Written commercial agreement

Significant imbalance

Sudden termination of established relationships

Competition investigation – French law

Civil competition action

French competition law

Competition investigation – European law

European competition law

Vertical restraints

Distribution law

Liability for defective products

Consumer law

Prohibition of measures having equivalent effect

European business law

Corruption

Compliance

Economic law

Shareholders' agreements

Removal of company directors

Abuse of voting rights

Companies

Action for infringement (counterfeiting)

Rights conferred by the trademark

Patentability

Industrial property

Commercial rent review

Renewal of the commercial lease

Despecialization (change of use)

Commercial leases

Reform of contract law

Reform of the law of special contracts

Preliminary sales agreement

Obligation to deliver goods in conformity

Classification of the contract for services (contrat d'entreprise)

Effects of the agency agreement with respect to third parties

Business contracts

Ongoing contracts

Recovery claims

Court-approved transfer plan

Bankruptcy proceedings

Personal data breaches

White collar crime

Commercial law

500 Questions - Business Law

Pursuant to Articles L. 622-13, III, 2°, L. 631-14, and L. 641-11-1, III, 2° of the Commercial Code, in the absence of the contracting party's agreement to continue contractual relations, the contract is automatically terminated if the debtor or the administrator does not pay the amount of money owed to them under the continuation of the contract.

In matters of insurance contracts, these provisio …

Wha penalties are applicable for non-performance of an ongoing contract?

Articles L. 622-13, L. 631-14, and L. 641-11-1 of the Commercial Code define the regime for the continuation of ongoing contracts. To fall under this regime, a contractual situation is required. Thus, insofar as it falls under a mandatory legal status, affiliation with a health or maternity insurance scheme or a pension scheme does not fall under the rules applicable to ongoing contracts . Conversely, if they do not arise from a mandatory legal status, they fall under these rules:

the relationships between a provident institution and the member undertaking ;

membership in an association to provide a substitute income to a company executive .

Furthermore, the arbitration agreement, independent of the contract to which it relates, and whose purpose is not to create, modify, transfer, or extinguish the obligations arising from the contract, does not constitute an ongoing contract, the performance of which may or may not be required by the administrator.

Then, only contracts that are being performed on the day of the commencement judgment fall under Articles L. 622-13, L. 631-14, and L. 641-11-1 of the Commercial Code.

Contracts for successive performance naturally constitute ongoing contracts because they continue to produce effects after the opening judgment .

The classification proves more complex for contracts concluded instantly but whose performance is deferred over time. The contract may be considered as ongoing when the debtor remains the creditor of the characteristic performance on the day of the opening judgment because the contract has not yet been performed, is ongoing, or has not yet been rescinded on that date .

the promise of sale whose suspensive condition is pending at the time of the opening of the insolvency proceedings ;

the unilateral promise to purchase for which the option was exercised after the opening judgment ;

a sales contract, if the transfer of ownership in favor of the debtor, which constitutes the characteristic performance, has not been completed on the day of the commencement judgment .

Conversely, a loan agreement does not constitute an ongoing contract when it is granted by a credit professional before the opening of the proceedings. Indeed, the loan granted by a credit professional is not a real contract that requires the delivery of a thing, but a consensual contract.

Finally, contracts whose effects have not been exhausted before the commencement of insolvency proceedings fall under the regime of ongoing contracts, whether or not they are useful for the continuation of the debtor's activity.

Indeed, no text makes a distinction between contracts necessary for the continuation of the activity and others, although some trial courts may have been particularly sensitive to the usefulness of the contracts in question .

Advice: Keep in mind that a leasing agreement (crédit-bail) remains primarily a loan. Therefore, the classification of an ongoing leasing agreement does not depend on the date of exercising the purchase option at the end of the lease, but, as with loans, on the date of its conclusion.

The affiliation of a lawyer to the Caisse nationale des barreaux français, imposed by the Social Security Code, does not confer upon the latter the status of a contracting party of the debtor, subject to the regime of continuation of ongoing contracts.

Cass. com., 19 December 2018, LawLex202100003288JBJ.

