Acts automatically annulled during the suspect period (legal nullities)

By Yasmine EDDAM28 April 2025

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When a company is experiencing major financial difficulties, there is a particularly sensitive period before the official launch of receivership or liquidation proceedings. This is known as the "suspect period", a period during which certain actions taken by the director may be called into question. You can consult our general article explaining the suspect period for a better understanding of this concept.

French law, through the Commercial Code, has drawn up a list of acts which, if carried out during this period, are considered to be so prejudicial or abnormal that they are annulled almost automatically by the court. These are known as "nullities by operation of law". Unlike so-called optional nullities, where the judge has a margin of discretion, here the sanction is much more direct if the conditions are met. Understanding what these acts are is essential for all company directors, but also for their commercial and financial partners, because the consequences of an annulment can be significant.

Gratuitous acts: giving when you can no longer pay

The first type of act to be automatically cancelled is that performed "free of charge".. The logic is simple: a company which can no longer meet its debts (which is in suspension of payments) should not divest itself of its assets or rights without receiving compensation.. To do so is to reduce the assets that should be used to pay creditors, thereby breaking the equality between them..

Article L. 632-1, I, 1° of the French Commercial Code therefore covers any transfer of ownership (movable or immovable) or rights without equivalent consideration.. This covers direct donations, of course, but also disguised or indirect donations.. For example, selling an asset at a price deliberately much lower than its value could be requalified and cancelled on this basis. The absence of any real consideration for the company is the decisive criterion.

Certain transactions may escape this classification. An act that appears to be free of charge may in fact have an indirect counterpart, such as patronage or sponsorship, if the company can justify an expected return in terms of image or reputation.. Similarly, a modest gift in lieu of payment, justified by services rendered in the past, could escape nullity.. On the other hand, "modest" gifts without any particular justification (excessive business gifts, for example) can still be cancelled..

A specific case is that of life insurance taken out for the benefit of a third party. Traditionally, the payment of premiums is not considered to be a gift that can be annulled, unless the premiums are "manifestly exaggerated" in relation to the subscriber's financial capacity at the time of payment.. The action of the procedural bodies will then be aimed solely at reimbursing these excessive premiums paid during the suspect period.This does not mean that the capital paid to the beneficiary is called into question (unless it is reclassified as a proven indirect gift)..

Unbalanced commutative contracts: when the agreement seriously harms the debtor

The Commercial Code (art. L. 632-1, I, 2°) also punishes by nullity "any commutative contract in which the debtor's obligations significantly exceed those of the other party".. These are contracts where, from the outset, there is a clear disproportion between what the company in difficulty gives or does and what it receives in exchange.. This imbalance must be "significant", i.e. important, obvious, etc..

Why should it be null and void? Because such a contract, concluded when the company is already fragile, is suspect.. It may conceal an intention to favour the co-contractor to the detriment of other creditors, or be the result of pressure exerted on a desperate manager.. The contract must be "commutative", i.e. a contract in which the mutual benefits are known and evaluated from the outset.. Random" contracts (such as a traditional insurance contract or a sale with a life annuity), where the benefit depends on an uncertain event, are in principle exempt from this nullity..

Assessing whether a contract is "significantly unbalanced" is a matter for the courts, which must examine the obligations of each party at the time the contract is signed.. They do not take into account any previous relationships or any imbalance that may emerge at a later date during the performance of the contract.. Case law has thus been able to annul settlements awarding excessive compensation to an employee who has been made redundant.the sale of trade receivables on very unfavourable termsor lease management contracts at derisory prices. The sale of shares in a company that no longer have any value can also fall into this category..

It is important to note that this nullity affects the contract as a whole. It is not possible simply to 'rebalance' the contract; the entire act is annulled. The consequences of annulment, particularly restitution, can be significant for the other party.

Abnormal payments: paying debts in a suspicious manner

A company in suspension of payments can still make certain payments. However, insolvency law is particularly wary of the way in which these payments are made during the suspect period, as they can easily conceal a desire to favour certain creditors to the detriment of others.. Two categories of payment are considered "abnormal" and therefore legally null and void.

Payments of unmatured debt

Article L. 632-1, I, 3° of the French Commercial Code cancels "any payment, by whatever means, for debts not yet due on the date of payment".. Paying a debt early, when the company can no longer honour its current debts, is intrinsically suspect.. This demonstrates a desire to favour the term creditor, who would not normally have been able to claim his due immediately.. Regardless of the method of payment used (cash, bank transfer, cheque, etc.), it is the fact of paying that is the most important factor. before the expiry date, which leads to nullity. The date to be considered is the date of actual payment, not the date of issue of a cheque or transfer order, but the date on which the creditor irrevocably receives the funds..

There are some important exceptions. The payment of commercial bills (bills of exchange, promissory notes), even for a debt that is not yet due, generally escapes this legal nullity in order to protect the security of foreign exchange transactions and successive bearers.. However, a specific action known as an "action en rapport" may be brought against the initial beneficiary (drawer, first endorser) if he was aware of the cessation of payments.. Similarly, transactions specific to the operation of a bank current account (credit transfers to offset a debit) are not generally considered to be payments that can be cancelled on this basis, unless the account is operating abnormally..

