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

Company Law (en cours)

Bank borrowing is not the only financing mechanism available to companies. The law of 24 January 1984  providing an exception to the banking monopoly  has facilitated the emergence of intercompany financing such as supplier credit  and intercompany loans .
1) Supplier credit (crédit-founisseur)
Supplier credit allows companies to operate despite a cash flow shortage. Originally, supplier credit wa …

Payment deadlines and cash management

Bank borrowing is not the only financing mechanism available to companies. The law of 24 January 1984  providing an exception to the banking monopoly  has facilitated the emergence of intercompany financing such as supplier credit  and intercompany loans .

Supplier credit allows companies to operate despite a cash flow shortage. Originally, supplier credit was primarily practiced in the context of international relations involving a French exporter and a foreign buyer. Through the discount mechanism, the supplier can painlessly grant their client payment terms for their claim, effectively delaying its due date. Since then, the practice has spread within internal commercial relations so that today supplier credit is found in almost all intercompany relationships and more specifically in distribution relationships. The mechanism, which can present risks in the absence of studies on the solvency and financial situation of the company to which the terms are granted, is strictly regulated. Article L. 441-10 of the Commercial Code indeed provides that, unless otherwise stipulated in the terms of sale or agreed between the parties, the payment period for amounts due cannot exceed thirty days after the date of receipt of the goods or performance of the requested service. When the parties have agreed on a period, it cannot exceed sixty days after the invoice date. By exception, a maximum period of forty-five days end of month after the invoice date can be agreed between the parties, provided that this period is expressly stipulated by contract and does not constitute a manifest abuse towards the creditor. Once the period is set, it must be respected by the parties. In addition to significant administrative sanctions , the beneficiary is exposed, in case of recurring payment delays of their orders, to a reduction of their supplier credit, which can occur even during the notice period of termination .

The decision to grant or not grant credit is left to the discretion of the supplier . Since it generally does not have any contractual nature, the supplier can freely challenge the principle of credit  or condition it on the provision of guarantees . The supplier's liability can only be engaged if it is established that the termination of credit was abrupt .

The supplier who grants credit to their client also incurs a residual risk of sanction based on the concept of abusive support. The notion of abusive support, originating in insolvency law, allowed creditors to hold financial institutions civilly liable for assisting a distressed undertaking. Initially, only banks were targeted by the sanction, but case law has gradually extended the solution to supplier credit granted to the distributor . Before the reform of insolvency law by the law of 26 July 2005, case law considered there was abusive support when the supplier, aware of the distributor's difficult financial situation, granted excessive supplier credit , extended payment deadlines , set unrealistic objectives , or created the illusion among creditors of a resumption of exclusive distribution, thereby delaying the opening of insolvency proceedings . However, the non-repayment of debts was not sufficient to establish the wrongful increase of the distributor's liabilities . Partial termination of supplier credit could not be attributed to the supplier when the distributor was experiencing a significant cash deficit at the time of notification . Since the reform, Article L. 650-1, para. 1, of the Commercial Code provides that “creditors cannot be held liable for damages suffered due to the assistance granted, except in cases of fraud, characterized interference in the debtor's management , or if the guarantees taken in return for this assistance are disproportionate to it” . Liability for abusive support can therefore only be sought in these three scenarios, with the understanding that fraud requires proof of deliberate action. While the aforementioned three conditions allow for the initiation of a liability action against the debtor, they do not guarantee its success. It is also necessary to establish the wrongful nature of the supplier's behavior . Given this dual requirement and the strictness of case law in characterizing the three cases of non-liability forfeiture provided by the text, invoking a creditor's liability for abusive support should remain exceptional.

Introduced by the Macron law , intercompany financing involves the granting, by a joint stock company or an SARL whose accounts are certified by a statutory auditor, of a loan of less than two years to undertakings that meet certain threshold conditions and with which they maintain close economic ties. The nature of the economic ties in question is defined by Article R. 511-2-1-1 of the Monetary and Financial Code, which provides that loans may be granted when the lending undertaking or a member of its group, on the one hand, and the borrowing undertaking or a member of its group, on the other hand, are economically linked according to one or the other of the modalities provided.

Law No 84-46 of 24 January 1984 relating to the activity and control of credit institutions.

Monetary and Financial Code, Art. L. 511-5.

See Cass. com., 9 May 1995, LawLex200200005465JBJ.

CA Pau, 28 April 1993, LawLex200200005990JBJ upheld by Cass. com., 9 May 1995, LawLex200200005465JBJ. Also see CA Douai, 22 May 1997, LawLex200200005672JBJ; CA Amiens, 19 January 1999, LawLex200200005170JBJ; Judicial Court Paris, 5 October 2004, LawLex200400002656JBJ.

CA Chambéry, 15 October 2002, LawLex200400002108JBJ.

CA Douai, 27 May 1997, LawLex200200005672JBJ

Cass. com., 7 January 2003, LawLex200300000676JBJ: a supplier incurs liability for abusive support when, knowing the deterioration of its distributor's financial situation, it creates the illusion among creditors of a takeover of the exclusive distribution by a successor, thereby delaying the initiation of insolvency proceedings.

Cass. com., 8 March 1988, LawLex200200005715JBJ, overturning CA Nancy, 16 May 1986, LawLex200200005695JBJ.

T. com. Paris, 20 April 2000, LawLex200200005298JBJ.

CA Grenoble, 15 December 2011, LawLex201200000002JBJ, holding that neither the granting of supplier credit, a common practice in the distribution sector, nor the taking of securities intended to guarantee the repayment of financial support and the payment of delivered goods, nor the obligation imposed on the manager to contribute a sum of 120,000 euros in a blocked current account constitute acts of characterized interference by the supplier in the management of the authorized distributor, within the meaning of Article L. 650-1 of the Commercial Code.

T. com. Paris, 24 February 2016, LawLex201600000416JBJ, considering that the importer who grants supplier credit cannot be blamed for obstructing the normal execution of the notice period by being excessively strict in the demand for guarantees, as long as those provided by the distributor, whose shareholders' equity is negative, are not sustainable.

Cass. com., 27 March 2012, LawLex202100001563JBJ, considering that the liability of a bank granting a loan to a company in judicial liquidation cannot be engaged for damages suffered due to disproportionate guarantees taken, when it is not demonstrated and alleged that the assistance provided is faulty.

Monetary and Financial Code Art. L. 511-7, I-1°.

Law No 2015-990 of 6 August 2015 for growth, activity, and equal economic opportunities.

Monetary and Financial Code, Art. L. 511-6, 3 bis.

Commercial Code, Art. L. 441-16: up to 2 million euros in fines for legal entities and the publication of the decision.

Cass. com., 7 September 2022, LawLex202200006758JBJ.

T. com. Paris, 20 October 2014, LawLex201400001116JBJ, considering that a supplier has no obligation to compensate for the lack of equity of its distributor by granting a supplier credit derogating from the contractual conditions.

CA Paris, 18 January 2012, LawLex201200000309JBJ.

Cass. com., 15 March 2017, LawLex201700000541JBJ.

Cass. com., 25 March 1991, LawLex200200005837JBJ.

Company Law (en cours)

56. Payment deadlines and cash management

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56. Payment deadlines and cash management

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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