Suspect period: definition, fixing, and legal actions
The suspect period (periode suspecte) is a central mechanism in French insolvency law. It allows the court to set aside certain transactions carried out by the debtor before the opening of insolvency proceedings, where those transactions depleted the debtor’s estate to the detriment of all creditors. This mechanism, provided for by Articles L632-1 et seq. of the French Commercial Code, is a powerful tool for reconstituting the debtor’s assets.
What Is the Suspect Period?
Definition: Between Cessation of Payments and the Opening Judgment
The suspect period refers to the interval between the date of cessation of payments (cessation des paiements) as fixed by the court and the date of the opening judgment of the judicial reorganisation (redressement judiciaire) or judicial liquidation (liquidation judiciaire) proceedings. During this period, the debtor was already unable to meet its due liabilities with its available assets, yet continued to act legally – sometimes to the detriment of its creditors.
The suspect period only exists in judicial reorganisation and judicial liquidation proceedings. It does not apply in safeguard proceedings (procedure de sauvegarde), since the latter presuppose precisely the absence of cessation of payments.
Maximum Duration: Why 18 Months?
The duration of the suspect period depends on the date of cessation of payments determined by the court. Article L631-8 of the Commercial Code provides that this date may not be set back more than 18 months before the opening judgment. This 18-month cap is a public policy limit designed to preserve legal certainty for third parties who contracted with the debtor.
In practice, the suspect period may therefore last from a few days to a maximum of 18 months. The longer it is, the greater the number of transactions that may potentially be set aside.
How Is the Date of Cessation of Payments Determined?
The Court’s Decision
The court fixes the date of cessation of payments in the opening judgment. In the absence of an explicit determination, cessation of payments is deemed to have occurred on the date of the opening judgment (Article L631-8, paragraph 1). In that case, the suspect period is reduced to nothing and no transaction can be challenged on this basis.
The court has sovereign power to assess the date on which the debtor became unable to meet its due liabilities with its available assets. It must give reasons for its decision by specifying the elements of available assets and due liabilities taken into account (Cass. com., 7 February 2012, No. 11-11.347).
Retroactive Adjustment of the Date: Conditions and Limits
The date of cessation of payments may be set back one or more times by a subsequent court decision, within the limit of 18 months preceding the opening judgment (Cass. com., 29 September 2021, No. 20-10.105). This adjustment may be requested by:
- The judicial administrator (administrateur judiciaire);
- The judicial representative (mandataire judiciaire);
- The liquidator (liquidateur);
- The public prosecutor (ministere public).
The request for adjustment must be made within one year of the opening judgment (Article L631-8, paragraph 4). After this deadline, the request is inadmissible.
Special Case: Safeguard Proceedings Converted to Reorganisation
When safeguard proceedings are converted to judicial reorganisation, the suspect period does not extend to the observation period of the safeguard. The Cour de cassation held that the suspect period extends only between the date of cessation of payments and the opening judgment of the reorganisation, and does not include the observation period of prior safeguard proceedings (Cass. com., 18 May 2016, No. 14-24.910).
Which Transactions Are Automatically Void During the Suspect Period? (L632-1)
The 6 Categories of Automatically Void Transactions – Article L632-1 I of the Commercial Code
Article L632-1 I of the Commercial Code exhaustively lists six categories of transactions that are void as of right (nulles de plein droit) when they occurred during the suspect period. No requirement of knowledge of the cessation of payments by the counterparty applies: the nullity is automatic.
| No. | Transaction | Legal basis | Practical example |
|---|---|---|---|
| 1 | Gratuitous transfers of movable or immovable property | L632-1 I, 1 | Donation of a vehicle or real property to a relative |
| 2 | Commutative contracts in which the debtor’s obligations notably exceed those of the other party | L632-1 I, 2 | Sale of an asset at a price manifestly below its value |
| 3 | Any payment of debts not yet due, by whatever means | L632-1 I, 3 | Early repayment of a loan before its term (Cass. com., 19 May 2015, No. 14-11.215) |
| 4 | Any payment of due debts made otherwise than in cash, bills of exchange, bank transfers, or any commonly accepted method | L632-1 I, 4 | Dation en paiement (transfer of property in lieu of monetary payment) |
| 5 | Any deposit or consignment of sums, absent a court decision with res judicata effect | L632-1 I, 5 | Voluntary consignment with the Caisse des depots without a court order |
| 6 | Any conventional or judicial mortgage, any pledge (nantissement) or conventional privilege granted for previously contracted debts | L632-1 I, 6 | Registration of a mortgage over the debtor’s property to secure an old loan (Cass. com., 10 July 2019, No. 18-17.820: payment received pursuant to a void mortgage is itself void) |
Important clarification: Article L632-1 II extends nullity to gratuitous transfers of property made in the six months preceding the date of cessation of payments. This is the only scenario in which transactions predating the cessation of payments may be annulled.
The Ordinance of 15 September 2021 (No. 2021-1193) broadened the scope of real securities (suretes reelles) targeted in category 6, confirming that the nullity of the security automatically entails the nullity of any payment received pursuant to that void security.
