Request for opening mandatory liquidation proceedings
The Procedures guide allows entrepreneurs and decision-makers to have a reliable, precise and up to date overview of legal procedures and measures concerning commercial formalities to be undertaken. It is broken down into 6 sections in which you can find information and documentation required for formalities with Registry Offices at the Commercial Courts.
Request for opening mandatory liquidation proceedings
Mandatory liquidation is pronounced:
- when, on the one hand, a company has ceased payments (namely, in the absence of credit reserves or moratoriums granted by creditors, available assets no longer meeting required liabilities); the court establishes payment cessation after having solicited comments from the debtor (Articles L. 631-8 and L. 641-1 IV of the Commercial Code);
- when, on the other hand, recovery is clearly impossible.
Mandatory liquidation is destined by end the business activity of the company or to establish business assets of the debtor by global or separate transfer of its rights and property (Art. L. 640-1 al. 2 Com. C.).
The court may hear a request for the opening of mandatory liquidation proceedings either:
- by the debtor (declaration to the court clerk; Art. L. 640-4 and R. 640-1 Com. C.) or by an heir of an individual debtor (with delay; Art. L. 640-3 al. 2 Com. C.), or
- by a creditor (assignment); if applicable: at the latest, within a period of one year from the date of death (Art. L. 640-3 al. 2 Com. C.) or from the date of removal from the Trade and Companies Register (RCS) or cessation of the business activity, if such relates to a person conducting an artisanal or independent professional business activity (Art. L. 640-5, R. 640-1 and R. 631-2 Com. C.) ; the creditor may also summon the court for the purpose of resolution of a plan and on pronouncement of mandatory liquidation (Art. L. 631-20, L.626-27 II, L. 626-9; L. 631-19 al. 1, R. 626-48 al. 1 and R. 631-35 al. 1 and 3 of Com. C.) either
- by a public minister (on its request) under several scenarios (especially: Art. L. 640-3 al. 2, R. 631-5 and R. 640-1 Com. C., or Art. L. 631-20-1, L? 626-27 II, L. 626-9, L. 631-19 I al. 1, R. 626-48 al. 1, R. 631-35 al. 1 and 3, R. 631-4 Com. C.), or
- by the auditor for execution of the plan, towards its resolution and of pronounced mandatory liquidation (Art. L. 631-20-1, L. 626-27 II, L. 626-9, L. 631-19 I al. 1, R. 626-48 al. 1, R. 631-35 al. and 3 Com. C.).
The court designates the participants in the proceeding.
The supervisory judge (Art. L. 641-1 II Com. C., the general role of which is set forth in Art. L. 621-9 al. and L. 641-11 al. 1 of the Commercial Code, is to ensure swift progress of the procedure and is for the protection of the interests present. The court rules on the report of the supervisory judge with respect to everything raised during the proceeding, except for appeal of the order rendered (Art. R. 662-12 Com. C.). It is possible to designate several supervisory judges, as well as a supplemental supervisory judge exercising the functions of the supervisory judge which are momentarily prevented (Art. R. 621-10 and 641-1 Com. C.).
The liquidator (possibility of designation of several upon the request of the public minister or office; Art. L. 641-1 II al. 2 Com. C.). Such proceeds with the liquidation transactions (undertaking of assets distribution among creditors, according to their seniority) at the same time as verifying indebtedness. She/he assumes the rights and actions of the debtor relating to business assets.
In the event of maintenance of the business activity as authorised by the court during mandatory liquidation, the latter shall designate a judicial administrator, should such be needed or if the company equals or exceeds two of the following thresholds: 3 million euros of turnover, before tax, or 20 employees on the date of request for opening a procedure. When named, she/he administers the company and exercises the rights conferred on the liquidator by Articles L. 641-1 and L. 641-12 of the Commercial Code. He prepares the transfer plan and passes the acts necessary to its realisation. She may proceed with lay-offs (Art. L. 641-10, L. 641-10 al. 5, R. 641-19 and R. 621-11 Com. C.) .
An employee representative (who, in the absence of a Works' Council or employee delegate, exercises the appeal options open to such institutions as well as the functions reserved to these institutions, Art. L. 641-1 II al. 4 Com. C.).
The person authorised to conduct the inventory and estimate the assets of the debtor (Art. L. 622-6 and L. 641-1 II al. 6 Com. C.).
If applicable, the court may name one or several experts for an assignment which it determines (Art. L. 641-1 II al. 2 Com. C.).
The procedure ends by a closing for insufficient assets or a closing due to extinguishment of liabilities (payment of all creditors): Art. L. 643-9 through L. 643-13 and R. 643-16 through R. 643-24 C. Com.
The closing judgement for insufficiency of assets does not recover to the creditors the individual exercise of their holdings against the debtor, with certain exceptions (Art. L. 643-11 and R. 643-20 Com. C.).
The conditions for closing for insufficient assets (Art. L. 643-9 Com. C.) were relaxed by Order No. 2014-326 of 12 March 2014; the court may thus pronounce:
- when the interest in pursing the mandatory liquidation transactions is disproportionate as compared to the difficulty in realisation of residual assets, and,
- even in the event of a pending proceeding, by designating an authorised representative responsible for following its progress and to distribute, as applicable, the amounts collected.
After closing, it is possible, under certain instances, to order a resumption of the procedure (Art. L. 643-13 and R. 643-24 Com. C.).
The mandatory liquidation procedure may be simplified if the debtor owns no real estate assets; and also if annual turnover, before tax, does not exceed 300,000 euros and, if, during the last six months, the staff is limited to one employee.
The court may in its discretion opt for a simplified procedure if the turnover, before tax, is less than 750,000 euros and if the number of employees does not exceed 5.
The provisions of the above-cited order of 12 March 2014 had as its purpose to lighten this procedure by reducing its duration to six months when it is mandatory and in simplifying measures relating to the inventory, realisation of assets and the filing of a distribution project, which can nevertheless be the subject of a single filing with the court clerk (Art. L. 644-5 Com. C.).
Article R. 644-2 of the Commercial Code specifies that when the state of indebtedness is only the subject of a filing with the court clerk, the amounts to be distributed only allow for payment of the creditors referenced in Art. L. 641-13 Com. C., the liquidator notifies the creditors referenced in II of such article of the state by certified letter or email for indebtedness declared by this method.
The last paragraph of Art. R. 644-2 Com. C. indicates ,however, that the claim period for distribution contained in the state of indebtedness runs from the notice of publication or, if applicable, from notice from the liquidator.
And the last paragraph of Article R. 644-4 of the Commercial Code is replaced by two planning paragraphs for the court clerk to communicate to the debtor and the liquidator the court's decision contemplating to no longer apply the rules of simplified mandatory liquidation. It returns to the liquidator to transmit it to the public ministry.