Special cases in insolvency proceedings: focus on the spouse, the right of retention and the security trust

Insolvency law, with its rules for dealing with debts and safeguarding businesses, often interferes with other branches of law. When the debtor's situation involves his or her spouse, assets held jointly or in joint tenancy, or when specific guarantees such as the right of retention or the security trust are involved, the general rules of insolvency proceedings are subject to specific applications, and even to notable exceptions.

These complex situations can be a source of uncertainty for both debtors and creditors. Can a creditor's rights be affected by the debtor's marital status? Is the right of retention as powerful as it is said to be in the face of collective proceedings? Does the trust, a modern guarantee, offer absolute protection? This article aims to clarify these specific points to help you better understand the fate of your claims or guarantees in these particular contexts.

Collective proceedings and the debtor's spouse: the impact on assets

When a person subject to insolvency proceedings is married, the fate of the assets depends crucially on the matrimonial regime and the nature of the assets (own, joint, undivided).

Joint property (community regime)

If your debtor is married under a community regime (such as legal community reduced to acquests, the default regime in France), the case law is very clear: collective proceedings (safeguard, reorganisation, liquidation) are not allowed. affects all joint property. The idea is that the community forms a single estate which is liable for the business (and often personal) debts of each spouse (article 1413 of the Civil Codealthough its direct application is limited by the rules of procedure). The theoretical share of the spouse who is not involved in the proceedings (the spouse in bonis) is not protected during the process.

What are the consequences for creditors, including spouses? in bonis ?

• Freezing of shares in joint property : Just like the creditors of the spouse in proceedings, the personal creditors of the spouse in bonis are subject to the cessation of individual legal proceedings against joint assets. Nor can they register new securities (mortgage, pledge) on a joint asset after the opening judgment.
• Risk of nullity during the suspect period : A security interest granted over a joint asset during the suspect period of the spouse in proceedings may be cancelled in its entirety, even if it secures a debt owed by the spouse. in bonisThis is because the spouses' rights to joint property are indivisible during the period of joint ownership.
• Need to declare a claim : In order to have a chance of being paid out of the value of the joint assets at the time of distribution, the spouse's personal creditor in bonis must declare his claim as a liability in the other spouse's collective proceedings. If he fails to do so, he will not be entitled to the distributions arising from the sale of the joint assets (even if he retains his claim against the other spouse). in bonis on his own property).

On the other hand own property and the spouse's personal income in bonis remain beyond the reach of the other spouse's insolvency proceedings and may be seized by his or her personal creditors (with certain exceptions, such as the unseizability of the main residence under certain conditions).

Undivided property (outside the community)

The situation is different if the spouses are married under a regime of separation of property, if they are PACS partners or cohabitants, or if there is joint inheritance. In this case, the property held in joint ownership is not considered to form an integral part of the assets of the collective proceedings opened against one of the joint owners. Only its undivided share is theoretically concerned.

This has important consequences:

• Rights of undivided co-ownership creditors : These are creditors whose debt has arisen before the creation of the joint ownership (e.g. creditor of the deceased in an estate) or results from the conservation/management of the joint property. These creditors have a privileged status:
  • They can pursue the seizure and sale of the undivided property as a wholeeven if one of the undivided co-owners is in receivership (article 815-17 of the Civil Code).
  • They have no need to declare their claim to the liabilities of the undivided co-owner in order to exercise this right.
  • They are entitled to be paid by deduction from the sale price before any division and before the personal creditors of the undivided co-owner in proceedings.
• Rights of personal creditors of an undivided co-owner in proceedings : These creditors cannot seize either the undivided property or even their debtor's share before partition. Their only course of action is to provoke sharing of the undivided interest (either via the liquidator, or by a so-called oblique action if the debtor is inactive) so that they can then act on the lot that will revert to their debtor. The liquidator may also request this division on behalf of the divested debtor. Specific protection exists for the family home (article 215 of the Civil Code), but it is generally not opposable to the creditors' action for partition via the liquidator (article 815-17), unless the property is legally exempt from seizure (principal residence under L.526-1 C.com or published declaration of exemption from seizure).
• Fate of a mortgage on undivided property : If a mortgage has been granted by both undivided co-owners but is unenforceable against the proceedings against one of them (for example, if it was granted during the suspect period), it remains valid for the undivided co-owner's share. in bonis. The mortgagee may then claim payment from the portion of the sale price corresponding to the mortgagee's share.

