Better-fortune clause in French law: definition, drafting, accounting and tax treatment

Updated April 2026 - The better-fortune clause (clause de retour a meilleure fortune) is a contractual mechanism used primarily in financial difficulty situations. It allows a creditor to grant an immediate concession — partial debt waiver, payment suspension — while retaining a conditional right to recover that concession if the debtor's financial situation improves. Its effectiveness depends entirely on drafting precision, accounting rigour and an understanding of the French tax rules that govern debt waivers.

The better-fortune clause is a contractual provision under which a debtor in financial difficulty undertakes to repay all or part of an abandoned or suspended debt as soon as their financial situation permits. It is grounded in French contract law (articles 1102 et seq. of the Civil Code, as reformed by the 2016 ordonnance) and constitutes a conditional obligation within the meaning of article 1304 C. civ.: the repayment obligation is suspended until a future and uncertain event — the return to better fortune — is realised.

It must be distinguished from:

• ▸a pure debt waiver (remise de dette), which extinguishes the debt permanently without any return condition;
• ▸a novation, which replaces one obligation with a new one;
• ▸a subordination agreement, which adjusts the priority ranking between creditors without erasing the debt itself.

The clause appears in three main contexts in French practice.

Amicable proceedings (mandat ad hoc, conciliation). Under the Book VI pre-insolvency framework of the Code de commerce, parties negotiate a confidential restructuring agreement. The creditor — a supplier, bank, or shareholder making an advance — accepts a partial debt waiver conditional on a future better-fortune recovery. This structure is common in homologated conciliation agreements.

Court-approved safeguard and reorganisation plans. French courts have consistently upheld the validity of the clause in approved plans (plans de sauvegarde and plans de redressement). It allows creditors to accept significant write-downs without permanently losing their claim, which facilitates adoption by creditor classes (classes de parties affectees under the 2021 reform implementing the EU restructuring directive).

Bilateral restructuring agreements. Between a company and a private creditor (landlord, strategic supplier, shareholder making a loan), the clause is inserted into a transactional protocol or an amendment to the original contract to organise a conditional waiver or payment deferral.

The clause derives its validity from contractual freedom (art. 1102 C. civ.) and the binding force of contracts (art. 1103 C. civ.). Its conditional character subjects it to article 1304 C. civ.: the condition must be possible, lawful and defined with sufficient precision for its realisation to be objectively verifiable.

Within insolvency proceedings, article L620-1 of the Code de commerce (safeguard) and article L631-1 (reorganisation) frame the plans in which these clauses frequently appear, subject to the court's oversight during homologation.

A vague clause is the primary source of disputes. Rigorous drafting must cover four elements.

1. The trigger events. The clause must define precisely what constitutes the "return to better fortune." The most defensible criteria are: free cash-flow exceeding a defined threshold over a closed financial year; positive net income for two consecutive financial years; the completion of a bank or bond refinancing above a certain amount; or a significant asset disposal. Leaving the assessment to judicial appreciation in the absence of precise criteria is expensive, slow and unpredictable.

2. The observation period. The clause must specify over what timeframe the criteria are evaluated: year by year, or over a rolling three-year window, for example. Without precision, the debtor and creditor may have divergent interpretations of when the condition should be considered satisfied.

3. The amount and calculation of the return. The clause must specify: the maximum returnable amount (capped or uncapped), the calculation method (percentage of net income, fraction of excess cash-flow, fixed amount), and the instalment schedule if the return to better fortune is expected to be gradual.

4. The debtor's information obligations. The creditor must have access to the information needed to verify whether the criteria are met. The clause should require the debtor to provide annual certified financial statements, interim management accounts, and notice of any trigger event (refinancing, disposal) within a defined period.

Pure debt waiver: the debt is permanently extinguished, no conditions attached. The creditor recognises a loss. Accounting entry: charge in the creditor's accounts.

Novation: the original obligation is replaced by a new one. A better-fortune clause does not novate the debt — it suspends or conditionally reduces it.

Debt subordination: the subordinated creditor accepts to be paid after priority creditors, but the debt is not erased. Both mechanisms can be combined in a complex restructuring agreement.

For the creditor. If the probability of recovery is assessed as low, the creditor must recognise a depreciation provision on the receivable equal to the conceded amount. If a definitive conditional waiver is granted, the receivable may be derecognised from the balance sheet with a corresponding exceptional charge. A contingent asset (the conditional right to recovery) can be mentioned in the notes without being recognised on the balance sheet (prudence principle). If the better-fortune condition is subsequently met, a reversal of provision or an exceptional income is recorded in the relevant financial year.