The relations between a provident institution and the affiliated undertaking are, in the event of insolvency proceedings of the latter, subject to the general regime of ongoing contracts.

Cass. com., 28 June 2011, LawLex202100003289JBJ.

The membership in an association by the debtor company, prior to the judgment opening the judicial reorganization, with the aim of ensuring a substitute income for a manager of the undertaking, by the debtor company prior to the judgment opening the judicial reorganization, constitutes an ongoing contract that the administrator may require to continue.

Cass. com., 19 May 2004, LawLex202100003286JBJ.

The telephone subscription contract entered into by the debtor prior to the commencement judgment constitutes an ongoing contract.

CA Pau, 14 January 2008, LawLex202200001284JBJ.

A contract in progress is one that has not exhausted its effects on the date of the opening judgment.

Cass. com., 20 September 2017, LawLex202100002278JBJ

The contract, the termination of which was notified to the debtor the day after the opening of its judicial reorganization proceedings, constitutes an ongoing contract that the supervising judge may decide to continue.

Cass. com., 16 June 2004, LawLex202100002779JBJ.

As soon as a promise of sale under a suspensive condition constitutes an ongoing contract at the time of the opening of the simplified reorganization proceedings of the debtor, the non-fulfillment of this condition by the latter can only give rise to a claim for damages to be declared as a liability.

Cass. com., 11 May 1999, LawLex202100002297JBJ.

The unilateral promise to purchase shares subscribed by a debtor before the judgment opening their judicial reorganization constitutes an ongoing contract when the option is exercised subsequently.

Cass. com., 3 May 2011, LawLex202100001505JBJ.

A real estate sale contract constitutes an ongoing contract at the opening of insolvency proceedings when, on that date, part of the price remains unpaid, while one of its clauses conditions the transfer of ownership on full payment of the price.

Cass. com., 1 February 2000, LawLex202100003302JBJ.

The telephone subscription contract entered into by the debtor prior to the commencement order constitutes a contract whose continuation is essential for the pursuit of commercial activity during the observation period and contributes to the preservation of its production capacities with a view to developing a recovery plan through transfer.

CA Pau, 14 January 2008, previously cited.

What is an ongoing contract?

The courts have questioned the classification of “ongoing contracts” concerning contracts concluded in consideration of the person. The Court of Cassation has ultimately admitted that contracts concluded intuitu personae may be subject to the regime of ongoing contracts. This jurisprudential development is based on a functional approach to the concept of ongoing contracts, favoring the continuation of an uninterrupted contractual relationship before the commencement of insolvency proceedings. It is thus:

of a current account agreement with a discount ceiling and an overdraft authorization, even concluded intuitu personae, as long as this agreement has not been closed before the opening judgment, which justifies its inclusion in the scope of ongoing contracts 

mandate contracts of Article 2003 of the Civil Code concluded intuitu personae and not executed before the commencement judgment .

The current account not closed before the commencement judgment constitutes an ongoing contract, so the commencement or pronouncement of a judicial liquidation does not result in the closure of the debtor's current account and, consequently, the guarantor's guarantee.

Cass. com., 11 September 2024, LawLex202400006114JBJ.

A mandate contract for the search for an agricultural domain to acquire, concluded but not executed before the  judicial receivership ruling, constitutes an ongoing contract.

Cass. com., 28 June 2017, LawLex202100001118JBJ.

Do contracts concluded intuitu personae escape the regulation of ongoing contracts?

If Articles L. 622-13, III, L. 631-14, I, and L. 641-11-1, III of the Commercial Code provide that the ongoing contract is automatically terminated after a formal notice to decide on the continuation of the contract sent by the co-contractor to the administrator or court-supervided liquidator and remaining unanswered for more than one month, it does not necessarily follow that a formal notice to take a position on the contract is always required .

Indeed, an ongoing contract can be continued without the co-contractor having sent a formal notice to the administrator (or failing that, to the liquidator in the case of court-supervided liquidation) to decide on its continuation. In the absence of a formal notice, the contract is not automatically terminated, even if the administrator or liquidator takes no action. The contract can continue after the opening judgment, without it being necessary for the bodies of the insolvency proceedings to request continuation, nor for the administrator or liquidator to perform the contract, in the absence of an express or tacit option on their part.

