Company directors: what are their responsibilities in the event of insolvency proceedings?

By Yasmine EDDAM9 April 2025

When a company is faced with insolvency, receivership or liquidation proceedings, all eyes naturally turn to its directors. Whether they are managers, chairmen, managing directors, de jure or even "de facto" (i.e. those who, without an official title, actually exercise the power of management), they are on the front line. In addition to the survival of the company, it is often their own personal responsibility that is at stake, whether in terms of financial, professional or criminal penalties. What are their specific obligations during these proceedings? What are the financial risks to their personal assets? Can they be banned from carrying on a professional activity?

The law provides a strict framework for the role and responsibilities of directors when their company is in difficulty. The purpose of this article is to shed light on their obligations, the financial and professional penalties they may incur in the event of misconduct, and other measures likely to affect them personally under certain recovery plans. Understanding these issues is absolutely essential for any manager faced with this situation.

The manager's obligations during the proceedings

Far from being sidelined, the executive remains a central player, bound by precise duties.

Duty to cooperate

The first obligation, and not the least important, is a general duty of cooperation with the bodies involved in the proceedings (official receiver, administrator, judicial representative, liquidator). In practical terms, this means :

Provide all the information (Articles L. 622-6 and L. 623-1 of the French Commercial Code). Transparency is expected.
Facilitating access accounting documents and company premises.
Appearing for summonses the court, the juge-commissaire or the mandataires de justice.

Any obstruction or withholding of information may be interpreted as a lack of cooperation and, potentially, as misconduct.

Management under supervision or assistance (Safeguard / Restructuring)

During the observation period of a safeguard or reorganisation, the director generally continues to manage the business on a day-to-day basis, but his powers are restricted (articles L. 622-1, L. 631-12).

It must respect the mission entrusted to thereceiver (supervision, assistance, even full representation in reorganisation).
He cannot carry out acts alone that go beyond the everyday management. To sell a major asset, grant a new guarantee or sign a transaction, theauthorisation of the juge-commissaire is essential (article L. 622-7).

Acting beyond these limits exposes the act to nullity and the director to liability.

Obligation to declare cessation of payments

This is an essential legal obligation for managers of commercial companies, craftsmen, farmers or the self-employed: as soon as the company is in suspension of payments (inability to pay their current debts with their available assets), they must submit a request to declaration to the registry of the competent court within 45 days (article L. 631-4).

The purpose of this declaration is to request the opening of receivership or liquidation proceedings. Deliberately omitting to make this declaration, or delaying it without justification (such as a request for an amicable conciliation procedure within the same time limit), is considered to be an offence. management error liable to result in sanctions.

Asset sanctions: when the director pays personally

The risk most feared by directors is undoubtedly that of seeing their personal assets used to pay off the company's debts. The law provides for two main mechanisms.

Liability action for insufficient assets ("Comblement de passif")

This liability action for insufficient assets is only possible in the event of compulsory liquidationThis is the case only if the company's assets are insufficient to pay all its debts ("insufficiency of assets") (article L. 651-2). In order for the director (whether de jure or de facto, paid or unpaid) to be ordered to personally pay all or part of the shortfall, it must be proven that :

A management error Liability: The aim is not to punish a simple error or a poor economic decision, but to punish serious misconduct (violation of laws or regulations, serious failure to perform the normal duties of a manager, etc.). Since a law was passed in 2016, simple negligence in management is no longer sufficient to incur this liability.
A causal link You must show that this fault has contributed to the worsening of the shortfall, i.e. that it has worsened the financial situation to the point where creditors can no longer be paid.

Who can take action? The liquidatorthe Public Prosecutoror a majority of controllers if the liquidator fails to do so (article L. 651-3). The action must be brought within a period of three years from the date of the judgment pronouncing the compulsory liquidation.

If the conditions are met, the court has the power to order the director(s) at fault to pay a sum of money to cover the liabilities. The amount is left to the discretion of the court, depending on the seriousness of the misconduct and its contribution to the harm done to creditors. It may cover the entire shortfall or only part of it.

