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Insolvency proceedings and suretyship: protection or trap for the guarantor?

By Yasmine EDDAM19 March 2025

Signing a guarantee is like walking a tightrope. If the debtor falls, so can the guarantor. But there are mechanisms in place to cushion the fall. In a tense economic climate, with business failures on the increase, the fate of guarantors is a matter of concern.

I. The fundamentals of surety bonds in the face of insolvency

The guarantee is accessory. When the principal obligation disappears, the guarantee disappears. However, there are exceptions to this principle in the case of insolvency. For an in-depth analysis of recent legislative changes to surety bondsIt is essential to understand their impact on the protection of sureties.

"If we were to take this rule literally, surety bonds would no longer serve any purpose", explains one practitioner. The paradox is obvious: this guarantee exists precisely to protect against insolvency, but should be extinguished with it?

The Court of Cassation has ruled. The accessory nature of the guarantee gives way to its purpose. Article 2313, paragraph 2 of the Civil Code confirms this logic: the extinction of the principal obligation triggers the extinction of the guarantee. But this text does not apply automatically in the event of insolvency.

II. Impact of insolvency proceedings on sureties

Different procedures, different protection

The fate of the surety varies according to the procedure initiated, which has a direct influence on the mechanisms for extinguishing guarantees and their adaptation to insolvency proceedings:

Backup guarantees: guarantors who are natural persons are afforded considerable protection
Receivership From 2021, the same protection as for safeguarding
Court-ordered liquidation more limited protection

Stay of proceedings

The decision to open safeguard proceedings suspends proceedings against individual guarantors. This temporary protection lasts until the judgment adopting the plan.

This fundamental rule allows the guarantor to breathe while the company is being restructured. It does not apply to guarantors who are legal entities, a distinction that some consider debatable.

Stopping interest payments

From the date of the opening judgment, legal and contractual interest stops accruing. Individual guarantors benefit from this measure in the same way as the principal debtor.

One notable exception: loans of more than one year and contracts with deferred payment continue to generate interest.

Adoption of a plan and fate of the surety

Individual guarantors may take advantage of the provisions of the safeguard plan and, since 2021, of the recovery plan.

A court may therefore grant additional time, limited to two years. These measures considerably reduce the burden on guarantors.

III. The guarantor and over-indebtedness of individuals

The principle that over-indebtedness measures should not be passed on to the guarantor remains the rule. Article 2298, paragraph 2 of the Civil Code clearly states that a guarantor cannot take advantage of legal or judicial measures granted to an insolvent debtor. These rules illustrate the specific features of guarantor protection under french law.

The Court of Cassation confirmed this in 1996, ruling that "the remissions granted to the principal debtor in the context of over-indebtedness proceedings do not benefit the guarantor".

However, there are a few exceptions. If the guarantor becomes the debtor's creditor after having paid the debt, he or she can benefit from the measures - provided that he or she has been notified by the over-indebtedness commission.

The best strategy for the guarantor of an over-indebted debtor is to negotiate directly with the creditor rather than wait for a hypothetical benefit from the measures granted to the debtor.

IV. The claim declaration: a decisive issue

The statement of claim is a key stage in insolvency proceedings. Failure to do so can result in the claim being unenforceable - even to the detriment of the guarantor.

The Court of Cassation now considers that the right to participate in distributions represents a preferential right. A negligent creditor who fails to declare his claim may see the guarantor partially or totally discharged.

The guarantor may declare the debt itself, even before it has been paid. Article L. 622-34 of the French Commercial Code allows them to preserve their personal recourse.

This declaration interrupts the limitation period until the closure of the collective proceedings. A recent ruling made this clear: "The declaration of a claim in the main debtor's collective proceedings, made by the guarantor who has paid in place of the main debtor, interrupts the limitation period for his action against the main debtor and against the sub-guarantor".

V. Practical strategies for guarantors

Anticipation and prevention

Before signing, demand full information about the debtor's financial situation. Article 2299 of the French Civil Code imposes a duty on professional creditors to warn that the debtor's commitment is unsuited to his financial capabilities.

Limit your commitment in time and amount. An open-ended guarantee can be terminated at any time, but only after giving notice.

Remedies and possible action

After payment, the guarantor has two options:

Personal recourse against the debtor (article 2308)
Subrogation (article 2309)

These remedies may be exercised simultaneously or successively.

Sub-caution as protection

The sub-guarantor guarantees the guarantor repayment of what the sub-guarantor will pay for the principal debtor. This mechanism, now provided for in article 2291-1 of the Civil Code, offers additional protection.

Banks frequently use it when they act as guarantor for a customer. The effectiveness of this system has been reinforced by case law, which has specified that the declaration of claim interrupts the limitation period against the sub-guarantor.

Insolvency proceedings are profoundly altering the normal operation of sureties. While the 2021 reform strengthened certain protections for individual guarantors, it did not upset the fundamental balance between protecting the creditor and protecting the guarantor.

The best advice is to be vigilant before committing yourself, and reactive after the debtor has defaulted. For strategic defence, our lawyers specialising in surety bonds are at your disposal.