Obtaining security over your debtor's assets, such as a mortgage on a building or a pledge over his business, is an important step in securing your receivables. In this way, you think you are protected in the event of default. But having security is not always enough. For it to be fully effective, particularly if your debtor is experiencing serious financial difficulties to the point of entering into collective proceedings (safeguard, receivership or compulsory liquidation), it is often essential to have made it public by registering it before the problems are formalised by a judgement.
The opening of insolvency proceedings acts like a knife: it freezes many actions and possibilities, including the possibility of registering late a security that had not been published in time. This is known as the "stop registration" rule, a fundamental mechanism of insolvency law that can have formidable consequences for negligent or ill-informed creditors. This article explains this rule, the guarantees involved, the crucial exceptions and the practical implications for you as a creditor.
The rule governing the suspension of registrations (Art. L.622-30 C. com.): a cut-off point after the judgment
The principle is laid down by theArticle L. 622-30 of the French Commercial Code As soon as safeguard, receivership or liquidation proceedings are opened, it becomes impossible to validly register mortgages, pledges, pledges and liens on the debtor's assets.
In practical terms, this means that if you hold a security interest in a company asset (constituted by before If you have not registered your guarantee (even if it was perfectly valid at the time it was created), it will no longer be enforceable against other creditors in the insolvency proceedings if it is registered later. Even if your guarantee was perfectly valid at the time it was created, it will no longer be enforceable against other creditors under the insolvency proceedings if it is registered subsequently.
The aim of this rule is clear: to freeze the debtor's assets and the rights of the various creditors at the precise date of the opening judgment. It is a bit like a snapshot that prevents any subsequent changes to the hierarchy of creditors through late registrations. This rule applies indiscriminately to the three main collective procedures: safeguard, receivership and liquidation.
What guarantees are primarily targeted?
The stop registration rule applies to all securities whose effectiveness vis-à-vis third parties depends on a publication formality. The list is long and covers most of the securities commonly used:
- Mortgages and special real estate liens : Whether the mortgage is conventional, judicial or legal (such as the lender's lien or the vendor's lien, which are now treated as legal mortgages), it must be registered with the land registry before the opening judgment.
- Transferable securities subject to disclosure : Pledging of business assets, pledging of business equipment and tools, pledging of inventories, pledging of motor vehicles (registered vehicles), maritime or river mortgages... all these guarantees require registration (generally at the commercial court registry) in order to be fully effective. If the registration is not made before the judgment, the guarantee loses its force in the proceedings.
- Privileges of certain institutional creditors : The liens of the Treasury or social security bodies, where they are subject to a registration requirement, are also covered by this rule.
Two specific cases deserve particular attention because of their frequency and practical consequences:
- Equipment leasing : Although it is not a security interest in the strict sense of the term, but rather a lease with a purchase option, a leasing contract for capital goods must be subject to specific publicity (entry in a register held at the registry). If the contract is not registered before the lessee's insolvency proceedings are opened, the lessor's ownership of the leased asset cannot be set up against the insolvency proceedings. In practical terms, the lessor will not be able to recover its equipment, even if it is the legal owner, and will simply have to declare its claim (unpaid rent, indemnity). Case law is consistent on this point, emphasising the importance of publication to inform other creditors. A derogation that is very difficult to prove exists if the lessor demonstrates that all the other creditors were aware of the existence of the contract before the judgment.
- Retention of title : This clause, which is very common in contracts of sale, allows the seller to retain ownership of the property until the price has been paid in full. For this clause to be enforceable against the buyer's insolvency proceedings, the seller must, in principle, either have published his contract (which is rare in practice for movable property other than that subject to special publication), or act to reclaim the property within a strict period of three months after publication of the opening judgment in the BODACC (Article L. 624-9 of the French Commercial Code). If the seller does not publish the notice or act to reclaim the property in time, he loses his right to recover the property sold but not paid for. If the retention of title clause is entered in a special register held at the registry office, the seller does not need to file a claim (Article R. 624-15 of the French Commercial Code), but this registration must also have been made prior to the opening judgment in order to produce this effect.
The penalty: proceedings are unenforceable
What exactly is the consequence of failing to register a security before the opening judgment? The security interest is not cancelled as such between the creditor and the debtor, but becomes not enforceable against the collective proceedings.
This means that, in the context of safeguard, reorganisation or liquidation, the creditor will not be treated as a preferential creditor for the claim that the security was intended to guarantee. It will lose the benefit of its rank and its preferential right over the asset concerned. When the proceeds of the sale of the debtor's assets are distributed, the creditor will be treated as a simple unsecured creditor, i.e. an ordinary creditor with no priority. Their chances of recovering their claim are therefore considerably reduced.
Imagine a creditor with a mortgage on one of the debtor's buildings. If the mortgage has not been published before the opening judgment, and the property is sold during the judicial liquidation, this creditor will not have priority for payment of the sale price. It will be paid in competition with all other unsecured creditors, after payment of the highest-ranking creditors (employees, legal costs, Treasury, etc.). The essential advantage of the mortgage is lost.
It should be noted that even the rights acquired by the creditor before the commencement of the proceedings, such as rents received by a lessor whose contract has not been published, are not called into question. This is the future effectiveness of the guarantee in the procedure which is affected by the failure to register.
Exceptions and limits not to be ignored
Fortunately, there are a number of important exceptions to the no-listings rule.
