Litigious withdrawal, a mechanism provided for in Article 1699 of the Civil Code, is a powerful but often misunderstood right. It allows a debtor to buy back his own debt for a fraction of its face value when it has been assigned by the original creditor to another company. For example: you owe a bank 30,000 euros; the bank assigns its claim to a debt collection agency for €1,000. The disputed withdrawal authorises you, subject to certain conditions, to free yourself by paying only the 1,000 euros. To find out whether you can use this argument and obtain clear answers to your questions, consult our Full FAQ on contentious withdrawal. Here's an overview of the conditions you need to master.
Litigious withdrawal: definition and basic mechanism (articles 1699 and 1700 of the Civil Code)
Withdrawal in dispute is the option offered to the person whose debt has been assigned (the assigned debtor) to take the place of the purchaser of the claim (the assignee) by reimbursing the latter for the actual price that the latter paid to acquire it. The aim of this mechanism is to discourage speculation in claims that are the subject of legal proceedings.
The principle is set out in art. 1699 of the Civil Code: "The person against whom a litigious right has been assigned may be held harmless by the assignee, by reimbursing him for the actual price of the assignment together with the expenses and fair costs, and with interest from the day on which the assignee has paid the price of the assignment made to him. The application of this law is straightforward: if your debt of 100,000 euros is bought for 5,000 euros by a debt collection company, you can extinguish your obligation by paying the 5,000 euros plus legal costs and interest. The financial benefits are obvious, but the exercise of this right is subject to strict and cumulative conditions.
The 3 cumulative conditions for exercising your contentious right of withdrawal
For the disputed withdrawal to be valid, three imperative conditions must be met simultaneously. The absence of any one of them is sufficient to render the procedure null and void. It is therefore essential to analyse them carefully before taking any action.
Condition 1: No acknowledgement of the debt prior to the assignment
The right of withdrawal can only be invoked if the claim is "disputed", i.e. contested. If the debtor has, in one way or another, recognised the validity of the debt prior to its assignment, the right is no longer considered contentious. Any agreement made with the original creditor, such as a payment schedule, acknowledgement of debt or memorandum of understanding, removes the possibility of implementing the withdrawal. Signing a conciliation report during a wage attachment procedure, in which you agree to settle the debt, also constitutes an acknowledgement that closes this legal route to you.
Condition 2: A dispute over the substance of the right, initiated prior to the assignment
Article 1700 of the Civil Code specifies that the thing is in dispute "as soon as there is a trial and a dispute on the merits of the law".. This implies two requirements. Firstly, legal action must have been taken before the date of the assignment of the claim. Secondly, as part of this legal action, you must have raised a dispute relating to the existence or validity of the assigned claim. This could be, for example, the nullity of a clause in the loan agreement, the foreclosure of the creditor's action, or a disagreement over the amount owed. A simple request for more time to pay does not constitute a sufficient challenge. Similarly, raising the statute of limitations simply as an objection without making a substantive claim may be deemed insufficient by a court decision. To master all the procedural pitfalls of contentious withdrawal and ensure the validity of your action, see our detailed article on the specific requirements, in particular on the formulation of principal and subsidiary claims. It is vital that your challenge is reflected in a clear request in the "operative part" of your pleadings, i.e. the final part that lists what you are asking the judge to do. To find out more about the application of this specific mechanism, particularly if you are a guarantor faced with a contentious withdrawalExplore our dedicated guide.
Condition 3: A determinable price for the transfer of receivables
Article 1699 stipulates that, in order to exercise the right of disputed withdrawal, the assignee must be repaid the "real price" of the assignment. This condition becomes a major issue when your receivable has been sold as part of a portfolio containing thousands of other receivables, a common practice for banks disposing of their bad debts. In this case, the price is global and lump-sum, which makes determining the price of your individual receivable complex, but not impossible.
