Banqueroute is probably the most misunderstood term in the sphere of distressed companies. In everyday language, “going bankrupt” and “committing bankruptcy” are used interchangeably to describe a company that cannot pay its debts. In French law, they describe entirely unrelated realities. Bankruptcy – or more precisely, the state of cessation of payments – is an economic situation. Banqueroute is a criminal offence. A director whose company enters judicial liquidation is not, by that fact alone, guilty of banqueroute. The guilty party is one who, additionally, has committed certain acts that the law classifies as offences: concealing assets, falsifying accounts, deliberately incurring debt to delay the inevitable. This guide sets out what French criminal law means by the term, and what it costs.
From common usage to criminal offence: what “banqueroute” means in law
The word comes from the Italian banca rotta – broken bench. In mercantile Florence of the Middle Ages, the money-changer whose work table was broken by creditors publicly signalled insolvency. The term entered French in the sixteenth century with its connotation of dishonour attached to inability to pay. For centuries, banqueroute designated indistinctly commercial insolvency and the fraud that accompanied it. The major reform of French distressed-company law – initiated in 1985 and refined through to the 2008 ordinance – ended this confusion by clearly distinguishing two regimes: on one side, the civil and commercial procedures for treating difficulties (safeguard, reorganisation, liquidation); on the other, the criminal offence of banqueroute, codified at Articles L.654-1 to L.654-7 of the Commercial Code.
The statutory definition is strict. Banqueroute is a criminal offence (delit) – not a crime (crime) nor a minor offence (contravention) – which requires, on the one hand, the opening of judicial reorganisation or judicial liquidation proceedings against the debtor and, on the other, the performance by the director of one of the five acts exhaustively listed at Article L.654-2. These two elements are cumulative and inseparable. Accounting fraud committed outside any insolvency context does not constitute banqueroute – it may be classified otherwise (abus de biens sociaux, forgery, fraud), but not banqueroute. Conversely, a perfectly regular liquidation without any fraudulent act by the director gives rise to no criminal prosecution on this ground.
Article L.654-1, Commercial Code: In the event of the opening of judicial reorganisation or judicial liquidation proceedings, the persons mentioned at Article L.621-2 (debtors subject to insolvency proceedings) who have performed one of the acts set out at Article L.654-2 are guilty of banqueroute. The safeguard procedure is expressly excluded from scope – a deliberate choice to preserve its attractiveness as a preventive procedure that directors should not flee for fear of criminal prosecution.
Who may be prosecuted for banqueroute?
Banqueroute is not a general criminal offence open to anyone. It requires a particular status in the perpetrator: being subject to insolvency proceedings within the meaning of Article L.621-2.
Natural person debtors
Those primarily targeted are traders, artisans, farmers, and all natural persons carrying on an independent professional activity – including liberal professionals subject to insolvency proceedings. The individual entrepreneur under the 2022 Act falls within this category for their professional patrimony.
Directors of legal entities
This is where the bulk of litigation concentrates. De jure and de facto directors of legal entities subject to insolvency proceedings are fully within scope. The concept of de facto director (dirigeant de fait) is central here: the Cour de cassation has long defined it as the person who, without formal title, independently exercises the functions of directing a company. Absence of a corporate mandate does not protect one who takes the decisions. Majority shareholders acting behind the scenes, spouses or relatives dictating management, or de facto agents all fall within scope.
Cessation of functions before the opening of proceedings does not exonerate. If the constituent acts of banqueroute were committed during the tenure, prosecution remains possible. This rule has considerable practical significance: a manager who resigns while leaving the company in a state of accounting disarray they contributed to creating remains exposed.
Third-party accomplices
Banqueroute may be committed with the assistance of third parties who are not themselves directors. Article L.654-14 expressly provides for complicity. A banker who, knowing the client’s irreversibly compromised situation, advises delaying the cessation-of-payments declaration by preferentially repaying their own advances, commits complicity of banqueroute by preferential payment – the Cour de cassation established this as early as 1978 (Cass. crim., 13 March 1978, No. 77-91.255). Advisors, auditors, or shareholders may be prosecuted on the same basis, provided their participation in the fraudulent act is established.
