Bankruptcy Law

Under Article L. 621-2 of the Commercial Code, applicable to the receivership procedure by virtue of Article L. 631-7, proceedings against a debtor may be extended to one or more other persons if the legal entity is fictitious.
The notion of a fictitious legal entity refers to an entity which only has the appearance  of a company, but which does not bring together the legal elements necessary to c …

Legal entities in appearance

Under Article L. 621-2 of the Commercial Code, applicable to the receivership procedure by virtue of Article L. 631-7, proceedings against a debtor may be extended to one or more other persons if the legal entity is fictitious.

The notion of a fictitious legal entity refers to an entity which only has the appearance  of a company, but which does not bring together the legal elements necessary to constitute one. In reality, the legal entity is a fiction, or a “façade” in the words of case law . A finding that a company is fictitious is distinct from a finding that it is null and void : its sole purpose is to extend the procedure initiated against the company to another company or its managers.

Fictitious legal entities are 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 have never met to approve the accounts  or have not held general assemblies with the requisite regularity  is not sufficient to demonstrate that they have formed a shell company. In fact, the Court of Cassation verifies the real reasons why the company was created. The fictitious nature of a company is thus established when its sole purpose is to shelter 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 procedure is justified when a manager pursues the same business activity using different but fictitious legal frameworks, without it being necessary to investigate whether there was further merger of their assets and liabilities .

A fictitious legal entity is also characterized when the company to which the procedure is to be extended does not carry out any real economic activity , notably in the case of an SCI (real estate company) that does not actually exploit its real estate assets, since their acquisition alone is not sufficient to establish the existence of an autonomous activity . Nevertheless, the Court of Cassation has ruled that the fictitious nature of a legal entity whose object is the purchase and resale of real estate, but which has acquired only one property, never operated or resold, is not characterized by the fact that it has not been established that the partners did not intend to consider themselves as such . Similarly, a company that leases the business of another is not fictitious if the economic existence of each of them is characterized by the exercise of their own commercial activities in the service of distinct interests, even if the premises have been shared to some extent, if there is a community of partners between them, if royalties have not been paid and if misappropriation of customers is alleged .

Lastly, the fictitious nature of a legal entity is established when it lacks decision-making autonomy , or is in a state of financial dependence on another company in receivership . The procedure initiated against one company may thus be extended to another, considered fictitious, when the partner of the former is the true master of the business of the latter, under cover of the legal entity . Conversely, the absence of complete freedom of management on the part of a partner, who is allegedly in control of the business, is not sufficient to characterize the fictitious nature of the legal entity .

See in particular Cass. com. 8 November 1988, LawLex202100004164JBJ (RJ) 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 legal entities designated, distinct in appearance, a single enterprise.

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 (LJ), holding that an association that has received approval as a lessee under a rehabilitation lease, entered into leases and rented out housing units after taking out a loan to finance the work, is carrying out a genuine activity in line with its purpose, which rules out its being considered fictitious.

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

CA Paris, 2 July 2003, LawLex202100004514JBJ (LJ).

Cass. com. 15 October 2013, cited above; Contra. CA Paris, 1 March 2011, LawLex202100004054JBJ (LJ) holding that the fact that a parent company organizes the accounting, billing 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 constitute a fictitious entity for lack of decision-making autonomy or separate legal personality, but only a pooling of resources under a logistical and technical assistance agreement, which does not justify the extension of the procedure initiated against the parent company.

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

See, a contrario, Cass. com. 19 February 2002, supra, considering that the fact that two companies share the same partners, that one of them took out a loan to provide the other, which had given it a mandate to take out the loan, with cash and that it did not carry out any of the industrial or commercial operations included in its corporate purpose, does not make it possible to extend to a partner the procedure opened against one of the companies, if it is not established that he was the master of the business under cover of the legal entity.

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

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

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

See in particular Cass. com., 11 March 2008, LawLex202100003708JBJ (LJ).

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

Cass. com. 6 July 1999, LawLex202100004078JBJ (LJ). See also Cass. com., 24 October 1995, LawLex202100004147JBJ (RJ) holding that the fictivity of a company, created for the sole purpose of sheltering the assets of another from its creditors, is established when the latter has transferred all its real estate assets to it, only to become a tenant of the premises and be required to pay rent which has enabled the former to acquire land and buildings; Cass. com, 1 October 1997, LawLex202100002154JBJ (LJ) considering that confusion of assets is established when an SCI created by spouses with the sole aim of shielding the real estate assets of a SARL from its creditors, diverts the resources of the latter, which has pledged its business to guarantee repayment of the loan taken out to acquire the building, financed the work carried out on the latter and paid an exorbitant rent intended to repay the loan instalments.

See in particular Cass. com, 2 July 2013, LawLex202100002103JBJ (LJ), holding that a company set up by a husband, at the time when his wife declares her state of suspension of payments, with the aim of continuing the latter's activity and paying her invoices is fictitious in nature; 10 March 2021, LawLex202100002786JBJ (LJ), considering that the absence of any intention to keep a company alive, created for the sole purpose of pursuing the project of the sole partner's son, the sole owner of the business, to maintain the commercial activity of a company under 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 (LJ); CA Chambéry, 18 December 2007, LawLex202100003629JBJ (LJ) holding that the fictivity of a company is established when it was created solely for the purpose of continuing the craft activity of one of its employees, subject to court-supervised liquidation procedure, using its operating equipment and with its former employees, neither dismissed nor resigning.

Bankruptcy Law

300. Legal entities in appearance

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

300. Legal entities in appearance

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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