Facing financial difficulties is an ordeal for any company. When the situation becomes critical and receivership or liquidation proceedings are initiated, many questions arise about the fate of current contracts. What happens to your equipment financed by equipment leasing ? Can you continue to use them? Can the lessor take them back immediately? The interaction between insolvency law and leasing rules is complex, and the consequences can be decisive for the future of your business or the course of the proceedings. This article aims to demystify the rules applicable to equipment leasing contracts when your company is the subject of insolvency proceedings.
The fate of the leasing contract when the proceedings are opened
The opening of receivership or liquidation proceedings by the Commercial Court marks the start of a period governed by specific rules that derogate from ordinary contract law.
The principle: no automatic termination
This is a fundamental rule laid down in Article L622-13 of the French Commercial Code: the opening of the procedure does not, in itself, entail the automatic termination of current contracts. This applies in full to equipment leasing contracts. It does not matter if your contract contains a clause providing for its immediate termination in the event of insolvency proceedings: this clause is deemed unwritten and without effect by law. In principle, therefore, the contract will continue to exist after the opening of the insolvency proceedings.
The court-appointed administrator's option: continue or terminate the contract
The actual fate of the contract will depend on a decision taken by the court-appointed administrator (or by yourselfThe court-appointed administrator is responsible for the management of the business.) The administrator appointed by the court has the sole right to require the continuation of current contracts that it considers necessary to maintain the business. It can therefore decide to continue the leasing contract if the equipment concerned is essential for the business, or on the contrary, decide not to continue it if it is no longer useful or if the business cannot afford it.
Conditions for continuing the contract
If the administrator opts to continue the contract, this has important consequences. Primarily, the company must be able to pay all rents that become due on their due date after the opening judgment. These future rental payments are considered to be "useful" receivables for the continuation of the business and are given priority over previous debts (in accordance with Article L622-17 of the French Commercial Code). Before requiring the company to continue, the administrator must ensure that it will have the necessary funds to meet these future payments.
The formal notice and termination mechanism
The lessor is not left in limbo indefinitely. He can send a formal notice to the court-appointed administrator, asking him to decide whether to continue the contract. If the administrator does not respond positively (confirming his willingness to continue and his ability to pay) within a period of of a month (unless the juge-commissaire grants a different period, which may not exceed a total of two months), the leasing contract is then automatically terminated. Similarly, if the administrator opts for continuation but the subsequent rents are not paid as agreed, the contract will also be terminated ipso jure.
The consequences of terminating the contract
If the administrator decides not to continue the contract, or does not respond to the formal notice, the contract is terminated. The lessor may then demand the return of the equipment (see below). He may also be entitled to damages to compensate for the loss caused by this early termination. However, this claim for damages is treated as a debt that has arisen. before the opening judgment and must be declared as a liability in the proceedings.
Declaring the lessor's claims
Like all creditors whose claims arose prior to the opening of insolvency proceedings, lessors must declare their claims if they hope to be paid under the proceedings.
The obligation to declare prior claims
The lessor must declare to the judicial representative (appointed by the court) the amount of all sums owed to the lessor. before the date of the opening judgment. This mainly concerns rent due and unpaid at that date. If the contract was terminated prior to the opening of the insolvency proceedings, the contractual termination indemnity must also be declared. This declaration must be made within a strict legal time limit (generally two months from publication of the opening judgement in the BODACC), failing which the company will not be recognised as a debtor (article L622-24 of the French Commercial Code).
Specific information for lessors
Significant protection exists for lessors whose contracts have been legally publicised (entry in the court registry). The law requires the judicial representative to give personal notice creditors that they must declare their claims.
Penalty: foreclosure, except for failure to provide information
If a creditor does not declare his claim within the time limit, he is said to be "foreclosed": his claim is extinguished and he will no longer be able to claim payment. However, thanks to the obligation to inform mentioned above, if the lessor (whose contract was published) did not receive this personal warning from the judicial representative, the foreclosure is not enforceable against him. This is an essential guarantee to ensure that diligent lessors do not lose their rights simply because they are unaware that proceedings have been initiated.
Return of the asset to the lessor (claim)
One of the most sensitive issues in the event of insolvency proceedings is the fate of the equipment itself. Can the lessor, as owner, recover it?
The right to property as a basis
Yes, in principle, the lessor's right of ownership gives him the right to demand the return of his asset if the leasing contract is terminated.