The 5 constituent acts of banqueroute (Art. L.654-2)
Article L.654-2 lists five categories of acts, exhaustive and alternative. A single one suffices to constitute the offence. The criminal court cannot invent a sixth category, nor find an act that, however wrongful, does not correspond to any of the five.
1. Use of ruinous means to obtain funds
The targeted act is precise: having, with the intention of avoiding or delaying the opening of proceedings, “either made purchases for resale below market price, or used ruinous means to obtain funds.” The intentional element is expressly required by the text: the director must have acted with the purpose of avoiding or delaying filing. This intention must be established, which constitutes a first line of defence.
“Ruinous means” cover varied practices: borrowing at usurious rates, repeated issuance of bounced cheques, discounting accommodation bills, recourse to last-resort lenders on unreasonable terms. The criterion is the manifest inadequacy between the cost of financing and the company’s repayment capacity, combined with the intention to buy time. Costly but rational financing given the situation does not necessarily constitute ruinous means.
2. Misappropriation or concealment of assets
This is the most frequently prosecuted act. It covers any act by which the director removes assets from the company to the benefit of creditors or for their own benefit, to the detriment of the body of creditors. The Cour de cassation has given a broad definition: “any voluntary act of disposal over the corporate assets, after cessation of payments, by the director for their own benefit and in fraud of creditors’ rights” (Cass. crim., 23 October 1997, No. 96-84.717). A cheque drawn on the company account for the manager’s personal benefit, a sale of assets at an undervalue to a connected company, a transfer to a personal account – all potentially fall within this category.
A recent decision clarified the boundaries in a less obvious situation: the directrice generale of an association who continued receiving excessive remuneration after cessation of payments, knowing of the financial difficulties, committed misappropriation of assets – regardless of whether the board had formally approved the remuneration (Cass. crim., 18 March 2020, No. 18-86.492). Governance body approval does not neutralise the offence where the act is, in its result, prejudicial to creditors.
3. Fraudulent increase of liabilities
This involves artificially increasing the company’s debts: creation of false claims, acknowledgment of non-existent or inflated debts, conclusion of fictitious contracts generating obligations. The constituent element is fraud – the deliberate and deceptive character of the act – and its result: increasing liabilities to the detriment of real creditors.
4. Fictitious, absent, or irregularly maintained accounts
This fourth act subdivides into three distinct behaviours: maintaining fictitious accounts (not reflecting economic reality), causing accounting documents to disappear, or failing to maintain any accounts where the law requires it. Fictitious accounts require active concealment of reality – double bookkeeping, recording inflated receivables, deliberate omission of debts. It is distinct from merely incomplete or irregular accounts, which is the subject of the fifth act.
Disappearance of accounting documents is targeted as such: the director who “loses” their books, refuses to hand them to the mandataire judiciaire, or destroys them is exposed. Complete absence of accounts is constitutive of the offence provided a statutory obligation to maintain accounts existed – which is the case for virtually all traders and companies.
5. Manifestly incomplete or irregular accounts
This fifth act constitutes the residual and most frequently invoked category. The text punishes the maintenance of accounts that are “manifestly incomplete or irregular with regard to statutory provisions.” The word “manifestly” is important: a simple error or ineptitude does not suffice. A patent, significant failing is needed, revealing either serious incompetence or a deliberate intention to conceal the true situation.
The Cour de cassation has clarified that the offence is constituted even before the close of the accounting year, as soon as manifest failings in record-keeping are established – chronological recording of transactions, periodic inventory. The fact that annual accounts have not yet been finalised does not prevent the offence being found (Cass. crim., 22 June 2022, No. 21-83.036).
The prior condition: opening of insolvency proceedings
The opening of judicial reorganisation or judicial liquidation is the prior condition for criminal prosecution. It is not a constituent element of the offence proper, but a procedural prerequisite: without an opening judgment, the parquet cannot commence the action publique. Safeguard is expressly excluded – deliberately, to preserve its attractiveness.
The cessation-of-payments date: less central than one might think
One might suppose that banqueroute is constituted only for acts committed after the cessation date fixed by the opening judgment. This intuition is partly false. The Cour de cassation has clarified for three of the five constituent acts – use of ruinous means (1), fraudulent increase of liabilities (3), and irregular accounts (5) – that the cessation-of-payments date has no bearing on their characterisation. They may be found for acts committed indifferently before or after cessation (Cass. crim., 25 November 2020, No. 19-85.205).
