In brief: Moroccan law provides three collective proceedings to address business difficulties: safeguard proceedings, judicial reorganization, and judicial liquidation. These mechanisms protect companies facing going concern risks while safeguarding creditors’ rights and employment.
Collective proceedings are the measures taken to prevent business difficulties.
Indeed, when a company faces events that threaten the continuity of its operations, certain legal measures must be taken. Before it reaches a state of cessation of payments, the Moroccan legislator has put in place specific procedures for this situation. These procedures stem from the Commercial Code.
These proceedings, whose purpose is to prevent business difficulties, are called collective proceedings. They consist of all procedures decided by a judge. They aim to restructure or liquidate a company experiencing economic difficulties. The measures for preventing business difficulties are judicial measures whose objective is to ensure the continuation of business activity. Furthermore, they aim to maintain employment while respecting creditors’ rights.
There are three types of proceedings depending on the severity of the business difficulties encountered, namely:
- Safeguard proceedings: preventive measures for companies not yet in cessation of payments
- Judicial reorganization: court-supervised restructuring after cessation of payments
- Judicial liquidation: definitive closure when recovery is impossible.
Business Difficulties: Safeguard Proceedings
This is a legal remedy available to companies experiencing financial difficulties. It concerns companies that are not yet in a state of cessation of payments. These proceedings intervene to protect companies in difficulty by suspending debt payments upon the opening of the proceedings.
Their purpose is to enable the company to overcome its difficulties in order to:
- Business continuity: ensure the continuation of its business activity
- Employment protection: maintain employment
- Liability settlement: settle the company’s liabilities.
Who is concerned and who can request the opening of proceedings?
Safeguard proceedings concern:
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Individual traders
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Commercial companies including PLCs and LLCs
They can be opened at the request of the head of the company.
How do safeguard proceedings work?
The head of the company files a request to open safeguard proceedings. The request is filed with the clerk’s office of the competent court. In this request, the head of the company must state the nature of the difficulties likely to jeopardize the continuity of the company’s operations. The request must include all documents clearly showing the nature of the business difficulties. The head of the company must accompany the request with a safeguard plan.
The court rules on the opening of safeguard proceedings 15 days after the request.
With the assistance of the head of the company, the court-appointed administrator analyses the situation and prepares a detailed report. In this report, the administrator specifies the company’s financial, economic, and social situation and then submits it to the court. The court decides either to approve or amend the safeguard plan. It may also order the reorganization of the company in difficulty or its judicial liquidation.
Business Difficulties - Judicial Reorganization
When a company faces major financial difficulties, it may find itself in a state of cessation of payments. Cessation of payments means the inability to meet its due liabilities. This means that its debts exceed its available assets.
Who can request the opening of this procedure?
Judicial reorganization proceedings apply to any commercial enterprise that is in a state of cessation of payments.
For the opening of these proceedings, certain persons may make the request, namely:
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The head of the company
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A creditor
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The court on its own initiative, or at the request of the public prosecutor or the president of the court.
How do judicial reorganization proceedings work?
When the debtor requests the opening of reorganization proceedings, the court, after examining the situation, renders a judgment. The judgment orders the opening of proceedings for judicial reorganization.
In order for an interested party to request the opening of reorganization proceedings, a declaration of cessation of payments must be completed and filed with the court. After the court has ordered the opening of the reorganization proceedings, the company’s business continues within a protective framework.
This is followed by an observation period that allows for an assessment of the economic situation. Its purpose is to analyse the origin, nature, and extent of the difficulties. It aims to study the various possibilities for reorganizing the company.
These proceedings can have 4 outcomes, namely:
- First, implementing a reorganization plan whose purpose is to enable the company to continue its business activity. Continuation makes it possible to safeguard creditors’ interests and ideally maintain jobs. However, it may be necessary to eliminate positions or require the departure of the company’s manager.
- Next, the end of the judicial reorganization if the company’s difficulties disappear. Indeed, when the company has sufficient funds to satisfy creditors and pay the costs of the proceedings.
- Partial or total transfer of the company
- The pronouncement of judicial liquidation if, during the observation phase, the company’s situation deteriorates. This means that the conditions for liquidation are met. The court may convert the reorganization proceedings into judicial liquidation.
Business Difficulties - Judicial Liquidation
Liquidation proceedings concern companies whose situation is irremediably compromised.
This is the procedure that comes into play when judicial reorganization has failed. Its purpose is to definitively end the activity of the company in difficulty while satisfying creditors.
Who is concerned and who can request the opening of proceedings?
Liquidation proceedings are intended for companies that:
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Are in a state of cessation of payments
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Are manifestly unable to recover
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They are directed exclusively at small businesses
The court orders the opening of proceedings when it appears that the company’s situation is irremediably compromised. This opening is made either on the court’s own initiative or at the request of the head of the company, a creditor, or the public prosecutor.
How do judicial liquidation proceedings work?
The bodies involved in these proceedings for managing business difficulties are the court-appointed administrator and the supervisory judge.
As soon as the court opens the proceedings, the head of the company is divested of the administration of the business and the disposition of its assets. The court appoints an administrator to manage the company.
How liquidation proceeds
The process begins with the realization of assets, which proceeds as follows:
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First, the sale of real estate takes place according to the procedures prescribed for real estate seizure. By way of exception, the supervisory judge may set the price and conditions of sale;
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Next, the production units that make up the movable assets may be subject to:
Either a global transfer,
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Or a transfer in parts
It should be noted that for movable property, the supervisory judge has a choice. The judge may order their sale either at public auction or by private agreement.
Furthermore, to promote transparency, the sale of real estate is always conducted at public auction.
There are two methods for realizing assets:
First method: transfer as a going concern
Under this method, it is primarily a business activity or the company’s business that is transferred.
Second method: transfer in parts
Under this method, individual assets are transferred, and all employees are made redundant.
This is followed by the settlement of liabilities. The judgment that opens or orders judicial liquidation triggers the acceleration of debts. This means that debts that had not yet fallen due become immediately payable.
The liquidation procedure can end in two ways:
- Either all creditors are repaid. If the company still has money left, this is called a liquidation surplus, which the partners can distribute among themselves.
- Or it can be closed due to insufficient assets. Indeed, this means that the company no longer has enough money to repay all its creditors.
In this second case, the manager incurs personal liability if the insufficiency of assets results from mismanagement.
In conclusion, these proceedings aim to protect against and prevent bankruptcy and to better manage business difficulties.
Frequently Asked Questions
What are the legal proceedings available for companies in difficulty in Morocco?
Moroccan law provides several proceedings: the conciliation procedure (for amicable settlement), the safeguard procedure (to reorganize before cessation of payments), judicial reorganization (after cessation of payments), and judicial liquidation (when recovery is impossible). Each procedure has specific conditions and objectives.
What triggers the obligation to declare cessation of payments in Morocco?
A company must declare cessation of payments within 30 days when it can no longer meet its current liabilities with its available assets. Failure to make this declaration within the legal timeframe can expose the company’s directors to personal liability and potential criminal sanctions.
What is the role of a chartered accountant during business difficulties in Morocco?
A chartered accountant plays a critical role during business difficulties by helping assess the company’s financial situation, preparing accurate financial statements, and advising directors on the most appropriate legal procedure—whether conciliation, safeguard, judicial reorganization, or liquidation. They assist in evaluating whether the company has reached cessation of payments, ensure compliance with the 30-day declaration obligation, and help develop reorganization plans. Their expertise is essential for protecting directors from personal liability and maximizing the chances of business recovery.
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