The administrator or trustee who has not been formally notified by the debtor's contracting party may expressly  or tacitly decide on the continuation of the contract.

Characterizes an implied option for the continuation of the current contract:

the fact of continuing to use, within the framework of the plan, the service offered by the provider;

the authorization given to the debtor, after the opening of the insolvency proceedings, to pay rent due under a lease agreement;

the failure to hand over the keys of the rented premises to the lessor ;

the enforcement of the deposit of rents collected by the notary .

Advice: Although it is not mandatory, formal notice to take a position is highly recommended to the contracting party, so that they do not remain uncertain about the fate of the contract. This ensures they are informed within a maximum period of two months (in case of a one-month extension of the response period) about the continuation or termination of the contractual relationship.

A contract in effect on the day of the commencement of judicial reorganization may be continued without the contracting party having sent the administrator a formal notice to decide on its continuation.

Cass. com., 20 June 2000, LawLex202100005161JBJ.

The request for an extension of time to decide on the continuation of a contract demonstrates the liquidator's intention to pursue it, even if they were never formally required to choose and if the extension orders from the supervising judge were subsequently annulled.

Cass. com., 19 October 1993, LawLex202100005136JBJ.

A claim for rent is valid, even if it arises from a lease contract tacitly continued by the administrator, in the absence of a formal notice to choose, due to the non-return of keys to the lessor.

Cass. com., 2 April 1996, LawLex202200001220JBJ.

The liquidator's intention to continue the lease contract in effect at the commencement of the court-supervised liquidation proceedings can be inferred from their request to the notary, who collected the rents, to send them the account, and from their enforcement against its consignment.

Cass. com., 29 April 2002, LawLex202100002518JBJ.

Is a formal notice to take a position on the contract always necessary?

Articles L. 622-13, I, L. 631-14, and L. 641-11-1, I of the Commercial Code render unenforceable against insolvency proceedings any legal provisions by which indivisibility, termination, or rescission could result solely from the initiation of safeguard, reorganization, or liquidation proceedings. Consequently, termination clauses based on the debtor's cessation of payments or the initiation of insolvency proceedings are directly prohibited . This protection reflects the legislator's intent to prevent an ordinary contracting party from challenging the continuation of contractual relationships beneficial to the debtor's recovery solely through a contractual stipulation.

The prohibition also extends to indirect terminations, such as those provided by a loan contract clause that allows the bank to seize funds in the borrower's accounts, even when no installment is overdue or claim is due, or to tacit terminations, which would result solely from the observation of contractual breaches before the commencement order, while the contracting party has neither exercised its right to terminate nor required the administrator to decide on its continuation.

This prohibition does not, however, prevent the application of special termination regimes provided for by specific texts, notably the derogation provided for in Article L. 211-40, para. 1, of the Monetary and Financial Code . These regimes are justified by the imperatives of legal certainty and stability of the financial system, thus meeting an objective of general interest.

Advice: The rule of the impossibility of enforcing a termination clause solely due to the opening of insolvency proceedings benefits only the debtor. Therefore, nothing prevents a contracting party from notifying the termination of the contract to the co-obligor or co-insured in order to obtain the restitution of sums paid in execution of this contract.

The clause whereby each party may terminate the contract by simple letter in the event of the opening of insolvency proceedings against its co-contractor is deemed unwritten, so that neither party can rely on it.

CA Paris, 14 September 2006, LawLex202200001252JBJ.

The difference in treatment between an ordinary creditor, who cannot terminate the contract solely due to the initiation of insolvency proceedings and may be required by the administrator to continue it, and the bank, holder of a contract constituting a financial instruments operation, which can, under the rules of the Monetary and Financial Code, terminate said contract at any time, is justified by an imperative of legal certainty and stability of the financial system, and serves a general interest directly related to the purpose of the common rules applicable to financial instruments operations.

Cass. com., 6 March 2024, LawLex202400002037JBJ.

Can the contracting party enforce a termination clause as of right?

The body that decides on the continuation of an ongoing contract assumes three main obligations.

