Subsequent creditors and recourse against third-party guarantors: specific situations

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The complexity of insolvency law does not end with the general rules applicable to claims arising before the opening of the insolvency proceedings. Two other situations merit particular attention and raise important questions for creditors: what happens to claims that arise prior to the opening judgment? after initiation of proceedings ? And what happens to your rights of recourse if your debt was guaranteed not by the debtor himself, but by a third party (a guarantor, a co-borrower, etc.)?

Understanding these specific regimes is essential. The treatment of subsequent claims can offer significant advantages to some creditors, while the scope for action against guarantors is sometimes limited, but often preserved. This article aims to clarify these points to help you better assess your chances of recovery.

The fate of claims arising AFTER the opening judgment

Contrary to popular belief, not all claims arising after the opening of the business are treated in the same way. The law carefully distinguishes between claims deemed "useful" or "deserving", which benefit from preferential treatment, and the others, which fall under the common system of prior debts.

The principle: preferential treatment to encourage business support

It is essential to understand that, while prior claims are subject to strict prohibitions and specific proceduresTo encourage a company's partners (suppliers, bankers, landlords, etc.) to continue to do business with it despite its difficulties, the law introduced what is known as the "procedural privilege (sometimes referred to as the "new money" privilege). This privilege, defined in articles L. 622-17 (in safeguard and reorganisation) and L. 641-13 (in liquidation) of the French Commercial Code, gives preferential treatment to claims that meet strict conditions:

1. They must have been born regularly after the opening judgment (i.e. resulting from acts in accordance with the powers of the debtor or the organs of the proceedings).
2. They must meet a utility criterion :
   • Either be born for procedural requirements or the observation period (or continued activity authorised in liquidation).
   • Either be the consideration for a service provided to the debtor during this period (observation or continued activity).

In practical terms, this mainly involves :

• Supplies of goods or services delivered after the opening judgment and necessary for the continuation of the business.
• Rent for the period of occupancy after the judgment (if the lease is continued).
• Salaries of employees for work carried out after the judgment.
• The fees of legal representatives (agent, administrator, liquidator) and appointed experts.
• Certain legal debts directly linked to the business pursued (for example, certain social security contributions).

The advantages of "preferred" subsequent creditors

If your claim meets these conditions, you benefit from a very advantageous scheme:

• Payment on due date In principle, your debt must be paid normally, on its contractual due date, without waiting for the outcome of the proceedings or any plan. This is a major exception to the prohibition on payment of previous debts.
• Right to sue in the event of non-payment If the debtor (or administrator/liquidator) does not pay you on the due date, you are not subject to a stay of proceedings. You can take legal action to obtain a writ of execution and even take steps to enforce payment (seizures), which previous creditors are not allowed to do.
• Priority of payment (the "privilege") If, despite everything, there are not enough funds available to pay everyone, your "privileged" claim will be paid. before virtually all previous claims, whether secured (mortgage, pledge, etc.) or not. Only a few specific claims take precedence: "super-privileged" wages, legal costs incurred after the judgment, and possibly claims benefiting from the "conciliation privilege" (if an approved conciliation procedure had preceded). The exact ranking may vary slightly depending on whether the procedure is a safeguard/reorganisation or a "conciliation". liquidation by order of the court, where the order of priority of creditors is strictly defined for recovery from realised assets.
• Beware of the obligation to provide information : To retain this priority ranking in the event of a distribution of funds (if you have not been paid on the due date), it is essential that you bring your unpaid debt to the attention of from the administrator (if there is one) or the mandataire judiciaire (or liquidator) within a specific period after the end of the observation period or after the liquidation judgment (articles L. 622-17 IV and L. 641-13 IV). If you fail to provide this information, you will lose your rank priorityeven if the debt remains due and payable on the due date.

What if your subsequent claim is NOT privileged?

What happens to claims that arose after the opening judgment but that do not meet the utility criterion or that arose irregularly (for example, from a contract entered into by the debtor without the required authorisation)?

The law is clear: these claims fall back into the common regime applicable to prior claims. In practical terms, this means that they are subject to :

• Ban on immediate payment (article L. 622-7).
• Stay of individual proceedings (article L. 622-21).
• The obligation to declare claims within the same timeframe and under the same conditions as previous claims (article L. 622-24 paragraph 5).

Their fate is therefore much less favourable than that of subsequent preferential claims.

Can you take action against third-party guarantors and co-obligors?

Often a creditor will have asked the debtor for additional guarantees, in particular the commitment of a third party: a guarantor (personal or bank), a joint and several borrower, an independent guarantor, or even a person who has pledged one of their assets as security (mortgage or pledge on their own property). What happens to these guarantees when the main debtor enters insolvency proceedings?