The crucial importance of advance publicity
As we saw earlier, for this right of ownership to be enforceable against the insolvency proceedings (i.e. the other creditors), the leasing contract must have been the subject of the legal publicity (entry in the court registry) before the opening judgment. Without such publicity, the lessor runs the risk of not being able to assert his rights against the creditors.
Exemption from action in revendication if the contract is published (post-1994 law)
A major advance in legislation (since the law of 10 June 1994, article L624-10 of the Commercial Code) concerns leasing contracts. published. For these contracts, the lessor is exempt from bringing an "action in revendication". to the official receiver to obtain recognition of his right of ownership. Publicity is tantamount to recognition of his right in relation to the proceedings. However, this does not mean that he will automatically recover the property.
The procedure for requesting a refund
If the contract is terminated (for example, by a decision of the administrator or following an unsuccessful formal notice), even if the lessor is exempt from the action for revendication, the lessor must request the return the equipment. This request is made by registered letter with acknowledgement of receipt addressed to the administrator (or liquidator in the event of liquidation). If the administrator fails to respond or refuses to return the equipment, the lessor may refer the matter to the official receiver for a ruling on the request (article R624-13 of the French Commercial Code).
When it is still necessary to bring a claim
If the leasing contract has not not published The situation is more complex for the lessor. The lessor is not exempt from bringing an action for revendication. They must bring this formal action before the official receiver, within a very strict time limit of three months from publication of the opening judgment (article L624-9 of the French Commercial Code), in an attempt to have its ownership rights recognised against the proceedings.
Consequences of failed restitution/claims
If the lessor does not comply with the conditions (failure to make prior publicity, failure to request restitution or to bring an action for revendication within the time limits if it was necessary), he will loses the right to recover the equipment. The asset remains part of the assets of the company in difficulty and can be sold for the benefit of all creditors. However, it is important to note that the loss of the right to repossess the physical asset does not necessarily extinguish the lessor's monetary claim (termination indemnity, for example), which must still be declared as a liability.
The impact of insolvency proceedings on termination options
Insolvency proceedings also influence the options normally available at the end of a contract.
As part of a continuation plan
If the company is rescued under a continuation plan, the leasing contract will continue. The plan may impose payment deadlines for previous debts (unpaid lease payments prior to the judgement). With regard to the purchase option at the end of the contract, article L626-18 of the French Commercial Code sets out an important rule: you cannot exercise the option and become the owner of the asset. if the full amount of the sums due under the contract (current rents, arrears included in the plan, residual value) is actually set. The payment terms granted under the plan end if you exercise the option.
As part of a disposal plan
If the company is sold to a buyer, the court may decide to transfer the leasing contract to the transferee if the equipment is deemed necessary to maintain the transferred business (article L642-7 of the French Commercial Code). The transferee must then perform the contract in accordance with its initial terms (i.e. pay future rental payments). A specific rule applies to the purchase option: the transferee may only exercise it by paying amounts outstanding (future rental payments + arrears from the assignor + residual value), but this payment is capped at the market value of the property estimated at the time of sale. This is a crucial point, which can be advantageous or disadvantageous for the buyer and lessor depending on the circumstances.
Exercising the option during the procedure
Since a reform in 2008 (articles L622-7 and L641-3 of the French Commercial Code), it has been possible, under strict conditions and with the authorisation of the juge-commissaire, to pay part of previous debts specifically in order to exercise the purchase option on a leasing contract during the observation period or even in liquidation, if this is justified by the continuation of the business or the interests of the procedure (and if the option price is less than the value of the asset).
Confronting equipment leasing with receivership or liquidation proceedings is a technical area where the stakes are high for both lessee and lessor. The rules aim to strike a delicate balance between the need to preserve the company's chances of survival, respect for the rights of the owner of the asset, and equality between creditors.
If your company is going through a difficult period and you lease equipment, it is strongly recommended that you seek specialist legal advice without delay. Our firm can accompany you to help you navigate through this complex situation and defend your interests as effectively as possible in the face of the various options and constraints of insolvency proceedings.
Sources
- Commercial Code, Book VI (Business Difficulties): articles L622-7, L622-13, L622-17, L622-21, L622-24, L624-9, L624-10, L626-18, L641-3, L642-7 and associated regulatory articles (Part R).
- French Monetary and Financial Code: articles R. 313-3 et seq.
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