Legal redress

What is receivership?

Court-ordered reorganisation is a collective procedure designed to ensure the survival of a business that has suspended payments, provided that recovery is still possible. Article L.631-1 of the French Commercial Code sets out its threefold purpose: continuing the business, maintaining jobs and paying off liabilities. These three objectives are prioritised: activity comes first, and liabilities are only an expected result, not an end in themselves.

The procedure is not a disguised liquidation, nor is it simply a period granted to creditors to get their money back. It is based on a simple idea: a company in difficulty can still live if it is given time to restructure without its creditors dismantling it in the course of their individual lawsuits. The court becomes the pivotal point: it is the court that assesses whether reorganisation is feasible, determines the procedural bodies and draws up the plan. The court is not a passive arbiter - it can declare liquidation ex officio if the situation so requires.

To whom does the procedure apply?

Article L.631-2 of the French Commercial Code is broad in scope. Judicial reorganisation applies to any trader, any person registered in the trade register, any farmer, any other natural person exercising a self-employed professional activity - including a liberal profession subject to legislative status - and any legal person governed by private law.

This covers: the manager of a SARL (limited liability company), the chairman of a SAS (simplified joint stock company), sole traders, plumbers, self-employed doctors, architects and associations. However, local authorities and public establishments are excluded: they are covered by specific schemes. Similarly, credit institutions and insurance companies are subject to special procedures overseen by the ACPR - which are described in the guide to the ACPR.

An important restriction: a new judicial reorganisation cannot be opened in respect of a person already subject to such proceedings or to a judicial liquidation, as long as the current proceedings have not been closed or the plan has not been fully implemented.

The only condition for commencement: cessation of payments

Court-ordered reorganisation is only available if the debtor is in suspension of payments - and on the opposite condition that its recovery is not manifestly impossible. If recovery is still conceivable, the company is placed in receivership. If reorganisation is manifestly impossible, the company must be wound up by court order (Cass. com., 12 Jan. 2022, no. 20-16.394, published in the Bulletin).

La suspension of payments is precisely defined by law: it is the state in which a debtor finds it impossible to meet its current liabilities with its available assets. Two elements must coexist: liabilities whose debts have fallen due, and insufficient cash to cover them immediately.

Credit reserves and moratoria

The law provides for a nuance: a debtor who establishes that credit reserves or moratoria granted by his creditors enable him to meet his liabilities is not in suspension of payments. A confirmed line of credit or an instalment plan granted by significant suppliers can therefore neutralise the qualification - provided that these elements are established and sufficient.

The Court of Cassation has specified that this assessment is made on the day the court rules, not at a fixed historical moment (Cass. com., 2 June 2021, no. 19-25.556, published in the Bulletin). The court must therefore assess the situation as it stands at the time it makes its decision, including any moratoria that may have arisen since the petition was filed.

The assets of the sole trader

Since Law 2022-172 of 14 February 2022, an important clarification has applied to sole traders. The law instituted an automatic separation between business assets and personal assets. As a result, article L.631-1 now stipulates that the condition of cessation of payments must be assessed, where applicable, solely for the assets involved in the business activity. The personal assets of the sole trader are therefore not taken into account in the assets/liabilities equation - which may work in his favour or against him depending on the case.

The 45-day deadline

Once it has been established that payments have ceased, the debtor must file a declaration with the registry of the competent court within a period of forty-five days, This is the case unless the debtor has requested the opening of conciliation proceedings within this period (art. L.631-4 C.com). The Court of Cassation recently reiterated the rigour of this rule (Cass. com., 20 Nov. 2024, no. 23-12.297, published in the Bulletin).

This deadline is not a formality. If no declaration is made within forty-five days, the company director is liable to severe personal sanctions: disqualification from managing the company, liability for insufficient assets, and even bankruptcy proceedings in the most serious cases. Inaction is always riskier than action.

How the procedure works

Who can take a case to court?

