The forced sale of a debtor's assets is a decisive stage in the recovery of a debt. However, once the sale has taken place, another, equally technical procedure begins: the distribution of the proceeds of the sale among the creditors. Far from being a mere formality, this stage is governed by strict rules designed to organise the payment of the various creditors in a precise order. This article sets out the common law rules governing distribution following a seizure of movable property. global procedures for the distribution of fundsOur comprehensive guide is the essential starting point for all aspects of real estate transactions, including amicable settlements and the distribution of the price of an immovable property.
Understanding the distribution of assets after seizure: foundations and players
The procedure for distributing funds following a seizure of movable property is a precise legal mechanism, the aim of which is to ensure that the funds obtained are distributed fairly. It is essential to distinguish this procedure, which follows a forced sale, from amicable distribution of fundsThis approach is based on solid legal foundations and involves a number of players with clearly defined roles. This approach is based on solid legal foundations and involves several players with well-defined roles, from the court commissioner to the enforcement judge.
The concept of "sales proceeds" and its legal framework (R. 251-1s CPCE)
At the heart of the procedure is the concept of "proceeds of sale". This is the sum of money obtained after the sale of the seized movable property, whether by public auction or authorised out-of-court sale. Articles R. 251-1 et seq. of the Code of Civil Enforcement Procedures (CPCE), which essentially derives from Decree No. 92-755 of 31 July 1992, specifically govern the way in which these proceeds are to be distributed. This legal framework makes a clear distinction between distribution following a seizure for sale and the more direct distribution resulting from an attachment for payment, where a sum of money is allocated directly to the seizing creditor. The rules governing the distribution of money in movable property matters, governed by the CPCE, are clearly distinct from the distribution of the price in a seizure of real estate, which follows a specific and more complex procedure applicable to the sale of real estate.
The central role of the commissaire de justice (agent in charge of the sale)
The commissaire de justice, a profession born of the merger of bailiffs and auctioneers, plays a pivotal role. Designated as the "agent in charge of the sale" by the CPCE, he is the true project manager of the distribution. His mission is not limited to simply carrying out the sale; he is also responsible for drawing up the plan for distributing the funds. This approach, which tends to divert the first phase of the distribution from the courts, aims to make the process smoother and faster. The court commissioner acts autonomously to propose a distribution, with the intervention of the judge only being envisaged in the event of disagreement or insurmountable difficulties.
The other key players: creditors, debtor, enforcement judge
While the court commissioner orchestrates the procedure, other players are essential to its smooth running. The creditors, whether they initiated the seizure (seizing parties) or came forward to assert their rights (opposing parties), are the ultimate beneficiaries of the distribution. The seizing party, although passive, remains a stakeholder, in particular to receive any balance after all debts have been paid. Finally, the enforcement judge (JEX) retains a supplementary but fundamental role. It acts as arbitrator in the event of a dispute over the proposed distribution or the failure of the agent responsible for the sale to act, thereby guaranteeing that the rights of all parties are respected.
Procedure for the distribution of funds: the case of a single creditor and multiple creditors
The complexity of the distribution of funds varies considerably depending on the number of creditors involved. The law distinguishes between the relatively simple situation of a single creditor and the more technical situation of several creditors, where the hierarchy of privileges and securities becomes decisive.
Remittance of funds to a single creditor: deadlines and formalities
When only one creditor has initiated the seizure and no other has come forward, the procedure is simplified. The proceeds of the sale, whether amicable or forced, are paid directly to the creditor up to the amount of his claim in principal, interest and costs. This payment must be made within a maximum period of one month. Once this period has elapsed, and after any formal notice has been served, the sums owed to the creditor bear interest at the legal rate, an incentive to ensure that the holder of the funds is diligent. Any balance is then returned to the debtor within the same period.
