All of French Company Law: ordinary law of companies and specific regime for different types of companies

Company Law (en cours)

The theory of confusion of assets allows the extension of insolvency proceedings to the entire group when one of the companies within it is affected, in order to protect creditors .

If the confusion of assets between two companies can result from the partial execution of various contracts creating a generalized disorder of accounts and an inextricable intermingling between them , it is characterized, in most situations, by the observation of the existence of abnormal financial relations between companies within the same group . This is the case when there is an economically, financially, and accounting unjustified operation, without the need to establish that the assets and liabilities of the different companies involved are inextricably and permanently intermingled . Abnormal financial flows are also characterized by recurring payments to a holding company, in the absence of a cash management agreement and the presentation of regular accounting by the subsidiary . The confusion of assets of companies within a group can also be established when two of them were created at the time of the worsening difficulties of the first ones, solely to isolate the assets constituted by the signing of new contracts, where the turnover of some was almost exclusively achieved thanks to the work entrusted by the others, whose services were invoiced at cost price, and finally, when all are controlled by the same partners, of which they constitute the real estate assets .

However, the fact that two companies have the same manager as well as shared administrative and accounting services, and that there is an "interlocking" between them, does not necessarily indicate the existence of a confusion of their assets . The identity of managers of two companies, one holding 98% of the capital of the other, and payments made without consideration do not, in the absence of proof of a systematic intent and that the subsidiary is "stripped of its assets" for the benefit of the parent company, constitute sufficient elements to characterize the confusion of their assets, as long as the financial movements in question have been identified in accounting . Furthermore, the existence of abnormal financial relations does not necessarily result from the conclusion of cash and foreign exchange management agreements, personnel exchanges, and advances of funds by the parent company to its subsidiary . Similarly, the fact that a company sells a real estate complex to another, with the price paid by offsetting with the debt of its partner in respect of its current account, so that with regard to the buyer, the sale has a consideration, does not constitute an abnormal financial relationship that characterizes a confusion of assets . Finally, the de facto management by a parent company of its subsidiary, the reduction of a debt owed to the latter, the non-payment of invoices, and the irregularity of accounting operations, which do not reveal a true interlocking of the assets and liabilities of their assets and do not prevent tracing the operations that occurred between them and reconstructing their respective assets, are inadequate to characterize a confusion of the assets of these companies .

Cass. com., 24 October 1995, LawLex202100002776JBJ.

CA Amiens, 23 October 2008, LawLex202200010186JBJ.

Paris, 1 March 2011, LawLex202100004054JBJ, establishing that in the absence of intermingling of the parent company's accounts with those of its subsidiaries or abnormal financial relations between the parties involved, which could result from one bearing the expenses of the others, collecting invoices belonging to the others, or receiving sums without consideration, the confusion of their assets is not established.

Cass. com., 16 January 2019, LawLex202100002094JBJ; 16 June 2015, adding that to characterize abnormal financial relations constituting a confusion of assets, it is not necessary to determine whether these have increased, to the detriment of its creditors, the liabilities of the debtor subject to the insolvency proceedings whose extension is requested.

Paris, 7 September 2021, LawLex202100005672JBJ; Rouen, 2 June 2022, considering that the existence of reciprocal financial flows between a parent company and its subsidiary, in respect of management fees lacking the support of an agreement, characterizes a confusion of their assets.

Cass. com., 9 May 1995, LawLex202200007766JBJ.

Cass. com., 7 January 1981, LawLex202200007759JBJ; Reims, 1 April 2014, LawLex202100006027JBJ, holding that two companies within a group that have a real existence, their own accounting, and distinct activities, even if they are closely linked and share the same manager and interests, have respective assets that form two distinct masses and are not confused.

Cass. com., 2 May 2007, LawLex202100004059JBJ.

Cass. com., 19 April 2005, LawLex202100002102JBJ; 16 December 2014, LawLex202100002095JBJ, specifying that in a group of companies, a cash management agreement, common activities, financial contributions for the benefit of the parent company, and the submission of a conciliation request at the group level do not necessarily demonstrate the commingling of the companies' assets or the fictitious nature of some of them, which alone could justify the existence, by extension, of a single collective procedure; Versailles, 2 April 2002, LawLex202200009470JBJ indicating that cash advances made from the parent company to its subsidiary, when they have neither disrupted the balance between them, already placed in a relationship of mutual dependence by the composition of their capital, nor exceeded their financial capabilities, do not constitute fund movements likely to establish an intermingling of the assets and liabilities of the two companies and to demonstrate a commingling of their assets.

Cass. com., 29 May 2019, LawLex202100003922JBJ.

Interlocking between companies

DELEBECQUE, Corporate groups and insolvency proceedings, confusion of assets and liability of group members, Rev. proc. coll. 1998, 2, 129; TRICOT, Confusion of assets and insolvency proceedings, Court of Cassation Report, 1998, 165; VAILLANT, Scenarios of asset confusion in relation to insolvency proceedings, D. Aff. 1999, 154; DELMOTTE, Criteria for asset confusion in the case law of the Commercial Chamber of the Court of Cassation, Case Law Overview 1998-2006, RJDA June 2006, 539; GISSEROT, Is asset confusion an independent source of bankruptcy extension?, RTD com. 1979, 49; GRELON and DESSUS-LARRIVE, Asset confusion within a group, Rev. soc. 2006, 281; MORELLI, Iconoclastic remarks on asset confusion. Regarding the reform of Article L. 621-2 of the Commercial Code, Rev. soc. 2015, 433; PELLETIER, Liability within corporate groups in the event of insolvency proceedings, LGDJ, 2013; REILLE, The notion of asset confusion, cause for extension of insolvency proceedings, Litec, 2006; REILLE, Conditions for the extension of insolvency proceedings, Gaz. Pal. 19 January 2016, 80.

280. Interlocking between companies