Several players can trigger the procedure:

• The debtor himself (Filing for bankruptcy: this is the ordinary and compulsory procedure within the 45-day period. The company's legal representative - manager, chairman, managing director - files the petition. In the case of a sole trader, he files the petition himself.
• A creditor insolvency proceedings: the insolvency representative may petition the debtor for legal redress if he establishes that payments have ceased. He must have a claim against the debtor that is certain, liquid and due.
• The Public Prosecutor's Office (the public prosecutor's office): it can refer a case to the court when it is informed of a suspension of payments, in particular through reports from the commercial court registries.
• The court of its own motion In certain cases, it may refer the matter to itself, particularly in the context of another procedure. This is rare and is subject to certain conditions.

Which court has jurisdiction?

Competence depends on the nature of the activity. The commercial court is responsible for shopkeepers and tradesmen. The judicial tribunal for self-employed professionals and farmers. Certain companies exceeding certain thresholds (turnover, number of employees) are subject to specially designated commercial courts (art. L.721-8 C.com). The competent court is the one in whose jurisdiction the debtor's registered office or principal place of business is located.

A rule of jurisdiction is of particular interest in the case of a group of companies: the court that opened insolvency proceedings against a debtor company retains jurisdiction to rule on a request to extend these proceedings to another company in the group, regardless of the latter's turnover (Cass. com., 11 March 2020, no. 18-22.960, published in the Bulletin).

Documents to be supplied

The application to open receivership proceedings must be accompanied by a detailed file, the documents for which are listed in article R.631-1 of the French Commercial Code: an extract from the company's registration with the RCS or the trade register, the annual financial statements for the last financial year, a statement of assets and liabilities, a projected profit and loss account, a statement of receivables and debts, the number of employees and the total payroll, and a declaration of suspension of payments indicating the date on which payments ceased. The commercial court registry provides access to a dedicated Cerfa form (cerfa no. 10022).

The immediate effects of the opening judgment

The judgement opening the insolvency proceedings has immediate and far-reaching effects. It is the starting point for the entire procedure: it is on this date that previous claims are assessed, new obligations are entered into and those involved in the procedure take up their duties.

Suspension of individual proceedings

As soon as the opening judgment is pronounced, all individual proceedings brought by previous creditors are suspended. Creditors who have not yet taken action can no longer do so. Enforcement proceedings already underway are halted. This is one of the fundamental protections offered by receivership: the company is no longer harassed by its individual creditors and can devote its energies to recovery.

Le legal and contractual interest rates have been set on the date of the opening judgment. Late payment penalties cease to accrue. This rule applies to all previous debts, including fixed-rate debts. Only certain specific claims - secured by collateral on assets not required for the business - may continue to generate interest.

Freezing of prior claims and compulsory declaration

All debts arising prior to the opening judgment are frozen. The creditors concerned can no longer claim individual payment: they must declare their claim to the judicial representative within two months from the date of publication of the judgment in the Bulletin officiel des annonces civiles et commerciales (BODACC). This period is extended to four months for creditors domiciled outside France.

The penalty for failure to declare a claim is severe: a claim that is not declared within the time limit will be unenforceable against the collective proceedings. The creditor will not be able to participate in distributions and will be excluded from distributions - even if its claim is perfectly well founded. The Court of Cassation has confirmed that a defaulting creditor cannot request an early ruling on the principle of his claim during the observation period (Cass. com., 9 Sept. 2020, no. 19-10.206, published in the Bulletin): he will have to wait for the plan to be resolved before regaining his individual right to sue.

Designation of procedural bodies

The observation period: between 6 and 18 months to find a solution

The observation period is the heart of the procedure. It is the time given to the company to continue operating under judicial supervision, while preparing a plan to emerge from the crisis.

A limited, renewable period

The observation period is initially set at six months. It may be renewed once for six months at the request of the court-appointed administrator, the debtor or the public prosecutor. At the request of the public prosecutor, it may be renewed a second time for a further six months - either eighteen months in total. In exceptional cases and at the request of the public prosecutor's office, the court may exceed this limit by up to twenty-four months.

At any time during the observation period, the court may terminate the proceedings if it appears that the business cannot be turned around. It may then order the liquidation by order of the court - but only after hearing or duly summoning the debtor by registered letter with acknowledgement of receipt (Cass. com., 20 June 2018, no. 17-13.204, Published in the Bulletin). The debtor must be duly summoned to appear before the court if the conversion is to be valid: if the debtor is not summoned to appear, the judgment will be set aside.