The right of retention: a formidable weapon for creditors

The right of retention allows a creditor who legitimately holds an item belonging to his debtor to refuse to return it until he has been paid his claim relating to that item. In the context of insolvency proceedings, this right confers exceptional advantages.

Maximum enforceability

• A real right, not just a security interest : Case law considers the right of retention to be a real right enforceable against all persons (erga omnes), including to the insolvency proceedings and to other creditors, even those who would normally have priority. It is noteworthy that the Cour de cassation considers that this is not a "security" in the strict sense of the obligation to declare theArticle L. 622-25 of the French Commercial Code.
• No need to declare it specifically: The major practical consequence is that the retaining creditor does not need to mention his right of retention in his statement of claim for it to be enforceable. Declaring a claim, even an unsecured claim, is sufficient to preserve the associated right of retention (provided that the claim itself is admitted).
• Survival of procedure : The right of retention persists even after the closure of the insolvency proceedings, enabling the creditor to continue to put pressure on the debtor or third parties (such as the sub-purchasers of vehicles whose documents are withheld).

Exceptional payment privileges

The real strength of the right of retention lies in the payment possibilities it opens up:

• Full payment against refund : Whether during the observation period (if the asset is useful for the business - article L. 622-7) or in compulsory liquidation (without any condition of usefulness - article L. 641-3), the debtor or the liquidator who wishes to recover the property withheld must pay in full the claim secured by the retention. The official receiver may not order restitution without payment.
• Absolute priority on liquidation sales price: If the retained property is sold by the liquidator, the right of retention is automatically transferred to the sale price (article L. 642-20-1). The retaining creditor is then paid before all other creditorsincluding super-privileged employees and legal costs. This considerable advantage applies both to real retention (physical holding) and to "notional" retention recognised by law for certain non-possessory pledges (car pledge, agricultural warrant, securities account pledge, and other non-possessory pledges since 2008).
• Strength in the disposal plan : As explained in the previous article, the retaining creditor may demand payment in full in order to leave the property to the buyer, thereby avoiding the mechanism of the share of thearticle L. 642-12.

Limits to this power

There are, however, some limits to this almost invincible right:

• Connexity required : A right of retention is only legitimate if there is a link (legal or material) between the unpaid debt and the item held. An asset cannot be retained to secure a claim that is totally unrelated to that asset.
• Post-judgment detention : Exercising retention after the opening judgment to secure a claim previous is generally considered to be illegitimate and contrary to the prohibition on payments (with very specific exceptions such as the commission agent's lien, although case law is restrictive). In principle, the retention must pre-exist the judgment.
• Limited notional retention in backup/recovery : The notional retention of non-possessory pledges (resulting from the 2008 law) is specifically declared not enforceable during the observation period and the implementation of a safeguard or recovery plan (article L. 622-7, I). It becomes fully effective only in the event of a transfer of business or compulsory liquidation.
• Exclusion for pledges of business assets : Despite the widespread use of notional retention in non-possessory pledges, case law has specifically excluded its application to pledges of business assets, probably to avoid paralysing the business too easily.
• Accessory retention of an undeclared security interest : If the right of retention is only the consequence (the accessory) of a principal security (for example, a special lien) and this principal security has not been declared or has been declared on an unsecured basis, then the right of retention also becomes unenforceable. This is an important pitfall: a clear distinction must be made between "autonomous" retention (linked to the debt and the holding) and retention arising from a specific security.

The security trust: a modern guarantee with variable effects

A security trust is a mechanism whereby the debtor (settlor) transfers ownership of assets or rights to a third party (the trustee) or to the creditor itself, in a separate estate, with the trustee responsible for managing these assets and returning them to the debtor if the debt is paid, or allocating/selling them to the creditor in the event of default.

