What we do for bank guarantors
A bank guarantee – “cautionnement” under French law – is not a formality. It is a contract by which you undertake to pay another party’s debt if that party defaults. When the bank calls on the guarantee, the sums at stake are often substantial, and the available defences numerous but technically demanding.
Our firm acts at every stage: upstream to secure the terms of an engagement, in defence when the bank demands payment from the guarantor, and in negotiation to obtain a reduction or payment schedule. We handle banking litigation on a daily basis, which enables us to identify quickly the weaknesses in a guarantee deed and the bank’s failures to comply with its obligations.
Proportionality of the guarantee – Article 2300, French Civil Code
“Where a personal guarantee given by a natural person to a professional creditor was, at the time it was entered into, manifestly disproportionate to the guarantor’s income and assets, it shall be reduced to the amount which the guarantor could have undertaken at that date.” This provision, introduced by the reform of 1 January 2022, is the first lever to examine. If your commitment exceeded your financial capacity at the date of signature, the amount claimed by the bank can be reduced.
Company director as personal guarantor
This is the most common scenario. The bank conditions a business loan, credit line or overdraft facility on your personal guarantee as director. When the company defaults, you are pursued on your personal assets – sometimes for amounts that far exceeded your financial capacity at the time you signed.
The reform of French suretyship law that came into force on 1 January 2022 substantially changed the applicable regime. For guarantees signed after that date, the professional creditor must warn the guarantor if the principal debtor’s commitment is unsuited to its financial capacity (Article 2299, French Civil Code). The former distinction between “sophisticated” and “unsophisticated” guarantors, which allowed banks to avoid this obligation, has been abolished.
Our firm handles
- Analysing the proportionality of your guarantee at the date of signature (asset declaration, income, other outstanding guarantees)
- Verifying compliance with the bank’s annual information obligation (Article 2302, French Civil Code) – failure results in forfeiture of all accrued interest
- Checking the formal validity of the deed (mandatory wording, amount in words and figures, express waiver of the benefits of discussion and division)
- Establishing a breach of the duty to warn
- Amicable negotiation with the bank or defence in court proceedings before the Commercial Court or Tribunal judiciaire
Annual information obligation – Article 2302, French Civil Code
Before 31 March each year, the bank must inform every natural person guarantor of the outstanding amount in principal, interest and ancillary charges. Failure to do so results in forfeiture of the right to claim interest and penalties accrued since the last compliant notification. This is a powerful defence: in practice, many banks are unable to prove that they sent this information.
Guarantor of a mortgage loan
You guaranteed the mortgage of a relative, spouse or business partner. The borrower has stopped repaying, and the bank is claiming the outstanding capital, interest and costs from you. Your liability may run to several hundred thousand euros.
French credit law imposes specific obligations on the bank towards the guarantor of a mortgage loan. It was required to verify that your guarantee was not manifestly disproportionate to your income and assets. It was required to warn you if the loan was unsuited to the borrower’s financial capacity. It was required to inform you annually of the outstanding amount and the remaining term of your commitment.
Each failure opens a line of defence. Disproportionality allows a reduction in the amount claimed. Failure to provide annual information leads to forfeiture of interest. Breach of the duty to warn gives rise to damages proportionate to the loss suffered.
Our lines of defence
- Challenging the proportionality of the guarantee (Article 2300, French Civil Code)
- Establishing the bank’s failure to warn (Article 2299, French Civil Code)
- Invoking failure to provide annual information and forfeiture of interest
- Verifying the validity of the enforcement title and the debt calculation
- Raising the principal debtor’s defences against the bank (Article 2298, French Civil Code)
Suretyship and insolvency proceedings
The company you guaranteed has been placed under French insolvency protection – sauvegarde, redressement judiciaire or liquidation judiciaire. As guarantor, you remain exposed. The stay of individual proceedings that protects the debtor does not extend to the guarantor, except where a reorganisation plan (plan de sauvegarde or plan de redressement) has been approved by the court.
The interaction between suretyship and insolvency law is among the most technically demanding areas of French banking litigation. Questions multiply: did the bank file its proof of claim within the statutory time limit? Can the guarantor invoke the extinction of the principal debt? Does the reorganisation plan release the guarantor? Did the bank lose security interests from which the guarantor would have benefited through subrogation?
This last point is an often underestimated defence. Article 2314 of the French Civil Code provides that the guarantor is discharged where subrogation into the creditor’s rights can no longer operate due to the creditor’s fault. If the bank failed to renew a mortgage, maintain a pledge or register a lien, the guarantor may be released to the extent of the resulting loss.
Our firm handles
- Analysing the impact of insolvency proceedings on your guarantee
- Verifying whether the bank filed its proof of claim and the consequences for the guarantee
- Invoking the loss of the right of subrogation (Article 2314, French Civil Code)
- Defending against the bank’s claims during and after insolvency proceedings
- Negotiating settlement agreements with the bank
What changed with the 2022 suretyship reform
The Order of 15 September 2021 fundamentally reformed French suretyship law, with effect from 1 January 2022. Depending on the date your guarantee was signed, the applicable regime differs on essential points.
| Issue | Before 1 January 2022 | Since 1 January 2022 |
|---|---|---|
| Formalities | Prescribed wording to be reproduced word for word by the guarantor (Articles L.341-2 and L.341-3, Consumer Code) | Flexible but regulated wording: reference to the capacity as guarantor, amount in words and figures (Article 2297, Civil Code) |
| Proportionality | Guarantee unenforceable if disproportionate (complete loss) + two-stage test at date of signature then date of demand | Reduction to the supportable amount, single test at date of signature (Article 2300, Civil Code) |
| Duty to warn | Judge-made obligation, distinction between sophisticated and unsophisticated guarantors | Statutory obligation, all natural person guarantors, proportionate forfeiture (Article 2299, Civil Code) |
| Defences available | Only defences inherent to the debt | All defences, including those personal to the debtor (Article 2298, Civil Code) |
| Subrogation | Contractual waiver permitted | Contractual waiver deemed unwritten (Article 2314, Civil Code) |
Identifying the applicable regime is the first step in any case. It determines the entire defence strategy.
Frequently asked questions
Can a bank guarantee be set aside under French law?
Yes, in several circumstances. Nullity may be declared for defective formalities (incomplete or missing prescribed wording), manifest disproportionality at the date of signature, or the bank’s failure to warn. Under the new regime (guarantees signed after 1 January 2022), the sanction for disproportionality is a reduction in the guaranteed amount, not total nullity.
What if the bank never informed me of the outstanding amount?
The bank is required to inform you before 31 March each year. If it cannot prove it did so, it forfeits the right to claim interest and penalties accrued since the last compliant notification. This defence is independent of all others and can involve substantial sums.
Does the company’s liquidation release me from my guarantee?
No. The stay of individual proceedings in French insolvency law protects the debtor, not the guarantor. The bank may continue to pursue you. However, if the principal debt is extinguished (for example under a reorganisation plan), the guarantor is released as a consequence. And if the bank lost security interests through its own fault, you can invoke the loss of the right of subrogation.
What is the time limit for challenging a demand under the guarantee?
The limitation period is 5 years from the date on which you became aware of your obligation to pay (Article 2224, French Civil Code). In practice, this typically corresponds to receipt of the bank’s formal demand. Do not delay: the sooner you take advice, the broader your defence options.
Do you handle urgent matters?
Yes. When the bank initiates a seizure or threatens to do so, a swift response is essential. Our firm can act in urgent interim proceedings (refere) to obtain a stay or challenge the enforcement process. We act before courts throughout France.