Distribution among several creditors: unsecured and preferential creditors
The situation becomes more complex if there are several creditors. The CPCE then organises a genuine distribution procedure. There are two main categories of creditors: unsecured creditors, who do not hold any particular security, and preferential creditors, who benefit from a security giving them a preferential right. The seizing creditor and opposing creditors - those who have come forward before the seized assets have been verified - belong to one or other category depending on the nature of their claim. This distinction is fundamental because it determines the order of payment.
The order of moveable liens: essential legal technicalities
In the event of competition between creditors and if there are insufficient funds to pay everyone, the agent in charge of the sale must respect a strict order of payment, which is in principle unalterable. The analysis of the hierarchy of liens is a direct application of the securities lawwhich defines the framework for security interests in movable property. Preferential creditors are paid in priority, according to the rank given by law to their security (see for example art. 2331 of the Civil Code). The surplus, if any, is then distributed among the unsecured creditors. If the remaining funds are not sufficient to pay them in full, the distribution is made "au marc le franc", i.e. in proportion to the amount of their respective claims. Mastering this collocation statement is a key skill for the enforcement lawyer.
Drawing up and notifying the distribution plan: key stages and deadlines
The phase of amicable distribution between several creditors is orchestrated by the agent in charge of the sale. It follows precise formalities, from the drawing up of the draft to its notification, and is governed by strict deadlines to guarantee both the effectiveness of the procedure and the rights of the parties.
The role of the sales agent in setting up the project
On the basis of the initial order to pay and the statements of opposition from the other creditors, the court commissioner draws up a proposed distribution. This document details each party's claim, including principal, interest and costs, and proposes an order of payment in accordance with the hierarchy of liens. He must also take into account any creditors who may have made a preventive attachment on the same assets prior to the sale, provided that they have declared their claim within the time allowed.
Information to be provided to creditors and debtors
Once the draft has been drawn up, it is notified by registered letter with acknowledgement of receipt to each creditor, including those not eligible for distribution who may be entitled to a balance, as well as to the debtor. This notification is crucial and must, on pain of nullity, contain mandatory information. In particular, it must inform the addressees that they have a period of fifteen days from receipt of the notice in which to make a reasoned objection. If no response is received within this period, this constitutes tacit acceptance of the project.
Deadlines for project preparation and notification
The procedure is governed by strict deadlines. The proposed distribution must be notified within one month of the forced sale or the deposit of the price in the case of an amicable sale. However, this deadline may be extended, either by unanimous agreement of the parties, or by authorisation of the enforcement judge hearing the case, who will then issue an order. There is no automatic penalty for failing to comply with this time limit, but it does open up the possibility for any interested party to apply to the judge to proceed with the distribution himself, thereby transforming the amicable procedure into a judicial distribution.
Disputes and appeals: defending the rights of creditors and debtors
The distribution project, even if it aims for an amicable resolution, may be the subject of disagreement. The Code of Civil Enforcement Procedures provides for a graduated mechanism for resolving disputes, ranging from a compulsory conciliation attempt to a referral to the enforcement judge, guaranteeing each party the opportunity to defend its rights.
The different types of disputes and their grounds (failure to meet deadlines, merits)
A dispute may arise for several reasons. Firstly, it may relate to a failure to meet the deadlines for drawing up the project, which allows any interested party to refer the matter directly to the judge. More frequently, the dispute concerns the substance of the plan itself. A creditor or debtor may dispute the amount of a claim taken into account, the ranking of a lien granted to another creditor, or the validity of a security. The objection must be substantiated and sent to the sales agent within fifteen days.
The preliminary conciliation phase: an essential step
Receipt of one or more complaints does not immediately lead to legal proceedings. The law requires a conciliation phase. The agent responsible for the sale must convene the debtor and all creditors to a meeting to be held within one month of the first dispute. The aim is to reach an amicable agreement on the points of disagreement. If a consensus is reached, minutes of agreement are drawn up and distribution can proceed. A party who fails to attend this meeting is deemed to have accepted the agreement reached by the others.