Company management during the observation period

The business continues to operate during the observation period, under the supervision of the insolvency administrator. In principle, the debtor retains the day-to-day management of the business - but with the assistance or substitution of the administrator, depending on the mission defined by the court.

The situation of current contracts is subject to a clear rule: the insolvency administrator may require the continuation of any current contract (art. L.622-13 C.com, applicable to receivership via L.631-14). The other party cannot terminate the contract simply because the proceedings have been opened. However, if the administrator decides not to continue the contract, it will be terminated ipso jure. The management rules during the observation period and the fate of current contracts are the subject of dedicated articles on our blog.

The claims arising during the observation period benefit from preferential treatment: they are paid on their due date, with priority over previous claims (art. L.622-17 C.com). This is the mechanism that enables the company to find new suppliers and partners despite the proceedings: they know that their claims will have priority. Note, however, that this privilege ends with the observation period. Claims arising after the adoption of a reorganisation plan cannot benefit from this privilege if they are declared in new proceedings at a later date (Cass. com., 6 March 2024, no. 22-23.993, published in the Bulletin).

Economic and social report

At the end of the observation period, the court-appointed administrator presents an economic and social report on the company. This report analyses the causes of the difficulties, the state of the liabilities, the prospects for recovery and proposes a solution. The social and economic committee (CSE), where it exists, is consulted on this report and on the proposed direction. It is on the basis of this assessment that the parties - debtor, administrator, judicial representative, creditors' representatives - will draw up the draft plan submitted to the court.

The three possible outcomes

At the end of the observation period, the court makes a decision. There are three possible outcomes.

The recovery plan: continuation or sale

A recovery plan is the preferred solution. It can take two forms, which can be combined.

Le continuation plan is stopped when the business can be continued in its entirety by the debtor itself. The court sets the terms and conditions for settling the liabilities: payment deadlines, debt forgiveness granted by creditors, sale of non-strategic assets. The maximum duration is ten years (fifteen years for farmers). While the plan is being implemented, the debtor must comply scrupulously with the payment schedule: the Court of Cassation has reiterated that management errors committed while the plan is being implemented may give rise to a liability action for insufficient assets if the plan is subsequently terminated (Cass. com., 22 Jan. 2020, no. 18-17.030, published in the Bulletin).

Le disposal plan is used when the business can only be saved by transferring it to a buyer. The court appoints a buyer from among the bids submitted, on the basis of criteria laid down by law: maintaining jobs, price offered, guarantees offered. The buyer takes over all or part of the business, but not the liabilities. The procedure is fully adversarial, and the Court of Cassation has specified that only the public prosecutor may appeal to the Court of Cassation against judgments ruling on an appeal against a judgment approving a sale plan (Cass. com., 23 Sept. 2020, no. 18-26.280, published in the Bulletin).

In large companies, Order no. 2021-1193 of 15 September 2021 introduced the possibility of setting up classes of parts affected (creditors grouped by category) to vote on the plan - a transposition of the European Restructuring and Insolvency Directive. This mechanism, provided for in Articles L.626-29 and L.626-30 of the French Commercial Code, enables a plan to be adopted even against the wishes of certain categories of creditors.

Conversion to compulsory liquidation

If, at the end of the observation period, it appears that recovery is manifestly impossible - because no takeover offer is viable, because the prospects of continuation are non-existent, or because a new cessation of payments is recorded during the proceedings - the court will order the company to be wound up. compulsory liquidation. The business ceases, and the assets are realised to pay off the creditors in order of legal priority.

A judicial liquidation opened at the same time as the resolution of a reorganisation plan constitutes a "new liquidation". new collective proceedings. In particular, it precludes the termination of a commercial lease in respect of rental payments due after the judgment opening the initial receivership (Cass. com., 12 June 2025, no. 23-22.076, published in the Bulletin).

Closing to extinguish liabilities

In rare cases, the liabilities are fully discharged before the end of the plan - because the company has recovered faster than expected, or because the creditors have accepted significant discounts. In this case, the court may close the proceedings to discharge the liabilities. The company regains full freedom. This is the best possible outcome, but it is statistically rare.