Liability action for contributing to the cessation of payments

Introduced more recently (article L. 631-10-1), this action may be brought in any of the following ways legal redress. It is aimed at directors whose misconduct has contributed to the cessation of payments. Its main practical advantage is that it enables judicial representatives to apply to the president of the court of first instance at a very early stage for an injunction. precautionary measures on the executive's personal assets (seizure of bank accounts, registration of a mortgage, etc.), in order to guarantee a possible future payment if his liability is confirmed.

Professional sanctions: personal bankruptcy and management ban

In addition to the financial consequences, certain serious management faults may result in the executive being banned from exercising management or executive functions in the future, such as personal bankruptcy and management ban. These penalties may be imposed in the event of receivership or compulsory liquidation.

Penalties

The French Commercial Code lists a series of reprehensible behaviours that may justify these sanctions (articles L. 653-3 to L. 653-6). Here are some common examples:

Abusively pursuing a loss-making business that could only lead to the cessation of payments, for personal gain.
Embezzling or concealing all or part of the company's assets.
Fraudulently increasing liabilities.
Keeping fictitious, manifestly incomplete or irregular accounts.
Making accounting documents disappear.
Failure to cooperate with the procedural bodies.
Knowingly failing to declare the cessation of payments within the 45-day period.

Personal Bankruptcy

This is the most severe professional sanction (article L. 653-2). It entails a general prohibition to direct, manage, administer or control, directly or indirectly, any commercial or craft business, any farm or any legal entity (company, association, etc.). The duration is set by the court and may not exceed 15 years old.

Prohibition to Manage

This sanction is similar to personal bankruptcy, but can be modulated by the court (article L. 653-8). The ban may apply only to certain types of business or certain functions. It also has a maximum duration of 15 years old. It may be imposed instead of or in addition to personal bankruptcy.

Procedure

Who can apply for these sanctions? The judicial representativethe Public Prosecutoror a majority of controllers (article L. 653-7). The limitation period is three years from the date of the judgment opening the receivership or compulsory liquidation (article L. 653-1). Court proceedings are in principle public, but the manager may request that they be held in chambers.

Criminal sanctions: bankruptcy and related offences

In addition to financial and professional sanctions, executives may be subject to penal sanctions in cases of particularly serious and fraudulent behaviour. Bankruptcy is the most emblematic criminal sanction in this context.

Other measures affecting executives in recovery plans

In the specific context of drawing up a court-ordered reorganisation plan, other measures may be aimed directly at management to facilitate the adoption and success of the plan:

Replacement of managers The court may, at the sole request of the public prosecutor, consider that the continued existence of one or more directors in office is an obstacle to reorganisation. It may then make adoption of the plan conditional on their effective replacement by the competent corporate bodies (general meeting, board of directors, etc.) (article L. 631-19-1).
Non-transferability or forced transfer of shares If the plan so requires (for example, to bring in a new investor), the court may, again at the request of the Public Prosecutor, make the shares held by the directors non-transferable, or even order their sale. forced divestiture (even if they do not agree). The sale price is then set by an expert appointed by the president of the court (article L. 631-19-1).
Dilution or Expropriation of partners (including partner-managers) For very large companies whose survival is deemed essential, if shareholders (including managing partners) block a capital increase necessary for the plan, the court has even greater powers (article L. 631-19-2). It can appoint an agent to vote in their place, or even order the compulsory transfer of their shares to those who undertake to implement the plan.

These measures show the extent to which the individual rights of directors and partners can be sidelined in the context of receivership, with the aim of saving business and jobs.

In conclusion, the position of the director of a company undergoing insolvency proceedings is a delicate one. Although they remain key players, they are subject to strict obligations and incur significant personal risks, both financial and professional, in the event of proven misconduct. The complexity of the rules and the seriousness of the issues at stake make it essential to have a thorough understanding of your duties and rights.

Managers facing difficulties or whose company is already in receivership face significant personal risks. It is essential to fully understand your obligations and the potential consequences of your past or present actions. Our firm has the necessary expertise to advise you, assist you in your dealings with the bodies involved in the proceedings and defend your personal interests. Contact us for a personalised analysis and dedicated assistance.