The position differs for misappropriation of assets (2): here, the cessation date plays a determinative role, because the text targets acts committed “in a state of cessation of payments.” An act of disposal performed before cessation does not constitute banqueroute by misappropriation – it may however constitute other offences.
Limitation period
Banqueroute is a delit. The limitation period is therefore six years from commission of the acts (standard period under the 2017 Act, applicable to delits). For continuing offences – such as irregular accounting maintained over several financial years – the starting point is the day the offence ceased. Opening of a judicial investigation or inquiry interrupts limitation.
Criminal penalties for banqueroute
In its basic form, banqueroute is punishable by five years’ imprisonment and EUR 75,000 fine (Art. L.654-3). These statutory maxima are rarely reached in ordinary cases, but they indicate the gravity the legislature attaches to the offence.
Aggravating circumstances
Article L.654-4 provides for an aggravated regime – ten years’ imprisonment and EUR 150,000 fine – where the constituent acts were committed by means of a public offer of securities or within an investment firm or credit institution. These scenarios concern structures gathering funds from large numbers of savers: fraud there takes on a systemic dimension justifying increased severity.
Ancillary penalties
Beyond the principal penalty, the court may impose ancillary penalties of often greater practical importance than the fine or imprisonment. Article L.654-5 refers to the penalties at Article L.653-2: a ban on directing, managing, administering, or controlling, directly or indirectly, any commercial, craft, or agricultural enterprise or any legal entity, for a duration not exceeding fifteen years. Cass. crim., 8 November 2006, No. 05-85.922, confirmed that a fifteen-year ban could be imposed for banqueroute.
Additionally: ban on exercising a commercial or industrial profession, confiscation of sums or property used to commit the offence or constituting its proceeds, and publication or broadcast of the conviction.
Personal bankruptcy as an ancillary penalty: the constitutional question
Article L.654-6 historically allowed the criminal court to impose personal bankruptcy (faillite personnelle) as an ancillary penalty to a banqueroute conviction. This provision was partially struck down by the Conseil constitutionnel: Decision QPC No. 2016-573 of 29 September 2016 declared it unconstitutional, on the ground that it violated the principle of necessity of penalties by permitting cumulation of punitive sanctions for the same acts. The Cour de cassation drew the consequences: personal bankruptcy convictions pronounced on the basis of L.654-6 for acts committed before 1 October 2016, and not yet final at that date, must be set aside (Cass. crim., 22 November 2017, No. 16-83.549). This unconstitutionality, rarely mentioned by generalist sources, is a defence argument not to be overlooked in cases where the criminal judgment includes such an ancillary penalty.
Banqueroute and civil sanctions: do not confuse
A director in difficulty who consults a lawyer often discovers that two distinct species of sanctions exist, governed by two different chapters of the Commercial Code. Confusion between them is frequent – and costly, because they obey entirely different rules, procedures, and courts.
| Sanction | Nature | Articles | Court | Maximum penalty |
|---|---|---|---|---|
| Banqueroute | Criminal (delit) | L.654-1 to L.654-7 | Tribunal correctionnel | 5 years prison + EUR 75,000 (+ 10 years / EUR 150,000 if aggravated) |
| Personal bankruptcy (faillite personnelle) | Civil / professional | L.653-1 to L.653-11 | Insolvency court | Management ban up to 15 years. No imprisonment. |
| Management ban (interdiction de gerer) | Civil / professional (or criminal ancillary) | L.653-8 / L.654-5 | Commercial or criminal court | Targeted ban up to 15 years. No imprisonment. |
| Liability for shortfall in assets | Civil (patrimonial) | L.651-2 | Insolvency court | Order to cover all or part of unpaid liabilities from personal assets. |
The first two sanctions may cumulate: a director may simultaneously be condemned to personal bankruptcy by the commercial court (civil sanction) and for banqueroute by the criminal court (criminal sanction). This cumulation is not prohibited per se, but is capped. If the civil court has pronounced personal bankruptcy by a final decision, the criminal court may pronounce it again as an ancillary penalty only if the criminal facts are distinct from those grounding the civil sanction (Cass. crim., 31 October 2007, No. 06-89.045). This is an argument to systematically verify in mixed cases.