Intervention by the enforcement judge: procedures and decisions
If conciliation fails, the agent in charge of the sale draws up a report of the points of disagreement and sends the file to the registry of the enforcement judge at the place of sale. This is when the judicial phase begins. The judge, after hearing the parties at an adversarial hearing, settles the disputes and draws up the final statement of distribution. His decision, which takes the form of an enforceable judgment, may be appealed, but the appeal does not have suspensive effect, unless the first president of the court of appeal decides otherwise. The conditions for this stay of execution are governed by the extensive case law of the Cour de cassation. The funds, which must be deposited as soon as the case is referred to the court, are then paid by the Caisse des dépôts et consignations on presentation of a copy of the judgment in accordance with the decision.
Angles of expertise: complex contexts and specific legal issues
The distribution of funds following a seizure of movable property may be affected by related procedures that make the practitioner's task considerably more complex. The involvement of a lawyer with expertise in enforcement becomes essential when navigating between the regimes of over-indebtedness and collective proceedings, or when managing the obligations of a third party holding the funds.
Impact of excessive personal debt on the distribution of movable assets
When an individual debtor is in a situation of over-indebtedness, the distribution procedure can be completely disrupted. The decision to accept a case of over-indebtedness automatically suspends and prohibits any enforcement proceedings, including a current seizure of movable property. If the over-indebtedness proceedings result in a recovery plan, the debts will be rescheduled. More radically, if a personal recovery procedure is pronounced, it may lead to the total cancellation of non-business debts. In this case, creditors, even preferred creditors, may not receive any proceeds from the sale. The relationship between these two procedures requires a detailed analysis of the interaction between over-indebtedness and enforcement procedures.
Invalidity of the suspect period: abnormal payments and security interests
If the debtor is a company in difficulty, the concept of the "suspect period", whose regime has been clarified by the reform of the law governing companies in difficulty (in particular by the amended Finance Act of December 2015), which extends from the date of cessation of payments to the judgment opening the collective proceedings, becomes essential. Certain acts carried out during this period may be annulled. In particular, payments of debts not yet due or payments made by abnormal means are void. Similarly, any real security, such as a pledge, created to guarantee a previous debt is null and void. These nullities have a direct impact on the distribution of the price: a creditor who thought he had priority may find himself unsecured, and a payment he has received may be claimed back from him, thus radically altering the order in which the money is distributed.
Role and responsibilities of garnishees in movable property distribution proceedings
Sometimes the seized assets or the funds to be distributed are not in the hands of the debtor but with a third party, such as a custodian or a bank. This "garnishee", who may act as a court-appointed receiver, has strict obligations. In particular, they must accurately declare the extent of their obligations to the debtor, such as the sums held, the price of a property already sold or the assets on deposit. If the declaration is inaccurate, incomplete or refused, the third party may be held liable. The third party may be ordered to pay the costs of the seizure itself, or even damages. The third party's obligations share certain similarities with those incumbent on him in the event of a attachment procedureIt is therefore essential for the distribution process to run smoothly. His cooperation is therefore essential to the smooth running of the distribution procedure.
The procedure for distributing assets following a seizure of movable property is a complex one, with a series of deadlines and formalities, failure to comply with which can have serious consequences for creditors and debtors alike. The complexity of the rules governing the distribution of assets and the many deadlines to be met mean that the assistance of a lawyer is essential. lawyer specialising in enforcement procedures It is essential to secure the rights of creditors and defend the debtor. If you are faced with such a situation, our firm is at your disposal to analyse your rights and assist you.
Sources
- Art. R. 251-1 et seq. of the Code of Civil Enforcement Procedures (CPCE)
- Art. L. 211-2 of the Code of Civil Enforcement Procedures (CPCE)
- Art. 2285 et seq. of the Civil Code (order of liens)
- Consumer Code, art. L. 711-1 et seq. (over-indebtedness procedures)
- Commercial Code, art. L. 632-1 et seq. (nullity of the suspect period)
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