What are the main risks in the event of non-reimbursement of an EMP?

Companies risk loss of collateral and seizure of assets, consequences for their financial credibility, costly collection procedures, increased pressure on cash flow, and strained relations with creditors.

What does the loss of guarantees and seizure of assets mean for a company?

In the event of non-repayment, lenders can seize the collateral offered, resulting in substantial financial losses for the company and its management.

How does non-payment affect a company's financial credibility?

This can lead rating agencies, business partners and financial institutions to reconsider their confidence in the company, making it difficult to obtain future credit.

What are the costs associated with collection procedures?

Companies can face legal action and additional legal costs, worsening their financial situation.

How does pressure on cash flow affect the company?

Interest payments on EMPs can complicate cash flow management and limit the ability to meet other financial obligations.

What are the effects on relations with other creditors?

A payment default can erode confidence and have a negative impact on commercial commitments and credit terms.

How can companies defend themselves in the event of an EMP dispute?

They can resort to credit mediation, renegotiate loan conditions with the bank, or defend themselves before the courts by raising defenses and counterclaims.

Risks in the event of non-repayment of the EMP

The difficulties generated by the COVID-19 pandemic have led many companies to apply for a State Guaranteed Loan (SGL) to maintain their activities. It is imperative to understand the risks to which companies are exposed in the event of non-repayment of such a loan. Zoom in on the potential implications and challenges companies may face in the event of non-repayment.

Loss of collateral and seizure of assets: when taking out an EMP, companies often offer personal guarantees or asset collateral. In the event of non-repayment, lenders can seize these guarantees, resulting in substantial financial loss for the company and its management.

Consequences for financial credibility: non-payment of an EMP can have lasting repercussions on the company's financial credibility. Rating agencies, business partners and financial institutions may reconsider their confidence in the company, making it difficult to obtain future credit and influencing business relationships.

Collection procedures and associated costs: lenders have the right to initiate collection procedures in the event of non-payment. These procedures may include legal action, which exposes the company to additional legal costs, further worsening its financial situation.

Cash flow pressures: in addition to principal repayments, companies may have to pay interest on EMPs. This can put significant pressure on cash flow, complicating cash flow management and the ability to meet other financial obligations.

Strained relations with creditors: a payment default can adversely affect the company's relations with other creditors, including suppliers and trade creditors. Trust can be eroded, with repercussions on commercial commitments and credit terms.

It is imperative for companies with an EMP to be aware of the risks associated with non-repayment. Non-repayment of a loan is often the result of insolvency, which is not immediately reversible; it often leads to suspension of payments, with bankruptcy at the end of the day. Proactive management of the financial situation, transparent communication with lenders and the search for alternative solutions are therefore crucial to mitigating these risks. Ultimately, understanding the financial and strategic implications of non-payment is essential for the long-term preservation of the business.

How do you defend yourself in the event of a dispute over default on repayment of a State Guaranteed Loan?

Use credit mediation

In the event of a dispute initiated by the bank concerning repayment of the PGE, companies can call on the Banque de France's national credit mediator to attempt mediation with the bank.

Credit mediation is a public scheme designed to facilitate dialogue between companies and their financial partners, with the aim of finding amicable solutions to disputes.

By opting for credit mediation, the company can benefit from a specific arrangement between the government and the bank, enabling restructuring of the government-guaranteed loan, with repayment terms extended by up to 10 years. However, this recourse may have consequences, notably on the company's credit rating with the Banque de France.

Renegotiate loan terms directly with the bank

It is perfectly legitimate for a company to renegotiate the terms of its credit agreement with the bank. Upon receipt of the formal notice, it may be useful to contact the bank immediately to explain the company's financial difficulties, with a view to rescheduling the loan.

It goes without saying that the bank is not obliged to accept such a renegotiation.

Defending yourself before the courts by raising defenses and counterclaims

If the notice of default and notification of acceleration do not result in immediate payment, the bank is generally obliged to take the debtor to court.

The aim is to obtain a writ of execution allowing seizures to be carried out through the intermediary of a court commissioner. In the event of disputes with a bank, the debtor company has a number of means of defense, such as challenging the bank's responsibility to provide information and exercise due care when taking out a credit agreement. In some cases, the company may also request that the credit agreement be declared null and void.

As each situation is unique, a detailed analysis is required to determine the appropriate means of defense to activate.