The opening of insolvency proceedings, whether in the form of a safeguard, reorganisation or judicial liquidation, often following the cessation of payments, changes the rules of the game for creditors. The ordinary law of compulsory execution, which allows a defaulting debtor to be forced to pay, is put on hold in favour of strict collective discipline. It is therefore essential to understand the mechanisms that paralyse or even destroy the individual right to sue. Given the complexity of these rules, the assistance of an lawyer specialising in insolvency proceedings is often decisive. The aim of this article is to summarise the major impact of these procedures on your rights and to highlight possible strategies, by looking at the issues in greater detail in our dedicated guides.
1. The general framework for individual stays of proceedings
The decision to open insolvency proceedings triggers a fundamental and immediate mechanism: the suspension of all legal action and enforcement proceedings by creditors whose claims predate this decision. This rule, dictated by the need to preserve the debtor's assets and guarantee equal treatment for all claimants, puts a stop to the exercise of individual rights.
A. Definition and basis of the automatic stop
Article L. 622-21 of the French Commercial Code establishes the mechanism for suspending individual proceedings as a measure of public policy. It takes immediate effect as soon as the opening judgement is handed down, even before it has become res judicata, without any specific notification to creditors being required. The aim is twofold: to freeze the company's liabilities in order to assess the chances of a turnaround and to introduce collective discipline. The "first come, first served" rule is set aside in favour of a unified procedure in which all previous creditors must abide by common rules in order to assert their rights.
B. Scope and creditors affected by collective discipline
This suspension applies to a wide range of procedures. It applies to all enforcement procedures, whether involving movable or immovable property, such as seizures for sale or seizures of real estate. Protective measures are also paralysed. This collective discipline has a direct impact on current enforcement measures, and it is essential for a creditor to understand what is happening and what is being done. the fate of a precautionary seizure of debts where the debtor is the subject of such proceedings. This prohibition applies only to creditors whose claims arose prior to the opening of insolvency proceedings. There are a few exceptions, in particular for attachment for payment which, because of its immediate attributive effect, may retain its effects if it was carried out before the judgment.
2. Major obstacles to enforcement: declaration of claims and unenforceability
In addition to the temporary suspension, insolvency proceedings require creditors to take a fundamental active approach, and failure to do so can have almost definitive consequences for their right to recover what is owed to them. Declaring a claim is the cornerstone of their participation in the proceedings.
A. The obligation to declare claims: a procedural imperative
All previous creditors, with the exception of employees, must declare their claims to the mandataire judiciaire (or liquidator, depending on the nature of the proceedings) appointed by the competent commercial court or judicial tribunal. This declaration must be made within a strict period of two months, starting with the publication of the opening judgment in the BODACC, which often follows the cessation of payments. It must specify the amount of the debt owed on the date of the judgement, with an indication of the sums due, the nature of any lien or security interest attached to it, and the basis for calculating interest.
B. Sanction of unenforceability: implications for negligent creditors
Failure to comply with this obligation by the deadline is severely punished. An undeclared claim is said to be unenforceable against the proceedings. In practice, this means that the creditor is deprived of the right to participate in distributions and dividends paid under a safeguard or recovery plan. In the event of liquidation, the creditor will not be able to take part in distributions or dividends. procedures for distributing funds and the sale price of the assets, thereby losing any chance of recovery. Although the law, particularly since the major reform by ordinance of 2008, provides for the possibility of relief from foreclosure, the conditions for obtaining it are strict.
3. Definitive loss of the right to sue after closure for insufficiency of assets
The most common outcome of a judicial liquidation is closure due to insufficient assets. This decision has a radical effect on the rights of creditors, who then come up against an obstacle that is no longer temporary but, with a few exceptions, definitive.
A. The debt waiver mechanism: a second chance for the debtor
The closure of a judicial liquidation on grounds of insufficient assets in principle extinguishes the right of creditors to take legal action. Article L. 643-11 of the Commercial Code prohibits them from resuming their individual actions. This "purging" of debts is intended to help individual entrepreneurs bounce back, by enabling them to start a new business without being burdened by the liabilities of their previous failure.
B. Exceptions to the purge: fraud, personal bankruptcy and professional recovery
This principle of purge is not absolute. The law provides for exceptions allowing creditors to regain their individual right to take legal action. This is particularly the case when the director has been sanctioned for serious management faults for which he is liable (personal bankruptcy) or criminal offences (bankruptcy), or if it is proven that he has committed fraud. For creditors with guarantees on real estate, it is essential to control the relationship between seizure of property and collective proceedings to assess the limits of this rule.
4. Specific strategies and issues relating to household overindebtedness
The over-indebtedness regime for individuals, although distinct from collective procedures, also paralyses enforcement. Aimed at individuals acting in good faith, it offers mechanisms for suspending and writing off non-business debts, which constitute a major obstacle for creditors.