First, the performance of ongoing contracts can be required only if it he is able to provide the promised service to the debtor's co-contractor.

The promised service includes, in particular:

of the payment of amounts due at their maturity ;

of all necessary repairs under the continued lease agreement ;

of the cessation of the debtor's contractual non-performance .

Then, the administrator or the legal representative must ensure that they will have the necessary funds to ensure payment resulting from the request for contract enforcement .

In matters of reorganization and liquidation, when the service involves the payment of a sum of money, it must be made in cash, except for the administrator or liquidator to obtain acceptance of payment deadlines by the debtor's contracting party.

If it is a contract with performance or payment staggered over time, the administrator (or, failing that, the judicial liquidator in the event of liquidation proceedings) terminates it if it appears that they will not have the necessary funds to fulfill the obligations of the next term.

Finally, the ongoing contract must continue under the initially agreed conditions.

The mere initiation of the procedure cannot justify the modification of the contract terms. The administrator must therefore comply with:

Advice: Do not hesitate to bring a liability action against a board member who has insisted on continuing the contract without having sufficient cash on hand to guarantee the payments resulting from its performance. In effect, case law holds that in such a scenario, the board member commits himself or herself to personal liability toward the other party to the contract, pursuant to Article 1240 of the Civil Code. It should be kept in mind, however, that this liability is assessed as of the date on which the director demanded performance of the contract, based on the information available to him at that time, and not in light of subsequent events.

The administrator cannot require the repetition by authentic deed of a transfer agreement in progress if they do not pay the co-contractor the price of the shares in question.

Cass. com., 22 October 1996, LawLex202100002292JBJ.

When the lease contract continued after the judgment opening the insolvency proceedings, the lessor or the liquidator representing them must, throughout the duration of the current lease, carry out all necessary repairs other than those related to the tenancy.

The opening of a judicial reorganization procedure against a project owner who has neither provided a financial guarantee to their contractor nor paid their invoices does not oblige the latter to resume work that was suspended before the opening judgment if the administrator and the debtor do not take the necessary steps to obtain the said guarantee.

Cass. com., 10 October 2018, LawLex202100002311JBJ.

Cass. com., 13 October 1998, LawLex202200001449JBJ.

Funds that were handed over to the judicial representative solely due to the lapse of the distribution procedure underway at the commencement of the judicial reorganization procedure are not intended to finance the continuation of activity and can only be used for distribution purposes, either within the framework of the plan that will be established or, in the event of conversion, for the operations of the judicial liquidation.

Cass. com., 17 November 2015, LawLex202100005090JBJ.

The request by the administrator to modify the payment terms is antithetical to the continuation of the contract.

Cass. com., 17 February 1998, LawLex202100005061JBJ.

The liquidator who has exercised the option to continue the performance of the contract in progress at the commencement of the judicial liquidation proceedings, with all the rights and obligations attached thereto, cannot refuse the application of the arbitration clause it contains.

Cass. 1re civ., 1 April 2015, LawLex202100003247JBJ.

The tacit renewal of a practice contract between a practitioner and a clinic under reorganization, terminated by the judicial administrator, requires the latter to comply with the same termination conditions as those provided in the initial agreement, at the risk of having the debtor ordered to pay compensation.

Cass. com., 11 April 2012, LawLex202100003306JBJ.

Once a recovery plan has been adopted, ongoing contracts continue in accordance with the rules applicable to them. The lessor may, during the execution of this plan, exercise their right to refuse the renewal of the agricultural lease granted to the debtor when the latter has reached retirement age.

Cass. com., 19 May 2015, LawLex202100003250JBJ.

What obligations does an administrator or liquidator have when continuing an existing contract?

Pursuant to Articles L. 622-13, III, 2°, L. 631-14, and L. 641-11-1, III, 2° of the Commercial Code, in the absence of the contracting party's agreement to continue contractual relations, the contract is automatically terminated if the debtor or the administrator does not pay the amount of money owed to them under the continuation of the contract.

In matters of insurance contracts, these provisions must be combined with those of Article L. 113-3 of the Insurance Code, which exclude any termination in the absence of a formal notice to pay unpaid premiums.

