The sale of a business or a portfolio of securities can generate a large sum of money, but also concerns when several creditors are waiting to be paid. Apart from any enforcement proceedings, the distribution of these funds can quickly become a source of conflict and difficulty. The Code of Civil Procedure provides a specific framework, often overlooked, for dealing with this situation: the procedure for distributing monies not subject to enforcement. Although this procedure is amicable in spirit, it requires legal expertise to ensure that the distribution is fair and indisputable. Our firm, which is regularly involved in collective proceedingsThis article looks at how ignoring these rules can lead to complex disputes, particularly when the debtor's financial situation deteriorates.
Legal framework and scope of amicable distribution (Articles 1281-1s CPC)
The procedure for the distribution of funds outside the scope of enforcement, governed by articles 1281-1 et seq. of the Code of Civil Procedure, was introduced by a decree that came into force in 1996 to fill a gap in the 1991 reform of civil enforcement procedures. It provides a judicial framework for distributing a sum of money between several creditors when this sum does not come from a coercive measure. This specific procedure is part of a wider set of procedures for distributing fundsEach has its own rules depending on the origin of the funds, as illustrated by case law. Its scope is broad but precisely defined: it applies exclusively to movable property and formally excludes, by express provision, sales of immovable property, which are subject to their own rules.
Definition and distinction from enforcement proceedings
Amicable distribution is defined as a legal procedure aimed at organising the distribution of the proceeds of a voluntary sale between the creditors of the same debtor. Its "amicable" nature lies in the origin of the funds: they are not the result of a seizure. However, the procedure itself is supervised by the judge to prevent and manage disputes. It is crucial not to confuse this amicable procedure with the distribution of funds following a seizure of movable propertyThe distinction is fundamental. The distinction is fundamental: in amicable proceedings, the initiative comes from a desire to sell and to organise payment, whereas compulsory proceedings are the consequence of collection action taken by a creditor, often after a default in payment.
Origin of the funds to be distributed: movable property, securities and business assets
The sums concerned by this procedure can come from a variety of sources, but always movable. The most common cases include :
- The voluntary sale of movable tangible property, particularly at non-judicial public sales.
- The transfer of securities or receivables, which is often publicised by a third-party custodian in a dedicated account.
- The amicable sale of a business, which is the most common case and for which art. L. 143-21 of the Commercial Code provides for specific deadlines for distribution before the matter can be referred to the court.
- The balance of the sale price of a property, once the mortgage and preferential creditors have been paid. Although this amicable procedure does not apply directly to the forced sale of property, it can be used for the balance of the price after payment of creditors under a foreclosure procedure.
In all these situations, the presence of several creditors facing a single sum makes it necessary to have an orderly distribution method to avoid preferential payments and disputes.
Central role of the interim relief judge and appointment of the receiver-distributor
At the heart of this procedure is the interim relief judge, who acts as a guarantor of the fairness and legality of the distribution. His intervention is the first step in transforming a potentially chaotic situation into a structured process. The judge does not decide on the merits of the case, but organises the procedure by appointing an independent professional to handle the distribution.
Referral to the interim relief judge by the most diligent party
The procedure is initiated by the "most diligent party", a flexible concept that case law has often had to interpret, and which may refer to the seller, the purchaser, or one of the creditors who has an interest in the distribution being carried out in a transparent and secure manner. Article 1281-1 of the Code of Civil Procedure specifies that jurisdiction lies with the president of the judicial court in the jurisdiction where the debtor resides. In the case of a commercial matter, such as the sale of a business, the President of the Commercial Court will have jurisdiction. This referral, made in summary proceedings, allows the judge to intervene quickly to set up the framework for the distribution.
Designation of the person responsible for distribution and guarantees required
The interim relief judge appoints a "person responsible for distribution". This professional, often a court-appointed agent, lawyer or notary, acts as a receiver-distributor. Their main task is to collect the funds, draw up a report in the form of a proposed distribution and pay the creditors. The text specifies that he is "sequestrator of the funds, unless consignment is ordered", which means that he has custody of and responsibility for the sums to be distributed.
