The statutory definition: available assets versus due liabilities
Cessation of payments is not synonymous with bankruptcy, nor with insolvency. It is a precise technical concept, defined by Article L.631-1 of the Commercial Code: the state of a debtor who, being unable to meet due liabilities with available assets, can no longer honour their debts. Two elements must coexist simultaneously: due liabilities and an insufficiency of available assets to meet them.
Article L.631-1, paragraph 1 of the Commercial Code: “A judicial reorganisation procedure is available to any debtor […] who, being unable to meet due liabilities with available assets, is in cessation of payments. A debtor who establishes that credit reserves or moratoria from creditors enable them to meet due liabilities with available assets is not in cessation of payments.”
Due liabilities (passif exigible)
Due liabilities comprise all debts that have fallen due, whose payment is owed at the moment the situation is assessed. A debt is due as soon as its term has expired – regardless of whether the creditor has demanded payment. The courts need not inquire whether the due liabilities have been actually demanded: it suffices that the debts have matured.
The Cour de cassation has specified that due liabilities may include a provisional award made in summary proceedings (refere), provided it has not been the subject of substantive proceedings contesting its merits (Cass. com., 16 January 2019, No. 17-18.450). The rule is therefore broad: any claim whose payment is immediately owed enters the calculation, without awaiting actual demand.
Available assets (actif disponible)
Available assets are what the debtor can use immediately to settle debts. This is cash in the broad sense: cash in hand, credit bank balances, readily liquidable investment securities, and immediately recoverable receivables.
What available assets are not is realisable assets: a building, a business (fonds de commerce), stock, or machinery. These have patrimonial value, but they are not immediately convertible into cash. The Cour de cassation has been consistent on this point for decades: the value of a rural estate is not an available asset; the value of an unsold business is not either (Cass. com., 15 February 2011, No. 10-13.625). The assessment of cessation of payments concerns what is available today, not what might be realised tomorrow.
What the case law says about borderline cases
The boundary between cessation of payments and temporary difficulties is frequently contested before the courts. Case law has specified, through successive decisions, what does and does not enter the calculation.
Credit reserves and moratoria: the statutory exception
Article L.631-1, paragraph 2, provides an important exception: a debtor is not in cessation of payments if they establish that they benefit from credit reserves or moratoria from creditors enabling them to meet due liabilities. Concretely, a confirmed bank credit line, or a payment schedule granted by a significant creditor, may prevent the finding of cessation of payments – provided these elements are established and sufficient.
This exception is strictly construed. The burden of proof lies on the debtor. And the court need not inquire whether the due liabilities have been actually demanded: it is solely the existence of a credit reserve or moratoria that may neutralise the finding.
What case law excludes from available assets
Several attempts to have elements recognised as available assets that are not have been rejected by the Cour de cassation:
- An unsold business (Cass. com., 15 February 2011, No. 10-13.625) – it has value, but is not liquid.
- Uncalled share capital (Cass. com., 23 April 2013, No. 12-18.453) – it is a receivable of the company against its shareholders, not available cash.
- A provision for pending litigation (Cass. com., 19 October 1993, No. 91-21.519) – it cannot characterise insufficiency of available assets either.
- Real property, even readily marketable (Cass. com., 27 June 1977, No. 76-10.883).
The logic is consistent: available assets are what is liquid or immediately liquefiable without delay or contingency. The moment a realisation step is needed, one leaves the concept.
Assessment at the level of the professional patrimony
Since the Act of 14 February 2022 on the individual entrepreneur, Article L.631-1 specifies that, for a sole trader, the condition of cessation of payments is assessed, where applicable, by reference to the professional patrimony alone. The automatic separation of professional and personal estates, instituted by this reform, thus also applies to assessing cessation of payments.
Who may be in a state of cessation of payments?
Insolvency proceedings (reorganisation, liquidation) are available only to specified categories of debtors. Articles L.631-2, L.631-3, L.640-2, and L.640-3 list them.
| Category | Examples | Applicable court |
|---|---|---|
| Traders and artisans | SARL manager, individual sole trader | Tribunal de commerce |
| Farmers | Agricultural operator, EARL, GAEC | Tribunal judiciaire |
| Liberal professionals | Doctor, architect, consultant | Tribunal judiciaire |
| Private-law legal entities | SA, SAS, SARL, SCI, associations (subject to conditions) | Tribunal de commerce or judiciaire depending on activity |
| Individual entrepreneur (since 2022) | EI with professional patrimony engaged | Depending on activity |
Natural persons who are not traders or professionals cannot be subject to insolvency proceedings: they fall under the consumer over-indebtedness procedure (procedure de surendettement des particuliers), governed by the Consumer Code. Public bodies are also excluded.