Discretionary Nullities – L632-2: Knowledge of Cessation of Payments
Alongside automatic nullities, Article L632-2 of the Commercial Code provides for discretionary nullities (nullites facultatives). The court may – but is not required to – annul certain transactions if two cumulative conditions are met:
- The transaction was carried out after the date of cessation of payments;
- The counterparty had personal knowledge of the state of cessation of payments on the date of the transaction.
The following are targeted:
- Payments of due debts made by normal methods (cash, bank transfer, cheque);
- Onerous transactions carried out during the suspect period;
- Attachment orders (saisies-attributions), third-party notices, and oppositions (Article L632-2, paragraph 2).
Knowledge of cessation of payments is assessed on the date of the transaction whose nullity is sought (Cass. com., 19 November 2013, No. 12-25.925). It is not sufficient that the counterparty was aware of financial difficulties: the evidence must relate to knowledge of the state of cessation of payments itself.
Specific Case: Attachment Orders (Saisie-Attribution) During the Suspect Period
Article L632-2, paragraph 2, expressly targets attachment orders (saisies-attributions) among enforcement measures susceptible of annulment. For a creditor who has levied an attachment during the suspect period, the stakes are considerable: annulment entails full restitution of the sums seized.
The central issue is the personal knowledge of the attaching creditor. On this point, the Cour de cassation established a protective principle in a landmark decision:
Cass. com., 2 December 2014, No. 13-25.705: knowledge of the state of cessation of payments by the bailiff (huissier de justice) acting as agent, a public officer bound by professional secrecy, does not imply personal knowledge on the part of the principal (the creditor who instructed the bailiff).
In other words, even if the instructing bailiff knew that the debtor was in a state of cessation of payments (for example because they had carried out multiple fruitless enforcement measures), this knowledge is not presumed to have been acquired by the creditor who gave them the mandate. The insolvency practitioner (mandataire judiciaire) must prove that the creditor personally knew of the cessation of payments.
For the pursuing creditor, three lines of defence may be invoked:
- Challenge personal knowledge: require positive proof that the attaching creditor knew, on the date of the attachment, of the state of cessation of payments;
- Invoke the discretionary nature of the nullity: the court may refuse to pronounce it even if the conditions are met (Cass. civ. 2, 12 May 2016, No. 15-13.833);
- Rely on acquired attributive effects: if the attachment produced its attributive effect before the opening of proceedings and nullity was not sought in due time.
Who May Bring an Action for Nullity and Within What Time Limit?
The Exhaustive List of Authorised Persons
Article L632-4 of the Commercial Code reserves the action for nullity during the suspect period to an exhaustive list of persons:
- The judicial administrator (administrateur judiciaire);
- The judicial representative (mandataire judiciaire);
- The plan execution commissioner (commissaire a l’execution du plan);
- The public prosecutor (ministere public).
The supervisory creditor (controleur) may also bring this action, but only on a subsidiary basis, when the competent officers have not done so (Article L622-20-1).
The debtor has no standing to bring an action for nullity of suspect period transactions, even after adoption of a reorganisation plan that restored control of their assets (Cass. com., 2 December 2014, No. 13-24.308). This exclusion of the debtor is explained by the collective purpose of the action: nullity aims to reconstitute assets in the interest of all creditors, not in the debtor’s personal interest.
The 3-Year Limitation Period: Starting Point and Forfeiture
The action for nullity is time-barred after three years from the opening judgment (Article L632-4, paragraph 2). This period runs from the initial opening judgment, even if the date of cessation of payments is subsequently adjusted.
This is a forfeiture (forclusion) period: its expiry renders the action inadmissible, with no possibility of suspension or interruption. Insolvency practitioners must therefore act diligently, particularly when the adjustment of the cessation of payments date reveals new transactions susceptible of annulment.
What Are the Effects of Annulment?
Retroactive Annihilation and Obligation of Restitution
Nullity pronounced on the basis of Articles L632-1 or L632-2 produces a retroactive effect: the transaction is deemed never to have existed. It automatically entails an obligation for the beneficiary of the annulled transaction to return the sums received or the assets transferred.
The counterparty whose transaction is annulled has a restitution claim to file in the insolvency proceedings, ranking as an unsecured (chirographaire) creditor.
Erga Omnes Effect: Nullity Enforceable Against All
The Cour de cassation established a fundamental principle: suspect period nullity, despite its relative character, produces an erga omnes effect and affects parties and third parties alike, even those acting in good faith (Cass. com., 11 October 2011, No. 10-11.938).
Concretely, a good-faith sub-purchaser cannot invoke their good faith to defeat the nullity. If they acquired property from the beneficiary of an annulled transaction, they must return the property or its value.
Unavailability of the Restitution Claim
In a recent and important decision, the Cour de cassation clarified the regime of the restitution claim arising from annulment:
Cass. com., 12 June 2024, No. 23-13.360: the restitution claim arising from the annulment of payments made during the suspect period is unavailable (indisponible) – it is allocated for the benefit of the body of creditors of the judicial liquidation. No set-off (compensation) is possible, even with a claim that arose lawfully after the opening judgment.
This decision considerably strengthens the effectiveness of the asset reconstitution mechanism. The beneficiary of the annulled transaction cannot escape their restitution obligation by invoking a claim they hold against the debtor, even a priority post-opening claim within the meaning of Article L622-17.