This role requires sufficient guarantees of representation. The judge will choose a professional whose status offers the parties financial security, such as a bank guarantee. Regulated legal professions, such as lawyers, are particularly suitable, as they are subject to compulsory professional liability and funds representation insurance. This guarantee is fundamental in providing security for creditors and debtors throughout the process, ensuring that the funds collected are used to pay the recognised claims.
Obligations of creditors and receivers: from declaration to draft distribution
Once the framework has been established by the judge, the amicable distribution procedure is based on supervised cooperation between the creditors and the person responsible for distribution. Before arriving at an amicable distribution, a diligent creditor will have been able to secure his position upstream by a precautionary seizure of debtswhich will influence its place in the distribution project. The success of this stage depends on each party scrupulously respecting the formalities and deadlines.
Notification of claims: procedures, deadlines and penalties
The first obligation is incumbent on creditors. The person responsible for distribution informs them, by registered letter with acknowledgement of receipt, that they have a period of one month in which to declare their claim. This declaration must be precise: the document must include a detailed breakdown of the sums due in principal, interest and incidentals, and mention any liens or securities attached to the claim. The order in which the money is distributed will depend directly on the rank of the creditors, which is determined by the rules of the securities law and any privileges.
Failure to comply with this time limit carries a severe penalty: forfeiture of the right to participate in the distribution, in accordance with article 1281-3 of the Code of Civil Procedure. Case law has repeatedly confirmed the severity of this sanction in the event of failure to make a declaration. The creditor does not lose the claim itself, but is definitively excluded from the distribution of the funds concerned. This strictness is intended to ensure the speed and effectiveness of the procedure by forcing creditors to be diligent.
Preparation and notification of the draft allocation
After receiving the declarations, the receiver-distributor has two months to draw up a draft distribution plan. This period may be extended by the court on simple request. The draft is then notified to the debtor and to each creditor by registered letter with acknowledgement of receipt. This notification is a formal act which must, on pain of nullity, inform the addressees that they have a period of fifteen days in which to contest the draft, stating their reasons. If no objection is made within this period, tacit acceptance is deemed to have been given. If no creditor comes forward, the draft becomes final, allowing payment to proceed.
Handling disputes and switching to court settlements
The amicable procedure is designed to lead to an agreement, but it anticipates disagreements. There is a progressive mechanism for dealing with disputes, starting with an attempt at conciliation and, if this fails, moving on to a purely judicial distribution procedure.
Conciliation phase and record of disagreements
If a dispute is raised within the two-week period, the person responsible for distribution takes on the role of mediator. He or she must convene all the parties (debtor and declared creditors) for an attempt at conciliation. The challenge is to find common ground on the disputed points, as a dispute over a single claim can affect the entire distribution. If an agreement is reached, a conciliation report is drawn up and payment can be made. If no agreement is reached, the receiver-distributor draws up a report noting the points of disagreement, which marks the end of the amicable agreement. At this stage, he must deposit the funds with the Caisse des Dépôts et Consignations if this has not already been done, in order to secure the sums pending judicial resolution of the dispute.
Referral to the court for judicial distribution
If the conciliation fails, the amicable phase ends. The procedure then descends into traditional legal disputes. The most diligent party must refer the matter to the competent court (judicial or commercial) so that it can settle the points of disagreement and itself draw up the statement of distribution. The procedure followed is that of ordinary law, according to a standard procedure, which can be longer and more complex than the initial phase before the summary proceedings court. This is the ultimate guarantee that an insoluble dispute will not block the distribution of funds indefinitely.
Complex interactions: amicable distribution, collective proceedings and overindebtedness
The amicable distribution procedure is not an isolated mechanism; the case law relating to the articulation of these procedures is particularly dense. It can be profoundly affected by the occurrence of collective proceedings (for a company) or over-indebtedness proceedings (for an individual). Knowledge of these interactions is crucial in anticipating the fate of escrowed funds and the validity of payments made.
