnover;
• unpaid customer invoices building up. On this, see how to recover an unpaid invoice.

1. Internal prevention

The law first organises an alert within the company. The statutory auditor, where there is one, or partners holding part of the capital can draw the manager’s attention to facts likely to jeopardise the business as a going concern. If nothing is done, the alert can be raised with the partners and then with the President of the Commercial Court.

2. External prevention and conciliation

Once informed of the difficulties, the President of the Commercial Court may summon the manager to consider measures to put things right. The manager can also take the initiative and request:

• the appointment of a special representative with a specific task, such as negotiating with a major creditor;
• the opening of conciliation proceedings, in which a conciliator helps the business reach an agreement with its main creditors (payment terms, debt write-offs).

These procedures are confidential, which protects the company’s reputation with customers and suppliers. The agreement reached can be approved by the President of the Court.

3. Safeguard proceedings

Safeguard is intended for a business that is not yet in a state of cessation of payments but faces difficulties it cannot overcome alone and that could lead it there. Only the business’s manager can apply for it. The opening judgment stays individual actions by creditors and starts an observation period during which the business keeps trading. It leads to a safeguard plan, adopted by the court, which reschedules the debts and organises the restructuring. The manager normally stays in charge, assisted by a court-appointed trustee (syndic).

4. Judicial recovery

When the business is in cessation of payments, meaning it cannot pay its due debts from its available assets, but its situation is not irretrievably compromised, judicial recovery allows it to be restructured. The manager must apply for the proceedings within the short period set by law after payments cease; otherwise, they may be held personally liable. The proceedings can result in a continuation plan, possibly with partial disposals, or in a plan to sell the business to a buyer.

5. Judicial liquidation

If the situation is irretrievably compromised, the court orders liquidation: trading stops, the assets are sold and the proceeds are distributed to creditors according to their ranking. A well-prepared liquidation at least limits the risks for the manager.

Creditors: do not miss the deadline to lodge your claim

If one of your customers is subject to safeguard, recovery or liquidation proceedings, you must lodge your claim with the trustee within the legal time limit, which runs from the publication of the opening judgment. A claim not lodged in time may no longer be enforceable against the business. Employees, for their part, enjoy preferential ranking for their wages.

The manager’s liability

A manager who has committed management errors, continued loss-making operations for personal benefit or delayed declaring the cessation of payments faces sanctions: being ordered to cover all or part of the company’s liabilities, a ban from commercial activity, and even criminal prosecution in the most serious cases. Taking advice at the first signs of trouble is therefore also personal protection.

Act early, with the right advice

The Agadir Commercial Court has jurisdiction over businesses in the Souss region. The office of Maître Said Laachili helps managers in Agadir and Inezgane analyse their situation, negotiate with creditors and use the procedures for preventing and dealing with difficulties, and also assists creditors who need to assert their rights, as part of its business law and company law practice.

To build a solid business from the start, read the guide to setting up an SARL in Agadir, the essential clauses of a commercial contract and our article on commercial leases. Is your business going through a difficult time? Contact the office without delay.