A practical point: proceedings may be opened even after the debtor has ceased activity, provided the application is made within one year of cessation (for traders and artisans, Art. L.631-3). They may also be opened in respect of a deceased person if the court is seised within one year of death.
The mandatory declaration within forty-five days
Identifying the state of cessation of payments is not enough: the law requires action. The director must declare cessation of payments at the competent court within a precise deadline.
Articles L.631-4 and L.640-4 of the Commercial Code: The opening of judicial reorganisation or liquidation must be sought by the debtor no later than forty-five days after cessation of payments, unless the debtor has within that period sought the opening of a conciliation procedure.
The forty-five-day period: starting point and computation
The period runs from the day the state of cessation of payments is characterised – not from the day the director becomes aware of it or admits it. In practice, it is the date that the court will retain as the cessation date that serves as starting point, but this date is fixed retrospectively by the judge. The director must therefore be vigilant from the first signs of inability to meet debts: waiting for absolute certainty is often already too late.
The forty-five-day period is a standard period. It runs from one calendar date to the same calendar date. If the forty-fifth day falls on a Saturday, Sunday, or public holiday, it is extended to the next working day.
Conciliation as an alternative
An application for conciliation, filed within the forty-five-day period, suspends the filing obligation. This is an amicable, confidential route that allows an attempt at agreement with principal creditors under the supervision of a court-appointed conciliator. If conciliation fails, the court may find cessation of payments and open the appropriate procedure.
Documents to provide to the registry
The declaration of cessation of payments is made by completing the Cerfa form No. 10530 (application for opening of insolvency proceedings). The file includes: statement of due liabilities and available assets (recent cash position), annual accounts for the last closed financial year, number of employees and wage bill, statement of receivables and debts with deadlines and security interests, and statement of any pending enforcement proceedings.
Who else may apply to the court?
The debtor is not the only person who may seise the court. A creditor may apply for the opening of proceedings – including a public creditor, such as the tax collector responsible for recovering a fiscal claim (Cass. com., 7 February 2012, No. 11-11.347). The public prosecutor may also seise the court, notably on referral from the Banque de France or the president of the court.
What opens: judicial reorganisation or judicial liquidation
Cessation of payments triggers the opening of formal proceedings. Which procedure depends on a fundamental question: is the company recoverable?
Judicial reorganisation: when recovery remains possible
If the court considers recovery conceivable, it opens judicial reorganisation. This aims to enable continuation of activity, preservation of employment, and settlement of liabilities. It gives rise to an observation period of up to eighteen months, at the end of which the court either approves a continuation plan or pronounces liquidation if recovery ultimately proves impossible.
Judicial liquidation: when recovery is manifestly impossible
If cessation of payments is found and recovery is manifestly impossible, the court directly opens judicial liquidation (Art. L.640-1). The objective is then to cease activity and realise the debtor’s assets to pay creditors.
Simplified liquidation
For small companies (no immovable property, assets below a regulatory threshold), a simplified liquidation procedure is available, with shortened deadlines and streamlined formalities. The liquidator has six months (renewable once) to realise assets and close the proceedings.
The position of employees
In the event of cessation of payments followed by the opening of insolvency proceedings, wages, redundancy indemnities, and other salary claims benefit from a first-ranking super-priority. The AGS (wage guarantee fund) substitutes for the defaulting employer to guarantee payment of these claims, within statutory and regulatory limits.
The date of cessation of payments and the suspect period
The date of cessation of payments is not merely a procedural reference point: it delimits a period during which certain acts by the debtor may be avoided – the suspect period (periode suspecte).
How the court fixes the date
It is the court itself that fixes the date of cessation of payments, in the opening judgment or subsequently. It first seeks the debtor’s observations. Absent precise determination, cessation of payments is deemed to have occurred at the date of the opening judgment – which eliminates any suspect period.
The fixing rests on tangible elements: payment defaults, unsuccessful seizure attempts (saisies-attributions infructueuses), accumulation of social or tax debts, unrenewed bank overdrafts. The judge exercises sovereign discretion in fixing this date, and may retain a date different from that sought by the parties (Cass. com., 3 April 2019, No. 17-28.359).
Backdating: up to eighteen months
The date fixed in the opening judgment is only provisional. It may be moved to an earlier date, within the limit of eighteen months before the opening judgment (Art. L.631-8), on application by the administrator, mandataire judiciaire, liquidator, or public prosecutor – within one year of the opening judgment.
The debtor, however, does not have standing to seek a change in the cessation date as principal applicant: they may only defend against such an application (Cass. com., 5 October 2022, No. 21-12.250). This rule matters in practice: the director cannot strategically select a more favourable cessation date.
