Bankruptcy Law

According to Article L. 620-1 of the Commercial Code, a debtor who requests the opening of a safeguard procedure must justify “difficulties that he is unable to overcome”. Article R. 621-1 of the Commercial Code requires that the application for the opening of safeguard proceedings must set out the nature of the difficulties encountered by the debtor and the reasons why he is unable to overcome th …

Insurmountable difficulties

According to Article L. 620-1 of the Commercial Code, a debtor who requests the opening of a safeguard procedure must justify “difficulties that he is unable to overcome”. Article R. 621-1 of the Commercial Code requires that the application for the opening of safeguard proceedings must set out the nature of the difficulties encountered by the debtor and the reasons why he is unable to overcome them. These difficulties may be financial , economic, social or legal in nature. The Court of Cassation does not require that they be directly linked to the business .

To establish the existence of insurmountable difficulties, the debtor is not required to justify the receipt of formal notices, unsatisfied requests for moratorium, or the prior implementation of a conciliation procedure . The insurmountable nature of the difficulties raised by the debtor must, in principle, be assessed on the day of the opening judgment, and not on the date of the submission , even if certain trial courts rule on the basis of the financial means available to the debtor on the day of the presentation of his application .

Insurmountable difficulties include the risk of losing the company's only asset , or the fact that a debtor who is not unable to meet his liabilities has had his shareholder's rights or securities seized and has applied in vain to have them released , or the fact that he is faced with costs and deadlines relating to extremely important works, which are the source of operating expenses that are too high in relation to the turnover generated .

Courts take into account the difficulties experienced by the market in which the debtor's activity is carried out. A company encounters insurmountable difficulties when, in a declining market, it registers a significant drop in its operating profit and net profit and its recovery, conditional on a substantial change in its activity, implies heavy investments that it is not in a position to make . Similarly, the prospect, in a context of market uncertainty in the midst of a financial crisis , of being notified that a loan is immediately due or, in a context of crisis in the sector , of recording heavy operating losses while having assets that are slightly higher than the liabilities due, constitute insurmountable difficulties.

Where the debtor is part of a group of companies, the insurmountable nature of the difficulties is assessed in the light of his personal situation without regard to the financial capacities of the group to which he belongs , even if the group is prosperous . On the other hand, it is possible to take into account the financial situation of a subsidiary in assessing the insurmountable nature of the difficulties experienced by the parent company. In fact, a company is faced with difficulties that it is not in a position to overcome if the tax adjustment of its subsidiary jeopardizes its upstream dividend payments .

The existence of proven insurmountable difficulties takes precedence over any other consideration. Thus, in the “Coeur Défense” case, while the court of Appeal had refused to grant a request for the opening of a safeguard procedure, considering that the debtor was only seeking to avoid more onerous performance of his obligations or to lose control of his company , the Court of Cassation considered that, in the absence of fraud, these elements were not such as to deprive him of the benefit of a safeguard procedure, in the presence of duly established insurmountable difficulties .

Cass. com., 26 June 2007, LawLex202100005610JBJ.

Cass. com., 8 March 2011, LawLex202100002215JBJ.

CA Lyon, 31 May 2006, LawLex202100000942JBJ.

Cass. com., 26 June 2007, LawLex202100005611JBJ.

CA Versailles, 15 June 2006, LawLex202100004352JBJ.

CA Poitiers, 11 May 2021, LawLex202100006026JBJ. In this case, the transferor of the subsidiary refused to invoke its representations and warranties and the compensation between their reciprocal debts.

CA Paris, 25 February 2010, LawLex202100002792JBJ ruling on a contractual obligation to interest rates hedging.

Cass. com. 8 March 2011, LawLex202100002215JBJ.

Cass. com., 26 June 2007, LawLex202100005610JBJ ; Cass. com., 26 June 2007, LawLex202100005611JBJ.

Cass. com., 8 March 2011, LawLex202100002215JBJ holding that a company mentions insurmountable difficulties when it underlines the risk of losing its only asset and that of having to repay a loan of EUR 249 million.

CA Paris, 13 December 2012, LawLex202100005104JBJ.

CA Paris, 7 February 2017, LawLex202100005100JBJ; CA Reims, 1 April 2014, LawLex202100006027JBJ holding that a company experiencing collection difficulties on an ongoing construction site, holding an unpaid receivable of EUR 131,164, whose activity is declining and some of whose accounts show an overdrawn account although it retains the confidence of the banks and has a good order book, is encountering difficulties that it is unable to overcome and that justify the opening of a safeguard procedure.

CA Versailles, 19 January 2012, LawLex202100005628JBJ also considering that a company which incurs the forfeiture of the term of a loan contract due to the impossibility of satisfying, in view of the shortness of the time-limit, the excessive amount of the contract's underwriting and due to the uncertainty of the market with regard to its available assets, the requirement of a new contract to hedge the risk of changes in the interest rate, reports insurmountable difficulties which justify the opening of a safeguard procedure. 

Bankruptcy Law

43. Insurmountable difficulties

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43. Insurmountable difficulties

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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