Bankruptcy Law

According to Article L. 621-2 of the Commercial Code, the procedure opened against a debtor may be extended to one or more other persons in the event of a fictitious legal entity. The notion of fictitious legal entity refers to an entity which only has the appearance  of a company but which does not have the legal elements necessary for its constitution. The legal entity is in reality a fiction, o …

Legal entities in appearance

According to Article L. 621-2 of the Commercial Code, the procedure opened against a debtor may be extended to one or more other persons in the event of a fictitious legal entity. The notion of fictitious legal entity refers to an entity which only has the appearance  of a company but which does not have the legal elements necessary for its constitution. The legal entity is in reality a fiction, or a “façade” according to the terms used by the case-law . A finding that a company is fictitious is distinct from a finding that it is null and void : the only purpose of such a finding is to extend the proceedings initiated against the company to another company or to its directors.

Fictitiousness is first recognized in the absence of affectio societatis , i.e., the intention of the partners to behave as such , even if the fact that they never met to approve the accounts  or did not hold general meetings with the required regularity  is not sufficient to show that they formed a front company (société de façade). In fact, the Court of Cassation controls the real reasons for which the company was created. The fictitious nature of a company is thus established when its sole purpose is to protect the real estate assets of a debtor company from its creditors  or when its sole purpose is to continue, in an identical manner, the former activity  of its manager, thanks to the assets contributed by the latter . The extension of proceedings is justified when a manager pursues the same commercial activity using different but fictitious legal frameworks, without it being necessary to investigate whether there was also a merger of their assets and liabilities .

The fictitiousness of the legal entity is also characterized when the company to which it is intended to extend the procedure does not carry on any real economic activity , in particular when it is a SCI which does not actually exploit its real estate, since its mere acquisition is not sufficient to establish the existence of an autonomous activity . However, the Court of Cassation has held that the fictitious nature of a legal entity whose purpose is the purchase and resale of real estate, but which has acquired only one building, never exploited or resold, was not characterized since it was not established that the partners did not intend to consider themselves as such .

Finally, the fictitious nature of a legal entity is established when it has no decision-making autonomy  or is financially dependent on another company placed in insolvency proceedings . The procedure initiated against one company may thus be extended to another, considered fictitious, when the partner of the first is the true case leader of the second, under the cover of the legal entity . On the other hand, the absence of total freedom of management of a partner, who is allegedly in control of the business, does not make it possible to characterize the fictitious nature of the legal entity .

See in particular. Cass. com., 8 November 1988, LawLex202100004164JBJ considering that the procedure can be extended from one company to another when the second was a fictitious company forming in reality, with the other designated legal entities, distinct in appearance, a single company.

Cass. com., 15 January 1991, LawLex202100006421JBJ (LJ).

Cass. com., 8 February 1994, LawLex202100003714JBJ (LJ) ;  15 October 2013, LawLex202100003707JBJ (LJ).

See a contrario, Cass. com., 22 January 2020, LawLex202100003704JBJ holding that an association which has received approval as a lessee for a renovation lease, concluded leases and rented housing after having taken out a loan to finance the work, is carrying out a real activity in relation to its object, which excludes it from being considered fictitious.

Cass. com. 21 November 1995, LawLex202100003709JBJ. See cep., Cass. com., 15 November 2017, LawLex202100003706JBJ considering that the SCI regularly constituted, identified and registered, whose company purpose is achieved by the purchase of a building and its provision to the seller, is not fictitious when the managing partner pays the property taxes.

Cass. com, 15 October 2013, cited above; Contra. CA Paris, 1 March 2011, LawLex202100004054JBJ considering that the fact that a parent company organizes the accounting, invoicing and payment of invoices of one of its subsidiaries, created to take over the clientele of a company whose activity was not compatible with the corporate purpose of the other companies in the group does not characterize its fictitiousness for lack of decision-making autonomy or distinct legal entity, but only a pooling of resources provided for by a logistical and technical assistance agreement, which does not justify the extension of the proceedings initiated against the parent company.

Cass. com., 21 November 1995, cited above.

See a contrario, Cass. com, 19 February 2002, cited above, considering that the fact that two companies share the same partners, that one of them has taken out a loan to provide the other, which had given it a mandate to take out the loan, with cash, and that it has not carried out any of the industrial or commercial operations included in its corporate object, does not allow the proceedings opened against one of the companies to be extended to one of the partners, if it has not been established that he was in control of the business under cover of the legal entity.

CA Paris, 26 March 2019, LawLex202100003638JBJ.

Cass. com., 19 February 2002, LawLex202100003703JBJ (LJ).

See in particular. Cass. com. 3 February 1998, LawLex202100006460JBJ, holding that proof of the fictivity of a company is not provided when the liquidator does not establish that the partners have not made the contributions provided for in the articles of association, have not shared the profits and losses and that there has been no affectio societatis; CA Chambéry, 18 December 2007, LawLex202100003629JBJ; Cass com, 15 November 2017, LawLex202100003706JBJ, holding that fictivity is excluded when the absence of social life is justified by the health condition of the director.

See in particular Cass. com., 11 March 2008, LawLex202100003708JBJ.

Cass. com., 29 April 2003, LawLex202100003718JBJ (LJ).

CA Paris, 26 March 2019, LawLex202100003638JBJ (LJ).

Cass. com, 6 July 1999, LawLex202100004078JBJ. See also Cass. com., 24 October 1995, LawLex202100004147JBJ holding that the fictitiousness of a company, created with the sole aim of sheltering the assets of another from its creditors, is established when the latter has transferred all its real estate assets to it in order to become a simple tenant of the premises and to be bound to the payment of a rent which has allowed the former to acquire land and buildings; Cass. com, 1 October 1997, LawLex202100002154JBJ considering that the merger of assets and liabilities is characterized when an SCI created by spouses with the only aim of making the real estate assets of a LLC escape from its creditors, diverts the resources of the latter, which has pledged its goodwill to guarantee the reimbursement of the loan made for the acquisition of the building, financed the work carried out on the latter and paid an exorbitant rent intended for the reimbursement of the due dates of the loan.

See in particular Cass. com, 2 July 2013, LawLex202100002103JBJ, holding that a company created by a husband, at the time his wife declares her state of suspension of payments, with the aim of continuing the latter's activity and paying her invoices has a fictitious character; 10 March 2021, LawLex202100002786JBJ, considering that the absence of will to keep alive a company, created with the sole purpose of pursuing the project of the son of the sole partner, the only case leader, to maintain the commercial activity of a company which is subject to court-supervised liquidation, establishes the fictitious nature of the company and justifies the extension of the court-supervised liquidation against it.

See in particular Cass. com, 19 November 1996, LawLex202100003715JBJ; CA Chambéry, 18 December 2007, LawLex202100003629JBJ holding that the fictitious nature of a company is established when it was created only with the aim of continuing the craft activity of one of its employees, subject to a court-supervised liquidation procedure, with the help of its operating equipment and with its former employees, who were neither dismissed nor resigned.

Bankruptcy Law

47. Legal entities in appearance

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

47. Legal entities in appearance

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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