The receivership procedure: jurisdiction and implementation

The success of a receivership depends on strict compliance with the procedure. A procedural error can compromise the measure and undermine the rights it protects. It is therefore essential to be familiar with the rules governing jurisdiction and the stages involved.

The competent courts

Jurisdiction

Role of the interim relief judge

The interim relief judge is the key player in the receivership procedure. He can order this measure on two grounds:

• Article 834 of the Code of Civil Procedure in urgent cases
• Articles 809 and 849 if there is imminent damage

To exercise this power, the judge must make a finding:

• Serious misconduct
• The usefulness of the measure in preserving the rights of the parties

This jurisdiction frequently applies to disputes between partners in a company. The President of the Commercial Court has the same powers under articles 872 and 873 of the Code of Civil Procedure.

The assessment of urgency falls within the sovereign power of the judge (Civ. 2e, 27 June 1979).

Jurisdiction of the pre-trial judge

Article 789 of the Code of Civil Procedure lays down a clear rule: once the pre-trial judge has been appointed, the interim relief judge has no jurisdiction to order provisional measures.

Two situations need to be distinguished:

1. If a case is referred to the juge des référés before the juge de la mise en état has been appointed, he still has jurisdiction (Paris, 10 October 1980).
2. If the application for sequestration is made after this designation, only the pre-trial judge may give a ruling (Civ. 2e, 18 March 1998).

This distinction avoids conflicts of jurisdiction between courts.

Relations with arbitration and international tribunals

An arbitration clause may affect the jurisdiction of national courts. Where a memorandum of understanding provides for a sequestration measure and contains an arbitration clause, the national court has no jurisdiction to order the release of the sequestration (Civ. 2e, 30 March 2000).

Foreign decisions are not an obstacle to the power of the French judge. A court of appeal may order a sequestration measure on French territory despite the existence of a foreign decision appointing executors (Civ. 1re, 4 May 1994).

Territorial jurisdiction

The protective measure is normally taken by the court with jurisdiction to rule on the substance of the dispute.

For the interim relief judge, a more flexible rule applies: the party may apply to the president of the court within whose jurisdiction the measures are to be taken. This consistent case law has existed since 1910 (Civ. 2e, 10 July 1991).

This special territorial jurisdiction extends even to foreign parties not domiciled in this jurisdiction (Civ. 2e, 9 December 1976).

Important point: the jurisdiction clause included in the contract has no effect in summary proceedings, particularly under article 808 of the Code of Civil Procedure (Aix-en-Provence, 18 January 1979).

Autonomy of the receivership procedure

The receivership procedure maintains its independence from the main dispute. The receiver is not a party to the dispute. He acts as a neutral custodian, responsible for preserving the property without defending the particular interests of the antagonists.

He remains outside the main proceedings and awaits their outcome before returning the thing "to whom it belongs".

Distinction from the order and distribution of the prize

Sequestration differs from order procedures and distribution by contribution. The purpose of the latter is to distribute a price among creditors according to their rank.

In the order procedure, the funds are remitted to the Caisse des dépôts et consignations. It pays the creditors according to the collocations decided by the judge.

In practice, funds from auctions are often held in escrow by the president of the bar association.

Specific aspects of property seizures

Property seizure involves several sequestration phases:

1. In order to bid, the lawyer must obtain a bank guarantee or a bank cheque made payable to the sequestrator or to the Caisse des dépôts et consignation (article R. 322-41 of the Code des procédures civiles d'exécution).
2. After the auction hearing, the prize is sequestered
3. In the event of distribution of the price of a property sold outside execution proceedings, the court appoints a receiver of the funds (article R. 331-3 of the Code des procédures civiles d'exécution).
4. The receiver shall pay the creditors within one month of notification of the approved distribution proposal (article R. 334-2 of the Code of Civil Enforcement Procedures).

The decision to appoint a receiver

Adversarial procedure or on request

The adversarial principle applies "in all circumstances", according to article 16 of the Code of Civil Procedure. However, article 17 provides for exceptions when "necessity dictates that a measure be ordered without the knowledge of a party".

The order on request procedure (article 493 of the Code of Civil Procedure) can be used if there is a fear that the holder of the assets will remove them after notification of the summons.

The sequestration measure is not an investigative measure but a protective measure. It is therefore covered by article 845 of the Code of Civil Procedure and not by article 145 (Com. 4 May 2010).

Criteria for choosing a receiver

The claimant may propose a receiver, but Article 1963 of the Civil Code only requires the court to appoint one if all the parties agree. Failing this, the appointment is made ex officio by the court, which has sovereign discretion (Civ. 1re, 30 June 1965).

It is preferable to appoint a third party who is not a party to the proceedings (Com. 29 January 1974). This avoids any suspicion of bias.

The receiver can be:

• A person you can trust
• A judicial representative
• A regular court officer

The judge determines whether the position will be free or remunerated and sets the amount or method of calculation of this remuneration.

Legal scope of the decision

The appointment decision defines the scope of the receiver's powers. It shall specify:

• The assets concerned
• The duration of the assignment
• Authorised acts
• Reporting procedures

The receiver acquires, on an occasional basis, the status of an auxiliary of justice. He may request an advance on his costs and fees, in accordance with articles 704 et seq. of the Code of Civil Procedure (Civ. 1re, 3 February 1983).

The appointment decision may be appealed under ordinary law. Provisional execution may be ordered or may result from the law.

The receivership procedure requires particular attention to the rules of jurisdiction and form. These technical aspects determine the validity and effectiveness of the measure. Our firm will guide you through each stage of the receivership process, to ensure that you are on the safe side and avoid any procedural errors.

Sources

• Code of Civil Procedure, articles 16, 17, 493, 789, 834, 845
• Code of civil enforcement procedures, articles R. 322-41, R. 331-3, R. 334-2
• Civil Code, article 1963