A. Suspension and cancellation of debts: mechanisms and conditions
The simple decision by the commission that the case is admissible, which is not yet a court decision but an administrative act, results in the automatic suspension and prohibition of enforcement proceedings for a maximum period of two years. The suspension of enforcement proceedings is one of the most immediate effects, illustrating the crucial interaction between over-indebtedness and seizure of propertywhich can be stopped dead in its tracks. Depending on the situation, the commission may draw up a conventional plan or impose rescheduling measures. If the situation is judged to be "irremediably compromised", a personal recovery procedure without judicial liquidation may be set up, leading to the cancellation of debts.
B. The importance of the debtor's good faith and its limits
Good faith is an essential condition for benefiting from the procedure. This essential character, a pillar of the civil law of obligations, is assessed not only when the application is filed but also throughout the procedure. A debtor who has organised his insolvency, concealed assets or provided false declarations is liable to have his case dismissed or to be disqualified from the proceedings. The Court of Cassation has consistently ruled that the debtor's behaviour must be carefully scrutinised to detect any manoeuvre designed to abuse the procedure, distinguishing between simple improvidence and blatant disloyalty. Bad faith presupposes active and conscious behaviour on the part of the consumer, who adds to his debts in the knowledge that he will not be able to pay them off.
5. Protecting securitised assets: a niche area of expertise in insolvency proceedings
Securitisation is a financial technique that benefits from a special legal regime, creating an exception to the principles of insolvency law. The assets held within a securitisation vehicle enjoy virtually absolute protection against enforcement measures.
A. The special status of securitisation undertakings and their exclusion from Book VI of the Commercial Code
Securitisation vehicles, whether in the form of a mutual fund or a company, are explicitly excluded from the scope of application of Book VI of the Commercial Code (C. mon. fin., art. L. 214-48, III). They cannot therefore be the subject of safeguard, reorganisation or compulsory liquidation proceedings. In addition, the principle that sub-funds are watertight ensures that the assets of a given sub-fund are only liable for the debts of that same sub-fund.
B. Mechanisms to protect securitised assets from enforcement
The law goes further, stating that the assets of a securitisation undertaking may only be enforced in accordance with the earmarking rules set out in its articles of association or the issue contract. The use of earmarked bank accounts makes it possible to isolate the financial flows of securitised receivables from the assets of the debt collector, making them unseizable by the latter's creditors, even in the event of bankruptcy. These sophisticated mechanisms are part of the broader framework of the securities lawwhich governs the various ways of guaranteeing a claim.
The paralysis of enforcement by collective proceedings is a complex area that requires a precise analysis of the situation. To navigate these procedures and effectively defend your interests as a creditor, from the declaration of claims to the trustee or liquidator to the verification of liabilities, our law firm, experts in collective proceedings is at your disposal.
Frequently asked questions
What is the principle of the individual stay of proceedings?
This is a fundamental rule that is triggered by the decision to open collective proceedings (safeguard, reorganisation, liquidation). It automatically suspends or prohibits all legal action and enforcement measures (seizures) by creditors whose claims arose prior to this judgment, in order to freeze liabilities and treat all creditors equally.
Am I obliged to declare my claim if my debtor is in receivership?
Yes, this is mandatory. Any creditor whose claim arose before the opening judgment must declare it to the court-appointed agent or liquidator within two months of publication of the judgment in the BODACC. Failure to do so renders the claim unenforceable, which prevents you from participating in payments.
Are all my debts wiped out after a liquidation for lack of assets?
In principle, yes. The closure of the liquidation due to insufficient assets results in the "purging" of debts, prohibiting creditors from taking legal action against the debtor. However, there are major exceptions in cases of fraud, personal bankruptcy of the director or bankruptcy, where creditors may regain their right to take legal action.
How do overindebtedness proceedings affect seizures?
The simple decision by the commission that an over-indebtedness case is admissible automatically suspends all current seizure proceedings and prohibits new seizures for up to two years. This includes seizures of bank accounts and property, although specific rules apply to the latter if a compulsory sale has already been ordered.
What happens if a creditor fails to declare a claim on time?
If a creditor does not declare his claim within the legal time limit of two months and does not obtain a statement of foreclosure, his claim becomes unenforceable against the proceedings. This means that the creditor cannot be paid under a recovery plan or participate in the distribution of funds in the event of liquidation, thereby losing virtually all chance of recovery.
Can a creditor still take individual action against a debtor in collective proceedings?
No, it is the very principle of collective discipline. Once proceedings have been opened, individual actions by previous creditors are frozen. The only framework for action is the collective proceedings themselves, via the declaration and verification of claims, except for subsequent creditors known as "useful" to the proceedings, who benefit from a right to payment on the due date.
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