Finally, for safeguard and recovery procedures, pursuant to Article L. 622-13, III, 2°, in the event of automatic termination of an ongoing contract due to non-payment by the contracting party, the public prosecutor, the administrator, the judicial representative, or a controller may petition the court to end the observation period.

Advice: Do not forget that even if the termination takes effect automatically, it is still necessary to refer the matter to the supervising judge to have it officially recorded.

A contract which is not continued is automatically terminated if the non-continuation results from the administrator's or liquidator's failure to respond to a formal notice to exercise the option for continuation, or terminated at the express request of these bodies if certain conditions are met.

Termination occurs automatically after a formal notice to decide on the continuation of the contract, sent by the co-contractor to the administrator or liquidator and remaining unanswered for more than one month. Case law equates the lack of response with the express refusal of the administrator, expressed within the one-month period, to continue the contract . The automatic termination of an ongoing contract results in the nullity of concurrent and interdependent contracts . Although “automatic,” the termination is only effective if confirmed by the supervising judge . However, confirmation of the contract termination by the supervising judge is not required when it results from an express position taken by the administrator in a letter sent to the co-contractor.

The termination of the contract may also be pronounced by the supervising judge, at the request of the administrator or the liquidator, provided that two cumulative conditions are met:

termination must be necessary for safeguarding, reorganization, or liquidation ;

termination must not excessively harm the interests of the contracting party .

In the absence of the appointment of a judicial administrator, Article L. 627-2 of the Commercial Code grants the debtor the ability to request the termination of the lease alone. Case law has extended this ability to other contracts .

The express refusal of the judicial administrator to continue an ongoing contract results in its automatic termination on the date the co-contractor receives this refusal, without the need for the latter to have it confirmed by the supervising judge.

Cass. com., 18 March 2003, LawLex202100001151JBJ.

The automatic termination of a maintenance contract for equipment, resulting from the express waiver by the liquidator who has been formally requested to exercise their option right, leads to the nullity of the financial lease contract concerning the same equipment, as long as they are concurrent and interdependent, without the need to prove an impossibility of use.

Cass. com., 20 October 2021, LawLex202100005998JBJ.

An assignee cannot claim that the leasing contract concluded by the debtor whose undertaking it has taken over was automatically terminated due to non-payment of installments during the observation period if it has not submitted a request to the supervising judge to have this termination recognized.

Cass. com., 20 September 2017, LawLex202100003303JBJ.

The intention of the judicial administrator to achieve a better financial operation for their client compared to the one initially undertaken before benefiting from a safeguard measure does not constitute a necessity that would justify the termination of a sales agreement.

Paris, 22 September 2011, LawLex202100005170JBJ.

The supervising judge cannot pronounce the rescission of a sales agreement when it excessively harms the interests of the contracting party, deprived of the benefit of the sale.

CA Paris, 22 September 2011, previously cited.

In the absence of an administrator, the debtor placed under safeguard proceedings may request the supervising judge to order the termination of an ongoing supply contract, provided that it allows the debtor to reduce costs and does not excessively harm the creditor's interests.

CA Poitiers, 7 May 2019, LawLex202100005085JBJ.

What happens to a non-ongoing contract?

If the administrator or liquidator does not exercise the option to continue the contract or terminates it, or if the contract is terminated, non-performance may give rise to damages in favor of the co-contracting party, the amount of which must be reported as a liability.

The automatic termination resulting from the administrator's silence for one month following a formal notice to decide on the continuation of a contract grants the co-contractor the same advantage, provided, however, that a clause in the contract expressly provides for compensation in the event of early termination .

In the absence of formal notice, the administrator's waiver to pursue an ongoing contract does not result in the automatic termination of the agreement at their initiative but grants the sole co-contractor the right to have it judicially declared and to file their claim for termination indemnity in the liabilities of the insolvency proceedings. Furthermore, the termination of the contract, although it may be necessary due to the debtor's safeguard requirements, does not preclude the creation of additional liabilities in favor of the co-contractor for the non-continuation of the contract .