What receivership means for managers, employees and creditors

Consequences for managers

Directors do not automatically lose their powers when a receivership is opened. However, their scope of action depends on the mission entrusted to the administrator. If the administrator is tasked with’assistance, In this case, the debtor continues to manage the business, but must obtain the administrator's agreement for the most significant actions. If the administrator is tasked with representation, In the event of a conflict of interest, the director is fully substituted for the executive for acts falling within his remit.

La remuneration may be fixed or modified by the juge-commissaire during the observation period. This is not automatic - but the juge-commissaire can intervene if the current remuneration is incompatible with the company's situation.

La personal responsibility of the manager is not wiped out by the opening of the proceedings. Mismanagement committed prior to the commencement of proceedings, during the observation period and even during the implementation of the plan may give rise to an action against the director for deficient assets, if the proceedings ultimately result in a judicial liquidation (art. L.651-2 C.com). The Court of Cassation has confirmed this: neither the judgment initiating the receivership nor the judgment approving the receivership plan has amnesty for the executive (Cass. com., 22 Jan. 2020, no. 18-17.030).

Consequences for employees

The opening of receivership does not automatically terminate employment contracts. Employees continue to work and to be paid. However, economic redundancies may be authorised if this is necessary to safeguard the business: these require the agreement of the official receiver and are governed by the ordinary law on economic redundancies.

If the employer defaults on the payment of wages, the’AGS (Association pour la gestion du régime de garantie des créances des salariés) intervenes and guarantees the payment of salaries prior to the opening judgment and severance pay, up to ceilings set by law. The AGS benefits from a super-privilege that allows it to be reimbursed in priority from the first cash inflows. The Court of Cassation has ruled that the contribution payable by the employer under the Contrat de Securisation Professionnelle (CSP) is not, however, a claim super-privileged over wages within the meaning of article L.3253-3 of the Labour Code (Cass. com., 11 Dec. 2024, no. 23-10.708, published in the Bulletin).

Consequences for creditors

Creditors who pre-date the opening of the insolvency proceedings are the immediate losers: their claims are suspended, their interest ceases to accrue, and they must declare their debt in order to have any hope of being paid. Once the two-month period has elapsed, their claim becomes unenforceable against the collective proceedings - not null and void, but unenforceable. They will not be able to participate in distributions or assert their rights under the proceedings.

One exception is worth noting: creditors who hold a real security - mortgage, pledge - do not lose their security as a result of the proceedings. Their security remains, but they cannot realise it individually during the proceedings. They will have to wait for the distribution of the sale price or the resolution of the plan to assert their rank. The guide to securities and guarantees explains how these mechanisms work in conjunction with insolvency proceedings.

Receivership, safeguard or compulsory liquidation: how do you find your way around?

French insolvency law is based on a gradation of procedures. The golden rule is simple: the earlier we intervene, the greater the chances of success. The safeguard procedure is initiated before the cessation of payments - when the company is in serious difficulty but can still get out on its own. Its success rate is 62 %. After this, the company goes into receivership: it has suspended payments but can still recover. Its success rate is only 27 % (France Stratégie, analysis note no. 84, Feb. 2020). Judicial liquidation is the final procedure.

Criteria	Backup	Receivership	Court-ordered liquidation
Opening conditions	Difficulties without suspension of payments	Suspension of payments + recovery possible	Suspension of payments + recovery impossible
Who can apply	Debtor only	Debtor, creditor, public prosecutor	Debtor, creditor, public prosecutor, court
Business maintained?	Yes	Yes (during observation)	No (ceases on judgement)
Length of observation	6 months, max 18 months	6 months, max 18 months (exceptionally 24 months)	No observation period
Possible outcome	Safeguard plan (max. 10 years)	Continuation plan, disposal plan, LJ	Realisation of assets, payment of creditors
Success rate	62 %	27 %	N/A (final procedure)

The practical conclusion is clear: if your company is in serious difficulty but has not yet declared its suspension of payments, the safeguard procedure is clearly preferable. Don't wait until you are forced into receivership. The difference in the success rate - 62 % versus 27 % - is not anecdotal. It reflects a simple fact: intervening early, before creditors have exhausted their patience, gives the restructuring plan a much more solid foundation.