Payments of matured debts by abnormal procedures

Even if a debt has matured, the manner which it is paid during the suspect period may result in nullity by operation of law. Article L. 632-1, I, 4° of the French Commercial Code renders null and void "any payment for matured debts made otherwise than in cash, commercial paper, transfers, assignment slips referred to in article L. 313-23 of the French Monetary Code, etc.". or any other method of payment commonly accepted in business relationships"..

The text first lists the methods of payment considered to be normal and which, if they settle a debt that has fallen due, do not entail nullity by operation of law (but may fall within the scope of optional nullities):

Cash (within legal limits).
Commercial paper (bills of exchange, promissory notes, cheques).
Bank or postal transfers.
Assignment of business receivables by "Dailly" slip.
And, more generally, "any other method of payment commonly accepted in business relationships". This last category leaves a margin of appreciation to the judge, who will check whether the method of payment used corresponds to the usual practices between the parties or in their sector of activity. Payments by bank card, contractually agreed direct debits, or a payment in kind if that was the original purpose of the contract may fall into this category.

On the other hand, if they are made during a suspect period to pay a debt that has fallen due, they are considered abnormal and therefore void:

Dation in payment : This is the act of giving the creditor something other than what was initially owed (for example, delivering goods or property to settle a money debt). It is the substitution of objects that is suspect, unless this method is customary in the sector (e.g. art trade).
Assignment of civil claims (excluding Dailly bills) : Assigning a claim that you have on a third party to pay your own debt may be considered abnormal if it is not a common practice between the partners.
Payment delegation : Mechanism whereby one's own debtor (the delegate) is asked to pay the creditor (the delegatee) directly. If the delegation is accepted during the suspect period, it is often cancelled, unless it is a customary method of payment (e.g. delegation of rent in certain real estate arrangements structured before the suspect period).
Conventional compensation : If the parties agree during the suspect period to extinguish each other's debts by set-off even though the conditions for legal set-off have not been met (or if they artificially create them), the agreement is null and void. Legal set-off (which takes effect automatically when the conditions are met before the suspect period) or judicial set-off is generally not covered.

Guarantees for old debts

Obtain a guarantee (mortgage, pledge, lien, etc.) during the suspect period to secure a debt that has arisen before the provision of this guarantee is also automatically null and void under article L. 632-1, I, 6° of the French Commercial Codethe aim of which is to restore equality between creditors and to maintain balances between creditors and debtors.

Why is this null and void? Because granting a new security for an old debt does nothing for the debtor company; it merely gives an advantage to a creditor, previously a simple unsecured creditor, by giving it a preferential right over an asset to the detriment of all the others.. The key moment is the date of constitution of the security (signing of the deed), regardless of the date of its publication. The guaranteed debt must have arisen before this deed of incorporation.

Note that this nullity does not apply to not if the guarantee is created at the same time as the debt it covers is incurred (for example, a mortgage taken out on the same day as a new loan is granted). In this case, the guarantee is considered to be the consideration for the new financing and is not subject to nullity by operation of law (although it may be challenged under the optional nullities if the conditions are met). The normal operation of a bank current account, where guarantees may cover a fluctuating balance, also obeys specific rules which often validate the guarantee for overdrafts arising after it has been set up.

The text specifically targets contractual security interests (mortgages, pledges, collateral), as well as legal mortgages attached to sentencing judgments.. It does not apply to legal liens (such as those of the lessor of a building or the Treasury), which automatically arise with the claim..

Other automatically void deeds (overview)

The Commercial Code provides for other cases of legal nullity, which are less frequent but important to know:

Certain deposits and consignments of sums ordered by a court as security (art. L. 632-1-I-5°).
All protective measures (protective attachment, provisional registration of a pledge or judicial mortgage) taken after the cessation of payments, even if the creditor was not aware of the cessation (art. L. 632-1-I-7°).
Certain transfers of assets into a trust, unless the trust guarantees a debt arising at the same time (art. L. 632-1-I-10°).
Amendments to a trust agreement which allocate assets to guarantee old debts (art. L. 632-1-I-11°).
Certain transactions involving share subscription or purchase options (stock options) authorised or exercised after the suspension of payments (art. L. 632-1-I-8° and 9°).
For Sole Proprietors with Limited Liability (EIRL), any allocation or modification of the allocation of an asset that impoverishes the assets covered by the procedure to the benefit of another asset (art. L. 632-1-I-11°).
Any notarised declaration of unseizability (DNI) made after the date of cessation of payments (art. L. 632-1-I-12°).

The list may seem technical, but the issue is always the same: to prevent acts which, carried out in the critical period preceding insolvency proceedings, drain the company of its substance or break the equality between those to whom it owes money. Knowing what acts are automatically voidable is the first step in securing your operations or defending your rights if you are faced with the default of a partner. The procedure for obtaining annulment and its practical effects are also essential aspects to master.

If you think you may be affected by one of these situations, either as a manager or a creditor, a precise legal analysis is necessary to defend your interests. Our team is at your disposal to assess your specific case and consider the appropriate action.