Advice: Be mindful of the deadline for filing the claim for compensation. The claim must be filed within one month of the date of termination by operation of law, or of the notification of the decision declaring the termination.

Claims for termination indemnities declared by a bank, linked to the debtor by a finance lease contract not continued by the administrator, cannot be admitted since the clause stipulating them does not provide for the non-continuation of the contract.

Cass. com., 15 May 2019, LawLex202100002315JBJ.

The termination of an ongoing franchise agreement within the framework of a safeguard procedure is justified with regard to the requirements of Article L. 622-12 of the Commercial Code when it is established that the change of brand is likely to ensure the survival of the franchised company by enabling a return to profitability and it is not demonstrated that this would result in excessive harm to the financial interests of the franchisor, who has a substantial network of franchisees.

CA Lyon, 3rd ch. A, 19 September 2024, LawLex202400006802JBJ.

Can the co-contractor request compensation for the non-continuation of the contract?

The regime of lease agreements in effect on the day of the ruling opening the safeguard, reorganization, or liquidation procedure falls under the special provisions of Articles L. 622-14, L. 631-14, and L. 641-12 of the Commercial Code. These texts expressly refer to buildings leased to the debtor and used for the activity of the undertaking.

Like ordinary law contracts, these contracts may be terminated in the event of a decision not to continue the contract by the administrator or liquidator, but they may also be terminated in the presence of a rescission clause, or, in the absence of such a clause, upon an express request by the lessor for non-payment of rent.

Indeed, the provisions applicable to the current lease contract combine with the texts of the Commercial Code relating to commercial leases, and in particular Article L. 145-41 of the Commercial Code, according to which any clause inserted in the lease that provides for automatic termination only takes effect one month after an unsuccessful demand. The demand must, under penalty of nullity, mention this period and refer to the termination clause. Therefore, a lease contract is automatically terminated if the rents due after the opening of the debtor's insolvency proceedings have not been paid within the one-month period following the demand for payment sent to the court-appointed representative (mandataire de justice).

The court-appointed representative may, however, request payment extensions and the suspension of the effects of the termination clause, as long as the termination of the lease has not been confirmed by a final decision.

The termination of the commercial lease may also occur at the request of the lessor based on the tenant's failure to pay rent and charges related to occupancy after the opening judgment. The Commercial Chamber of the Court of Cassation consistently holds that, when not based on a termination clause, the lessor of premises used for the activity of the debtor company is not required to issue a demand for payment .

Article L. 641-12, 2° of the Commercial Code, specific to the judicial liquidation procedure, also allows the lessor to request the judicial termination of the lease for causes prior to the judgment of judicial liquidation or, when the latter has been pronounced after a safeguard or reorganization procedure, to the judgment opening the preceding procedure.

Finally, the lack of response from the judicial administrator to a formal notice to decide on the continuation of the lease, sent by the lessor of a building used for the undertaking's activity, does not result in the automatic termination of the lease, as the provisions of Articles L. 622-13 and L. 641-11-1 do not apply to the commercial lease.

Advice: Do not act in haste. A lessor can only proceed with the termination or acknowledgment of the termination of the lease after a period of three months from the date of the opening judgment. This period is not a limitation period but the starting point for their action for termination: the action must be taken after the three-month period and not within it. If payment of the amounts due occurs before the expiration of this period, there is no need for termination.

The lessor of the premises used for the activity of the debtor company is not required to issue a formal demand for payment when not relying on a termination clause but instead requests the rescission of the lease for non-payment of rent and charges related to an occupation subsequent to the judgment of judicial liquidation of the lessee.

Cass. com., 9 October 2019, LawLex202100003349JBJ.

The lessor who requests the termination of the lease for non-payment of rent and charges related to an occupation after the opening judgment, without claiming the benefit of a termination clause, is not required to issue a payment order to the liquidator.

Cass. com., 15 January 2020, LawLex202200000401JBJ

500 Questions - Business Law

473. Wha penalties are applicable for non-performance of an ongoing contract?

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Les notions juridiques connexes

473. Wha penalties are applicable for non-performance of an ongoing contract?

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Les notions juridiques connexes

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