Bankruptcy Law

In the absence of a link between two claims reported as liabilities in the safeguard procedure, legal set-off can be used. Article 1347 of the Civil Code defines the mechanism of compensation as the simultaneous extinction of reciprocal claims between two persons. A partner to whom the creditors' representative claims, after the opening of the procedure, payment of the unpaid portion of the share  …

Set-off between two fungible, certain, liquid and payable claims

In the absence of a link between two claims reported as liabilities in the safeguard procedure, legal set-off can be used. Article 1347 of the Civil Code defines the mechanism of compensation as the simultaneous extinction of reciprocal claims between two persons. A partner to whom the creditors' representative claims, after the opening of the procedure, payment of the unpaid portion of the share capital, may invoke legal compensation with the balance of his current account, which arose before the opening judgment, even if these claims are not related . The court may not reject a creditor's claim for legal set-off between his debt for the sale price and his claim for the restitution of dividends on the grounds that they are not related, without investigating whether the conditions for such set-off were not fulfilled before the judgment opening the debtor's insolvency procedure .  The debtor may also avail himself of the legal set-off between a claim for restitution of a security deposit and rent, both of which arose after the opening judgment .

Legal set-off can only occur between two obligations that are fungible, certain, liquid and payable according to Article 1347-1 of the Civil Code. The absence of a connection between debts does not exclude the possibility of a legal set-off as long as they are reciprocal, certain, liquid and payable before the judgment of the opening judgment . Since the conditions are cumulative, legal set-off cannot validly take place in the absence of reciprocity of the claims and debts invoked, when the court opens two separate insolvency proceedings with respect to an EARL (limited liability agricultural company) and its manager, after having ruled out any merger of assets and liabilities . Similarly, there can be no legal set-off between the guarantee held by the tax office (recette des Finances) and the claim of the Trésor public (Internal revenue service) if the latter was not due and payable before the judgment opening the debtor's insolvency procedure . Nor can set-off be invoked between the debit balance of a current account and share-accounts (compte-titres) in the absence of fungibility of their items .

Finally, where two reciprocal debts, arising from the debit balance of a current account and a holdback (retenue de garantie) are certain, liquid and payable before the opening of the debtor's collective procedure, legal set-off ipso jure could be invoked at any time during the procedure . The reform of contract law has modified the text and now requires that the set-off be invoked at the time when its conditions are met. Where the two claims arose before the date of entry into force of the Ordinance of 10 February 2016 , legal set-off may be invoked between a creditor's debt to the debtor for unpaid invoices and its claim against the debtor if the conditions for legal set-off are met before the opening judgment, without it being necessary to invoke it on the date on which it takes effect .

Cass. com., 8 January 2002, LawLex202100002692JBJ (LJ).

Cass. com., 18 September 2012, LawLex202100005236JBJ (LJ).

Cass. com., 24 January 2018, LawLex202100003326JBJ (RJ).

Cass. com., 12 January 2010, LawLex202100002694JBJ (LJ).

Cass. com., 5 February 2013, LawLex202100004167JBJ (LJ).

Cass. com., 27 October 1998, LawLex202100002695JBJ (LJ).

Cass. com., 16 December 2014, LawLex202100002747JBJ (LJ).

Cass. com., 27 September 2011, LawLex202100005237JBJ (LJ).

Ordinance No 2016-131 of 10 February 2016 reforming the law of contracts, the general regime and proof of obligations.

CA Pau, 15 October 2020, LawLex202100006242JBJ (LJ).

Bankruptcy Law

125. Set-off between two fungible, certain, liquid and payable claims

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125. Set-off between two fungible, certain, liquid and payable claims

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