Avoidance of transactions in the suspect period
Acts performed between the cessation date and the opening judgment may be avoided, to reconstitute the debtor’s assets for the benefit of creditors as a whole. The statute distinguishes two categories:
Mandatory nullities (Art. L.632-1): certain acts are void as of right, without needing to prove the counterparty’s knowledge of cessation of payments. These include gifts, contracts in which the debtor’s obligations significantly exceed those of the other party, payments of debts not yet due, and security interests granted for previously contracted debts.
Discretionary nullities (Art. L.632-2): other acts may be avoided if the counterparty had knowledge of the cessation of payments. This covers payments of due debts made by abnormal means (transfers of property, set-off, etc.) and certain onerous transactions concluded on unbalanced terms.
Avoidance actions are brought by the administrator or mandataire judiciaire for the benefit of the proceedings.
Personal risks for the director
Cessation of payments is not solely a company problem. It may engage the director’s personal liability – and sometimes deprive them of the right to manage a company for many years.
Management ban for late filing
A director who has not declared cessation of payments within the forty-five-day statutory period faces a ban on managing, directing, administering, or controlling any commercial or craft enterprise, any agricultural operation, and any legal entity (Art. L.653-8, para. 3). This ban may be imposed for up to fifteen years.
Liability for shortfall in assets
Where judicial liquidation of a legal entity reveals a shortfall in assets, the court may – where a management fault contributed to this shortfall – order the director to personally cover all or part of the unpaid liabilities (Art. L.651-2). Late filing is precisely one of the management faults capable of grounding this order: by delaying, the director allowed liabilities to worsen and realisable assets to diminish, to the detriment of creditors.
The bankruptcy offence (banqueroute)
In the most serious cases, certain acts by the director during the suspect period or designed to worsen the cessation of payments may constitute the criminal offence of bankruptcy (Art. L.654-2), punishable by five years’ imprisonment and EUR 75,000 fine. The constituent acts include asset misappropriation, fictitious or incomplete accounting, fraudulent increase of liabilities, and failure to file within the statutory deadline.
Frequently asked questions
What is the difference between cessation of payments and temporary difficulties?
Cessation of payments requires an established and current inability to meet due liabilities with available assets. A mere cash tension, temporary and capable of being resolved through credit reserves or a moratoria from creditors, does not constitute cessation of payments within the meaning of Article L.631-1. The distinction rests on two elements: duration (a passing difficulty resolves itself or with creditor help) and coverage (confirmed credit reserves or an agreed moratoria still allow the debtor to cope).
Who must declare cessation of payments?
The legal representative of the company – the SARL manager, the SAS president, the SA directeur general. For a sole trader, the obligation falls on them personally. It must be made within forty-five days. A creditor or the public prosecutor may also seise the court, but the statutory filing obligation within the deadline rests exclusively on the debtor.
What happens if the director fails to file within 45 days?
Late filing exposes the director to a management ban for up to fifteen years (Art. L.653-8). It may also ground personal liability for shortfall in assets if the shortfall results from the management fault committed during the period of delay. In the most serious cases, the delay constitutes one of the elements characterising the criminal offence of bankruptcy.
Does uncalled share capital count as an available asset?
No. The Cour de cassation has held that uncalled share capital is a receivable of the company against its shareholders and cannot be assimilated to an available asset within the meaning of Article L.631-1 (Cass. com., 23 April 2013, No. 12-18.453). Similarly, the value of an unsold business does not constitute an available asset (Cass. com., 15 February 2011, No. 10-13.625). For an element to qualify as available assets, it must be immediately mobilisable without delay or contingency: cash, bank deposits, investment securities.
Can the date of cessation of payments fixed by the court be contested?
Yes. The date fixed in the opening judgment is only provisional. It may be modified by subsequent judgments, on application by the administrator, mandataire judiciaire, liquidator, or public prosecutor, within one year of the opening judgment (Art. L.631-8, para. 4). However, the debtor cannot act as principal applicant to backdate the cessation date: the Cour de cassation has held them inadmissible to bring a principal appeal against a judgment refusing such an application (Cass. com., 5 October 2022, No. 21-12.250).
What is the suspect period?
The suspect period (periode suspecte) is the interval between the date of cessation of payments and the opening judgment. It may last from a few days to eighteen months. During this period, certain acts by the debtor may be avoided: gifts, unbalanced contracts, security interests for prior debts (mandatory nullities, Art. L.632-1), or abnormal payments and certain onerous transactions where the counterparty had knowledge of the cessation (discretionary nullities, Art. L.632-2). These avoidance actions allow reconstitution of assets for creditors’ benefit.