Enforcement in the context of collective proceedings and overindebtedness

You have a writ of execution and your debtor is not paying. The way forward seems clear: seize the debtor's assets, bank accounts or income. But the opening of collective or over-indebtedness proceedings changes all that. These mechanisms, designed to deal globally with the debts of a debtor in difficulty, often place creditors in a situation of forced waiting.

Stopping individual lawsuits: the cardinal principle of collective proceedings

The opening of safeguard, reorganisation or compulsory liquidation proceedings automatically results in the cessation of individual lawsuits. This fundamental principle is enshrined in article L.622-21 of the French Commercial Code.

This text is unambiguous: "The opening judgment halts or prohibits all enforcement proceedings against both movable and immovable property and all distribution proceedings that did not have an attributive effect before the opening judgment".

The practical consequences are immediate:

• Inability to initiate new seizures
• Suspension of ongoing enforcement proceedings
• Stopping prescription and foreclosure periods

The Commercial Chamber of the Court of Cassation reaffirmed this rule in a judgment of 4 March 2014 (no. 13-10.534), stating that even a property seizure must be stopped despite an auction judgment prior to the opening of the proceedings if higher bids are made afterwards.

Which creditors escape the rule?

Not all creditors are in the same boat. Some creditors retain their right to take individual legal action:

1. Subsequent creditors Article L.622-17 of the French Commercial Code preserves the rights of creditors whose claims arose properly after the opening judgment for the purposes of the proceedings or the observation period.
2. Maintenance creditors Exempt from declaration under Article L.622-24 of the French Commercial Code, they retain the right to be paid.
3. Employees They benefit from special protection under Article L.622-24 of the French Commercial Code.

A ruling by the Commercial Chamber on 6 July 1993 (no. 91-15.161) confirms that useful subsequent creditors may institute enforcement proceedings in the event of non-payment on the due date. Other creditors must comply with collective discipline.

The dreaded penalty of undeclared claims

The declaration of claims is an imperative obligation in insolvency proceedings. According to the Cour de cassation, this requirement is "a principle of domestic and international public policy" (Civ. 1re, 29 September 2004, no. 02-16.754).

Article L.622-24 of the French Code of Civil Enforcement Procedures requires prior creditors to declare their claims within two months of publication of the opening judgment.

The penalty is severe: if no declaration is made within the deadline, article L.622-26 paragraph 2 of the French Commercial Code stipulates that claims cannot be enforced against the debtor during the plan and even afterwards if the commitments in the plan have been met.

In practical terms, this means that these creditors:

• Cannot be paid during the plan
• Cannot be used afterwards if the plan is correctly executed

The situation worsens when a judicial liquidation is closed due to insufficient assets. Article L.643-11 of the French Commercial Code stipulates that "the judgment closing a judicial liquidation due to insufficient assets does not allow creditors to exercise their individual actions against the debtor".

Over-indebtedness of individuals: similar but different rules

For private individuals, over-indebtedness law provides for comparable mechanisms.

If a case of overindebtedness is accepted, enforcement proceedings are automatically suspended. Article L.722-2 of the Consumer Code is clear: it "entails the suspension and prohibition of enforcement proceedings against the debtor's assets and assignments of remuneration granted by the debtor".

This suspension can last up to two years (article L.722-9 of the French Consumer Code).

Notable exceptions:

• Maintenance debts remain payable
• Expulsion not automatically suspended
• The compulsory sale of an immovable already ordered is not automatically postponed

These nuances are of considerable practical importance and require a precise analysis of each situation.

Personal recovery: virtually total cancellation of debts

The personal recovery procedure, the equivalent of civil bankruptcy for private individuals, can lead to the cancellation of almost all debts.

According to article L.741-2 of the French Consumer Code, personal recovery without judicial liquidation "entails the cancellation of all professional and non-professional debts owed by the debtor".

However, some debts are not eligible for write-off:

• Food debts
• Financial compensation awarded to victims following a criminal conviction
• Debts arising from social security fraud
• Pawnbroking loans taken out with municipal credit banks
• Debts paid by a guarantor or co-obligor who is a natural person

For a creditor, seeing his rights purged in this way may seem brutal. This situation illustrates the ongoing tension between creditor rights and debtor protection.

Strategies for creditors

What are the options for creditors faced with these procedures?

1. Act quickly before proceedings are opened. Once the procedure has been initiated, it is often too late.
2. Declaring your claim without delay. Ordinance no. 2014-326 of 12 March 2014 relaxed the reporting rules, but vigilance is still required.
3. Check whether the claim qualifies as a useful subsequent claim in the context of collective proceedings.
4. Examine the possibility of invoking fraud which would restore the right of individual pursuit (article L.643-11, II of the French Commercial Code).
5. Considering recourse against guarantors (guarantors, co-obligors) who do not always enjoy the same protection as the principal debtor.

Strategic positioning at the first signs of difficulty on the part of the debtor can make all the difference to the final recovery.

The creditor must also examine whether the conditions for opening the procedure have been met. For example, a sole trader with limited liability cannot benefit from professional recovery if the amount of his liabilities is disproportionate to his assets (article L.645-11 of the Commercial Code amended by law no. 2022-172 of 14 February 2022).

These complex situations illustrate the importance of appropriate legal support. Do not hesitate to contact us for a personalised analysis of your case. Our firm has in-depth expertise in enforcement law and insolvency proceedings, which could prove decisive in safeguarding your interests.

Sources

• French Commercial Code: articles L.622-21, L.622-17, L.622-24, L.622-26, L.643-11, L.645-11
• Code of civil enforcement procedures: article L.111-3
• Consumer Code: articles L.722-2, L.722-9, L.741-2
• Court of Cassation, Commercial Chamber, 4 March 2014, no. 13-10.534
• Court of Cassation, Commercial Division, 6 July 1993, No. 91-15.161
• Court of Cassation, 1st Civil Division, 29 September 2004, no. 02-16.754
• Law no. 2022-172 of 14 February 2022 to promote self-employed professional activity
• Order no. 2014-326 of 12 March 2014 reforming the prevention of business difficulties and collective proceedings