Criminal procedure and lines of defence
Banqueroute is prosecuted before the tribunal correctionnel. The action publique is triggered by the parquet – most often following a referral by the mandataire judiciaire or liquidator, who is required to report criminal acts discovered in the course of their duties. Creditor complaints are also possible, but their admissibility is restricted: the chambre criminelle is restrictive regarding constitution de partie civile by individual creditors for banqueroute, considering that the prejudice is collective and belongs to the body of creditors.
Investigation and duration
Banqueroute cases, particularly in large companies or groups, often undergo a judicial investigation (instruction). An examining magistrate (juge d’instruction) is seised, formal charges (mises en examen) are pronounced, and accounting expert reports ordered. Duration may be lengthy – three to five years of investigation is not unusual in complex cases. During this time, the accused may be subject to judicial supervision (controle judiciaire), including a ban on exercising certain professional activities.
Lines of defence
Defence in a banqueroute case turns on several axes. First, challenge to status: was the accused genuinely a de jure or de facto director at the date of the acts? Proof of de facto direction lies with the prosecution and must be supported by concrete evidence – actual control of decisions, access to accounts, relations with suppliers and customers. Second, challenge to the material element: do the alleged acts correspond exactly to one of the five categories in L.654-2? The list is exhaustive; any behaviour that does not fall within it does not constitute banqueroute. Third, challenge to the intentional element: for certain acts (ruinous means in particular), fraudulent intent must be proven. Improvidence, management error, or excessive optimism, even if blameworthy, do not suffice to constitute the criminal offence.
In cases involving multiple defendants – de jure and de facto directors, or director and accomplices – the defence strategy may also focus on the allocation of responsibilities and on who actually controlled the impugned decisions.
Frequently asked questions
What is the difference between banqueroute and company insolvency?
In everyday language, the two terms are synonymous. In French law, insolvency (faillite) designates the state of a company that can no longer pay its debts – what the statute calls cessation of payments. Banqueroute is a criminal offence defined at Articles L.654-1 to L.654-7 of the Commercial Code: it consists of fraudulent management acts committed by a director in the context of insolvency proceedings. A director may become insolvent without committing banqueroute. Conversely, certain fraudulent acts committed during difficulty constitute banqueroute even if the company is not yet officially in cessation of payments.
What specific acts may constitute banqueroute?
Article L.654-2 lists five alternative categories: use of ruinous means to obtain funds; misappropriation or concealment of assets; fraudulent increase of liabilities; maintenance of fictitious accounts or complete absence of accounts; and maintenance of manifestly incomplete or irregular accounts. A single act suffices. The list is exhaustive: conduct that does not fall within any of these five categories does not constitute banqueroute, however seriously wrongful it may be.
May a director who left the company before liquidation be prosecuted?
Yes. Case law is settled on this point: cessation of functions before the opening of insolvency proceedings does not exclude prosecution if the alleged acts were committed during the tenure. What matters is the commission of the constituent acts, not the director’s status at the date of the opening judgment.
Is banqueroute a crime or a delit?
Banqueroute is a delit (not a crime). It falls within the jurisdiction of the tribunal correctionnel. The principal penalty is 5 years’ imprisonment and EUR 75,000 fine. This increases to 10 years and EUR 150,000 in certain aggravating circumstances (public offer of securities, credit institution). Ancillary penalties include: professional activity ban, management ban up to 15 years, and confiscation.
May one be condemned for both banqueroute and personal bankruptcy?
The two sanctions may cumulate: personal bankruptcy is pronounced by the insolvency court (civil sanction); banqueroute by the criminal court (criminal sanction). This cumulation is possible but capped. If the civil court has already pronounced personal bankruptcy by a final decision, the criminal court may pronounce it again as an ancillary penalty only if the criminal facts are distinct from those grounding the civil sanction (Cass. crim., 31 October 2007, No. 06-89.045).
May the director of an association be convicted of banqueroute?
Yes. Associations may be subject to judicial reorganisation or liquidation, and their directors are subject to the same obligations as those of commercial companies. The Cour de cassation has expressly confirmed that a directrice generale of an association who awards herself excessive remuneration after cessation of payments commits the offence of banqueroute by misappropriation of assets (Cass. crim., 18 March 2020, No. 18-86.492).