The principle: the debtor's proceedings do not extinguish the guarantor's undertaking

Before discussing recourse against third-party guarantors, it is important to note that there are also specific arrangements for other categories of secured creditors (such as sellers with retention of title or lessors), whose rights are affected differently by insolvency proceedings. Basic rule: the opening of insolvency proceedings (safeguard, reorganisation or liquidation) in respect of the principal debtor does not automatically release third parties who have acted as guarantors or co-obligors. In principle, the creditor retains the right to take direct action against them to obtain payment, regardless of the main debtor's insolvency proceedings.

BUT: Specific protection for guarantors INDIVIDUALS

However, the legislator has introduced a number of important restrictions designed to protect private persons These protections vary depending on the procedure: the company is protected from the risk of being forced to sell its shares to a third party, and from the risk of being forced to sell its shares to a third party, and from the risk of being forced to sell its shares to a third party. These protections vary depending on the procedure:

• Sauvegarde and Redressement Judiciaire (during the observation period) :
  • Stay of proceedings The creditor may NOT initiate or pursue any action for payment against the individual guarantor, the autonomous individual guarantor or the individual who has given a personal asset as security. This paralysis lasts throughout the observation period, until the judgment adopting the plan or declaring the liquidation (article L. 622-28 paragraph 2). Corporate guarantors do not benefit from this suspension.
  • Benefit from plan deadlines and postponements (in Safeguard ONLY) Article L. 626-11: If a safeguard plan is adopted, individual guarantors may take advantage of any payment deadlines and debt write-offs granted to the principal debtor under this plan. This rule does NOT apply in the event of a reorganisation plan.
  • Benefit of interest suspension (in Backup mode ONLY) Article L. 622-28 paragraph 1: Again in safeguard proceedings, natural person guarantors also benefit from the suspension of interest (for the claims concerned by this rule, see previous article) in the same way as the principal debtor. This is not the case in reorganisation.

Situation in judicial liquidation

In the event of the liquidation of the principal debtor, the specific protection afforded to individual guarantors disappears:

• No stay of proceedings The creditor may take action against all guarantors, whether natural or legal persons, as soon as the liquidation judgment is issued (or on expiry of the observation period if this has preceded).
• No benefit from interest rate suspension for guarantors.
• Consequences of failure to declare against the principal debtor An important point has changed since 2005. Previously, if the creditor forgot to declare his claim against the principal debtor, the claim was extinguished, which released the guarantor. Today, failure to declare a claim merely renders it "unenforceable" against the debtor. Jurisprudence considers that this is a personal exception for the debtor, that the guarantor is not obliged to declare. can no longer invoke to refuse to pay. The creditor can therefore sue the guarantor even if he has "forgotten" to declare his claim in the principal debtor's proceedings.

The special case of partners liable for company debts (SCI, SNC, etc.)

In companies where the partners are indefinitely liable for debts (such as civil partnerships or general partnerships), the company's creditors may, after attempting to obtain payment from the company itself (a simple formal notice is often sufficient if the company is in receivership), turn against the partners personally.

Their exact status in relation to protective measures (are they comparable to guarantors or co-obligated persons?) is debated and the case law is complex. It is best to consult an expert on this precise point.

Direct action: a specific means of recovery

In certain situations clearly defined by law, a creditor has the right to direct action against the debtor of its own debtor. The best-known cases are :

• The subcontractor unpaid by the main contractor, directly against the client (end customer) for the sums that the latter still owes to the contractor (Subcontracting Act 1975).
• The action of the victim of an injury directly against the liability insurer of the person responsible (Insurance Code).

The major advantage of direct action is that it is completely exempt from the rules of collective proceedings of the intermediate debtor. The creditor can exercise this right without being subject to a stay of proceedings and without having to declare his claim in the collective proceedings of his direct debtor. It is a preferred means of recovery when it is available.

The treatment of subsequent claims and recourse against third-party guarantors reveals the increasing complexity and technicality of insolvency law. The rules vary considerably depending on the nature of the claim, the status of the guarantor and the type of proceedings opened. To navigate these complexities and determine the most effective strategy for recovering your debts, the analysis and advice of a legal professional are often essential. Our firm is at your disposal to study your case and help you to an in-depth analysis and a tailored recovery strategyWhether you are a subsequent creditor or are seeking to exercise your rights of recourse against third-party guarantors of a company in difficulty.

Sources

• Commercial Code, in particular articles L. 611-11, L. 622-17, L. 622-21, L. 622-24, L. 622-28, L. 626-11, L. 631-14, L. 641-13, L. 650-1.
• Law no. 75-1334 of 31 December 1975 on subcontracting.
• Insurance Code (for direct liability claims).

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