Impact of collective procedures (safeguard, reorganisation, liquidation)
The opening of safeguard, reorganisation or liquidation proceedings against the debtor has a radical effect. Pursuant to article L. 622-21 of the French Commercial Code, the decision to open such proceedings halts or prohibits any distribution procedure that has not had an attributive effect prior to its pronouncement. The case law of the Cour de cassation, in particular in a judgment of October 2010, has clarified the contours of this effect. Article R. 622-19 specifies that the amicable distribution procedure in progress is then rendered null and void.
In practical terms, the sequestrator-distributor's mission ends immediately. He is obliged to hand over the funds in his possession to the court-appointed agent or liquidator. More subtly, a payment made as part of the amicable distribution prior to the opening of the insolvency proceedings could be called into question. If it is established that the debtor was already in a state of suspension of payments at the time of the payment, the payment could be cancelled as an "abnormal payment" made during the suspect period, in breach of the constitution of the body of creditors.
Relationship with over-indebtedness of individuals
For an individual debtor, the opening of an over-indebtedness procedure produces similar effects. The decision by the Commission de surendettement, which acts as an independent administrative authority, to accept the case results in the suspension and prohibition of most procedures, including amicable distribution. The aim is to enable all the debtor's non-business debts to be dealt with globally and collectively. This complexity increases in a European or international context where insolvency rules may diverge. The opening of an over-indebtedness file may suspend or cancel the amicable distribution procedure, illustrating the complexity of the system. interaction with over-indebtednessThis is a difficulty often highlighted by case law.
Consignment of funds and strategies for stakeholders
The deposit of funds is an essential protection mechanism in the amicable distribution procedure. It guarantees the security of the sums to be distributed and provides strategic leverage for both creditors and debtors. Its implementation, although technical, is a guarantee of transparency and solvency.
Mechanisms and advantages of consignment to Caisse des Dépôts et Consignations
Consignment consists of depositing the funds with the Caisse des Dépôts et Consignations (CDC), a trusted third party whose status is guaranteed by law. This measure can be ordered by the interim relief judge at the outset of the proceedings, as an alternative to appointing a receiver. It becomes compulsory when the amicable conciliation phase fails and a statement of disagreement is drawn up. The main advantage of consignment is the absolute security it offers. The funds are removed from the assets of the parties and protected from any risk of misappropriation or insolvency of the holder, pending resolution of the disputes and establishment of a final distribution plan. Case law considers this mechanism to be a fundamental guarantee.
Practical advice and strategies for debtors and creditors
For creditors, the amicable distribution procedure is an opportunity to obtain an orderly payment without having to initiate long and costly individual proceedings. Their strategy should focus on making a swift and exhaustive statement of claim, enclosing all proof of liens. If you have any doubts about the proposed distribution, do not hesitate to challenge it in order to initiate the conciliation phase.
For the debtor, this procedure allows debts to be discharged in an organised manner after a voluntary sale, avoiding a cascade of seizures on the sale price. It is in the debtor's interest to work with the receiver to identify all the creditors and facilitate the preparation of a fair distribution plan. Transparency is the best strategy for achieving a swift and final settlement, so that the funds do not remain frozen in a bank account.
The amicable distribution of assets is an effective procedure, but one that requires great rigour. In view of the technical nature of the distribution rules and the constantly changing case law, the assistance of an expert is essential. lawyer specialising in distribution procedures is essential to secure the funds and guarantee the rights of each party. If you are faced with such a situation, our firm can help you defend your interests.
Sources
- Code of Civil Procedure, articles 1281-1 to 1281-12 (in the version in force on 1 January 2024)
- Commercial Code, in particular articles L. 143-21 (Decree number 2019-1333 of 11 December 2019), L. 622-21 and R. 622-19 (version resulting from the law of 26 July 2005)
- Consumer Code (relating to the over-indebtedness of individuals, see in particular the Act of 31 December 1989)
- Relevant Court of Cassation case law (e.g. Cass. Com., 8 June 2010, appeal number 09-68.591, published in the Journal Officiel)
- Report on the simplification of civil enforcement procedures (September 2022)
- Relevant European Union texts on cross-border insolvency (e.g. Directive (EU) 2019/1023)
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