For the debtor. Until the better-fortune condition is realised, the debt must remain on the balance sheet at its original amount. If a conditional waiver has been granted, the waived amount is recognised as exceptional income in the year of the agreement — unless the clause explicitly provides for a conditional structure that keeps it in the liabilities until the observation period expires.

For the debtor. A debt waiver is in principle taxable as exceptional income for corporate income tax purposes. However, article 209 II of the Code general des impots (CGI) provides an important option for companies in financial difficulty: debt waivers of a financial character can be offset against available tax loss carryforwards (deficits reportables), avoiding immediate taxation. This option must be exercised expressly in the tax return.

For the creditor. A financial debt waiver granted to a subsidiary is generally non-deductible unless the subsidiary's net assets are negative and the waiver does not exceed the amount of the negative net equity. For trade receivables, the loss is deductible if it is definitive and justified. A depreciation provision is deductible if the loss is probable and clearly foreseeable under French accounting standards.

SME in difficulty and a supplier. A manufacturing SME accumulates EUR 180,000 in overdue payments to its main raw materials supplier. Rather than initiating collection proceedings (with the risk of triggering the debtor's liquidation), the supplier agrees to a protocol waiving EUR 60,000 with a better-fortune clause: if the SME's net income is positive for two consecutive years, it will repay an additional EUR 40,000. The supplier provisions the EUR 60,000 waived; the SME books it as exceptional income and exercises the article 209 II CGI option to offset against its tax loss carryforward.

SAS in restructuring and bank creditor. A digital services company, heavily indebted following an acquisition, negotiates with its bank a restructuring plan including a 30% write-down of the outstanding loan principal, with a better-fortune clause triggered by free cash-flow exceeding EUR 500,000 for two consecutive financial years. The clause is validated by the commercial court in a homologated conciliation agreement.

The clause has several practical limitations. The main one is the difficulty of proof: establishing that better-fortune criteria are met — or not — may require contradictory accounting expertise. There is also the risk of judicial challenge: if criteria are vague, the debtor may contest that the condition has been satisfied, requiring court proceedings. Finally, in the event of the debtor's judicial liquidation before the better-fortune condition is realised, the conditional claim is generally lodged with the administrator at its original amount, but effective recovery remains uncertain.

Hayot Expertise advice: a poorly drafted better-fortune clause protects neither the creditor nor the debtor. It merely relocates the dispute. We support companies and their advisors in drafting the trigger conditions, modelling the tax treatment and coordinating with legal counsel in amicable proceedings and restructuring plans.

See also debt collection and recovery, financial valuation methodologies and withdrawal of pre-emptive rights.

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The better-fortune clause is a valuable tool in financial difficulty situations, provided it is precisely drafted, accounted for with rigour and fiscally optimised. Its effectiveness depends on the quality of the trigger criteria, the clarity of the observation period and the robustness of the information mechanism. A vague clause generates disputes; a well-constructed clause is a durable restructuring instrument.

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What triggers the "return to better fortune"?

The parties define the contractual triggers freely: positive free cash-flow exceeding a threshold, net income for several consecutive years, completed refinancing, significant asset disposal. Without precise criteria in the clause, assessment falls to judicial discretion based on the debtor's objective financial capacity — which is a source of uncertainty and litigation.

How is a debt waiver linked to a better-fortune clause taxed?

For the debtor, the debt waiver is in principle taxable as exceptional income for corporate income tax purposes. The option under article 209 II of the CGI allows the waiver to be offset against available tax loss carryforwards, avoiding immediate taxation and preserving cash resources as the company exits its difficulties.

Is the better-fortune clause used in French insolvency proceedings?

Yes, it is frequently found in court-approved safeguard and reorganisation plans. French case law validates the principle: it allows the creditor to avoid permanently losing their claim while giving the debtor a genuine chance of recovery, which facilitates adoption of plans by creditor classes under the reformed framework.

How should a creditor account for a receivable covered by a better-fortune clause?

The creditor should provision the receivable to 100% if the probability of recovery is low, and reverse the provision if better fortune is subsequently demonstrated. The debtor maintains the debt on the balance sheet until the waiver becomes effective or the observation period expires, unless the clause provides for a specific alternative treatment.