The principle: a protective earmarked asset

The major advantage of the trust is the creation of a earmarked assets separate from the personal assets of the settlor and the trustee. In theory, the assets "leave" the debtor's estate.

• Creditor protection : In principle, these fiduciary assets are protected from prosecution by the settlor's personal creditors and those of the trustee (Articles 2024 and 2025 of the Civil Code). Only creditors whose claim has arisen from the conservation or management of these assets, or those who had a prior right of pursuit over the asset (e.g. mortgage published before the trust), or those acting in fraud (action paulienne) can seize them.
• Vulnerability to nullities : As with any security, the creation of a security trust during the suspect period to secure a prior debt is subject to legal or optional nullities (Article L. 632-1, I, 10° and 11°.).
• Termination in liquidation : If the settlor who goes into compulsory liquidation is the sole final beneficiary of the trust (which is rare for a pure security trust), the contract is terminated and the assets revert to the debtor (article L. 641-12-1).

Crucial distinction: with or without dispossession

The effectiveness of the security trust in the face of the settlor's insolvency proceedings depends fundamentally on whether or not the settlor has retained the use of the assets transferred:

• Trust WITH dispossession : The debtor no longer has use of the assets (e.g. sums of money, securities transferred to the trustee). In this case :
  • The beneficiary creditor largely escapes the rules of collective proceedings.
  • La suspension of proceedings does not apply (article L. 622-23-1 a contrario). The creditor is free to realise its security (sell or take possession of the trust property), even during the observation period or the plan.
  • Payment against return of goods is possible if the goods are deemed necessary for the business (article L. 622-7), but this is an option for the debtor/administrator, not an obligation for the creditor.
• Non-possessory trusts : The debtor retains the use or enjoyment of the assets transferred via a "disposal agreement" (e.g. business premises, machinery). Here, the protection is much weaker:
  • The provision agreement is subject to current contracts (article L. 622-13, VI). The administrator may require its continuation.
  • The creditor is subject to a stay of proceedings (article L. 622-23-1). He may not realise the guarantee (take back the property or have it sold) during the observation period and throughout the duration of a safeguard or recovery plan that would be complied with.
  • It must claim goods (article L. 624-16), but the actual return is deferred until the end or termination of the loan agreement.
  • It will only recover its right to realise the guarantee in the event of failure to comply with the plan, conversion into liquidation, or a decision to sell the business (as the availability agreement may not be transferred without its agreement - see below). article L. 642-7).

Participation in creditor classes

Since the 2021 reform introducing "classes of affected parties", creditors benefiting from a security trust are included in the class of creditors with security interests. However, for the purposes of voting on the draft plan, only the portion of their claim not covered by the estimated value of the trust assets is taken into account (article L. 626-30, V). Their weight in negotiations is therefore potentially limited if they are well secured.

The interaction between insolvency proceedings, matrimonial law and specific guarantees such as retention or trusts is complex and can lead to surprises. A case-by-case analysis by a professional is often necessary to determine the most appropriate strategy. For a strategy tailored to your particular situation, the expertise of a lawyer is essential. Contact our firm to discuss your case.

Sources

• Commercial Code: articles L.143-13, L.526-1, L.622-7, L.622-13, L.622-21, L.622-23-1, L.622-24, L.622-25, L.622-30, L.624-9, L.624-16, L.626-11, L.626-27, L.626-30, L.631-14, L.632-1, L.641-3, L.641-11-1, L.641-12-1, L.642-7, L.642-12, L.642-18, L.642-20-1, L.643-2
• Civil Code: articles 215, 815-17, 1397, 1413, 1415, 2011 et seq. (trust), 2024, 2025, 2286 (lien), 2314 (suretyship), 2333 et seq. (pledge), 2355 et seq. (pledge), 2372-1 et seq. (movable security trust), 2414, 2488-1 et seq. (immovable security trust).