Deciphering the sale price: the key to withdrawing from securitised portfolios
Banks regularly sell entire portfolios of receivables to third parties. collection companies via a securitisation mutual fund. The latter buy hundreds or thousands of receivables en bloc for a single price, often well below their nominal value. This practice, which transfers the risk of non-recovery, has the effect of obscuring the individual sale price of each debt, creating a major obstacle to the exercise of disputed withdrawal. To understand in detail how the sale price of securitised portfolios can be deciphered and used to your advantage, we have an in-depth guide to this complex mechanism.
The proportional calculation method: a solution validated by case law
When faced with a global transfer price, case law has accepted that it is possible to determine the price of an individual claim using a simple proportionality calculation. This method, validated in particular by the Cour d'appel de Rennes and the Cour d'appel de Paris, involves applying to the nominal amount of your claim the percentage that the overall sale price represents of the total nominal amount of the portfolio. The formula is as follows: (Total price of the portfolio / Total nominal value of the portfolio) x Nominal value of your claim. For example, if a portfolio of claims with a total value of €250 million is sold for €70 million (i.e. 28% of the value), a claim of €100,000 included in this portfolio will have a determinable withdrawal price of €28,000.
How do you counter the transferee's argument that the price is indeterminate?
Collection companies, such as EOS France, systematically argue that the price is "global and fixed", that it includes a "contingency" for collection and that it is therefore impossible to value each debt individually. To counter these arguments, your lawyer should take legal action, if necessary by issuing a summons based on the Code of Civil Procedure, to demand production of the debt assignment form and its appendices. In this case, this document is the key, as it lists all the claims assigned. It shows the total nominal value of the portfolio. The basic argument is that the assignee necessarily carried out an analysis, even a statistical one, of the value of the portfolio when formulating its purchase offer. He does not buy blindly. This analysis, which forms the basis of the overall price, justifies the use of a proportional calculation to individualise the price of your debt.
The role of the guarantor: a strategic course of action that is often overlooked
The guarantor, often regarded as a mere guarantor, is in fact a player who can take action to defend his or her own interests. As the person legally obliged to pay the debt in the event of default by the principal debtor, they have standing and interest to take action to have the amount of their commitment reduced. French law allows it to exercise this right independently.
Conditions for the exercise of the right of withdrawal by the guarantor
The case law of the Cour de cassation is consistent on this point (e.g. Cass. Civ. 1ère): the substantive conditions for exercising the right (disputed nature of the claim prior to the assignment) are assessed at the level of the principal debtor's situation. If proceedings have been commenced and the debt contested by the principal prior to the assignment, the guarantor may take advantage of this context to exercise the disputed right of withdrawal. In this case, the guarantor acts on its own behalf, with the aim of limiting the amount it may have to pay. In this way, the guarantor takes the place of the assignee by repurchasing the claim at the transfer price, thereby releasing itself from its guarantee commitment for the initial amount.
How can the disputed withdrawal be reconciled with the disproportionality of the guarantee?
An effective defence strategy for a guarantor is to put forward several arguments. Firstly, the guarantor can claim the benefit of the disputed withdrawal in order to extinguish the debt at a lower cost. If this request fails (for example, if the sale price is deemed indeterminable), the guarantor may, in the alternative, argue that the commitment is manifestly disproportionate to the guarantor's income and assets at the time of signing. If successful, this argument may lead to the discharge of the payment obligation, sometimes in its entirety. This two-pronged approach, validated by a number of noteworthy rulings, maximises the guarantor's chances of protection.
Procedural pitfalls and time limits: securing your approach
The exercise of a contentious withdrawal cannot be improvised. It is subject to strict procedural rules and time limits that are subject to sovereign assessment by the courts. A poorly formulated or late application may be declared inadmissible, destroying your chances of success despite a solid case.
Main or subsidiary claim: a decisive distinction
The way in which you formulate your application for withdrawal before the court is strategic. For a long time, debtors often submitted their claims "in the alternative", after contesting the validity of the claim itself. However, increasingly strict case law, particularly from the Commercial Division of the Cour de cassation, is tending to sanction this practice. It is important to note that some judges consider that by requesting withdrawal only as a last resort, the debtor implicitly admits the validity of the claim, which contradicts the condition of "contestation on the merits". To ensure that your action is secure and that you are not accused of abuse of rights, you are strongly advised to formulate your request for withdrawal as your main recourse, while maintaining your other objections.