Express legal exemptions
The law itself provides for cases where registration remains possible or is not necessary after the opening judgment:
- The vendor's lien on a business : This is the clearest derogation provided by thearticle L. 622-30 itself. The seller of a business has 30 days (since the law of 6 August 2015, previously 15 days) from the date of the deed of sale to register his lien with the registry. This registration remains valid and enforceable even if the purchaser is the subject of insolvency proceedings in the meantime. Please note that this exemption only applies to the vendor's lien, not to any pledge taken over the business.
- Treasury liens : L'article L. 622-30 also provides that the Treasury retains its lien for certain tax claims, even if they are not registered after the opening judgment. These are :
- Claims for which the obligation to register had not yet arisen at the date of the judgment (for example, the legal time limit for registration had not expired).
- Debts recovered after the opening judgment. The Treasury is exempt from registering these claims, but must declare them as liabilities in order to retain its preferential claim. It should be emphasised that this exemption only applies to privileges (certain direct taxes, VAT, etc.). It does not apply tolegal mortgage of the Treasury, which must be registered before the judgment in order to be enforceable.
What remains possible after the judgment
Even after the opening judgment, certain actions relating to the publication of security interests remain not only possible, but sometimes essential:
- Registration renewal : A security registration (mortgage, pledge, etc.) has a limited lifespan and must be renewed periodically to maintain its rank and effectiveness. The opening of insolvency proceedings does not interrupt this obligation. It is essential that the creditor renews his registration when it expires, even if his claim has been recognised as a liability. If it is not renewed, the registration lapses and the guarantee becomes unenforceable, even if it had been correctly recognised as a preferential claim initially!
- Definitive registration of a provisional security interest : If a creditor has taken a precautionary measure prior to the debtor's difficulties, such as registering a provisional judicial mortgage or a provisional pledge, the creditor may proceed with the registration of a provisional mortgage or a provisional pledge. definitive after the opening judgment. The essential condition is that the registration provisional has been taken before the date of cessation of payments. If this condition is met, the definitive registration will rank retroactively to the date of the provisional registration and will therefore be enforceable against the proceedings. It is not even necessary to have a classic writ of execution for the final registration; the decision of the juge-commissaire definitively admitting the claim may suffice.
It is important to distinguish this situation from that of special real estate liens (such as the former vendor's lien or money lender's lien, which have become legal mortgages). In the case of these security interests, even if the law allows a period for registering them after the deed giving rise to them, registration must take place before the opening judgment in order to be enforceable. There is no provisional/final registration mechanism for these specific legal guarantees.
Special situations: joint and undivided property
The situation becomes more complex when the security relates to an asset that does not belong exclusively to the debtor in collective proceedings.
Joint property (common-law marriage)
Case law considers that when a spouse married under a community regime is the subject of collective proceedings, all the joint assets are affected by these proceedings. In a way, the community constitutes a single estate liable for the debts.
The direct consequence for stopping registrations is that this rule applies in full to joint property. A creditor (even the spouse's personal creditor in bonisIn this case, one spouse (i.e. the spouse who is not in collective proceedings) may no longer validly register a security interest in a common asset once the other spouse's proceedings have been opened. Such a registration would be unenforceable against the proceedings as a whole, because the rights of each spouse cannot be individualised over a common asset for as long as the community lasts.
Undivided property (outside the community)
The situation is different for property held in joint ownership (for example, by spouses separated by property, cohabitants, or following an inheritance). In principle, only the undivided share of the debtor in collective proceedings is affected. The undivided property itself is not included in the assets to be realised (unless it is divided up at a later date).
Consequently, the suspension of registrations has only a limited scope. If a personal creditor of the co-owner in bonis registers a security interest in the undivided property after the judgment opening the proceedings against the other undivided co-owner, that registration will be valid and enforceable, but only up to the undivided co-owner's share in bonis. For example, if a property belongs half to Mr A (in liquidation) and half to Mrs B (in bonis), a mortgage registered after the judgment by a creditor of Mrs B will be effective on Mrs B's half, but unenforceable against Mr A's proceedings for the other half.
Practical advice for creditors
Faced with the rule that registrations must be stopped and its potentially severe consequences, there are a few things that any creditor wishing to secure their guarantees should do:
- Anticipating : Don't wait to complete the formalities for publicising your securities. Do so as soon as they have been created. Prompt registration is the best protection.
- Be vigilant: Keep an eye on the expiry dates of your registrations and renew them in good time. The opening of collective proceedings does not exempt you from taking this step.
- Act quickly in the event of provisional registration : If you have obtained a provisional registration (mortgage or judicial protective pledge) and the conditions for a definitive registration have been met (title obtained, admission of the claim), don't wait to apply for it, especially if the debtor's cessation of payments date is uncertain or likely to be postponed.
Disclosure of security interests is a technical area in which time limits and form are of the utmost importance. A simple omission or delay can destroy the effectiveness of a patiently negotiated guarantee.
Managing the publication of security interests is technical and the deadlines are strict, with major consequences in the event of insolvency proceedings. To secure your collateral, contact our firm to analyse your situation.
Sources
- French Commercial Code: articles L.622-30, L.141-6, L.622-24, L.624-9, R.624-15, R.622-21, R.622-22 to R.622-24, R.643-1
- Civil Code: articles 815-17, 1413, 2402 et seq. (texts relating to legal mortgages, formerly special real estate liens)
- General Tax Code: article 1929 quater
- Monetary and Financial Code: articles R.313-4 to R.313-11 (advertising equipment leasing)
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