What is the deadline for making the disputed withdrawal after the transfer?
The Civil Code does not set any specific limitation or foreclosure period for exercising the disputed right of withdrawal. This absence of a legal time limit does not mean that you can act indefinitely. In the interests of legal certainty, case law has filled this gap by requiring the defendant to the action for payment to act within a "reasonable period". This period begins to run when the debtor becomes aware not only of the existence of the assignment, but also of the actual price of the assignment. It is only then that he has all the information he needs to decide whether to exercise his right. Judges are free to decide whether the time limit is "reasonable", which is why it is so important not to delay taking action during the proceedings once information on the price has been obtained.
Litigious withdrawal in the context of insolvency proceedings: what opportunities are there?
The interaction between contentious withdrawal and insolvency law (safeguard, reorganisation, judicial liquidation) is complex but can reveal opportunities. The right of withdrawal is not extinguished simply by the opening of insolvency proceedings and can be an indirect financing tool to reduce a company's liabilities.
Withdrawal when the debtor is in collective proceedings
If a debtor company is the subject of receivership or liquidation proceedings, its legal representative (trustee or liquidator) may exercise the right of withdrawal in the name of the proceedings. If the conditions are met (lawsuit and dispute predate the assignment), this action allows a claim recorded as a liability to be bought back for a fraction of its value. The aim is to reduce the total amount of the company's debts, which may make it easier to draw up a recovery plan or increase the assets available to other creditors in the event of liquidation.
When the seller or transferee is in difficulty
The situation becomes even more complex when it is the original creditor (the assigning bank) or the purchaser of the debt (the collection company) that is subject to insolvency proceedings. Paradoxically, this situation can work in the debtor's favour. For example, the judicial liquidation of the assignee may make it easier to access the documents relating to the assignment, and in particular the price. The liquidator, whose task is to realise the assets, may be more inclined to accept a purchase offer via the disputed withdrawal in order to close the case quickly and recover cash, information that may sometimes be found in the Bulletin officiel des annonces civiles et commerciales (BODACC).
Practical guide: the 4 steps to implementing a contentious withdrawal
Here's a summary of the key steps for initiating a contentious withdrawal procedure with a good chance of success.
Step 1: Auditing your situation and preserving the contentious nature of the debt
First and foremost, check that no agreement (schedule, acknowledgement of debt) has been signed with the original creditor. Make sure that a dispute over the substance of the debt was brought before the courts before the date of the assignment and that it is still active. This is the basis of your rights.
Step 2: Obtain proof of the transfer and the price
As part of the legal proceedings between you and the assignee (the collection company), your lawyer must ask the assignee to provide you with the deed of assignment and its appendices (the so-called "bordereau"). These documents are essential to prove the date of the transfer and, above all, to obtain the information needed to calculate the price.
Step 3: Taking legal action with the right strategy
Once you have obtained the information, formulate your request for the disputed withdrawal. As we have already seen, and as a review of recent case law suggests, it is advisable to make this your main claim. Act quickly once you have been informed of the price so that you do not face an unreasonable delay in taking action.
Step 4: Record the purchase price
Withdrawal is not a simple request; it presupposes an effective offer of repayment. You must be able to pay the transfer price, the costs of the transaction and the statutory interest. It is often advisable, as proof of your serious intention, to deposit this sum with a receiver (such as the Caisse des Dépôts et Consignations) to prove to the judge the seriousness of your approach and your ability to free yourself.
Litigious withdrawal is a formidable defence for debtors and their guarantors, but handling it requires technical expertise and a rigorous procedural strategy. The assistance of a lawyer skilled in banking law is essential in navigating the strict conditions and potential pitfalls. For an in-depth analysis of your situation and tailored advice, our firm is at your disposal.
Sources
- Article 1699 of the Civil Code
- Article 1700 of the Civil Code
- Code of civil procedure
- Monetary and Financial Code
- Notable case law (examples) : Cass. civ. 1ère, Cass. com, RTD civ, Cour d'appel de Paris (Pôle 5, Chambre 6)
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