Bankruptcy Law

In accordance with Article L. 640-1 of the Commercial Code, the cessation of payments is characterized by the debtor's inability to meet its current liabilities with its available assets. The balance to be struck by the court cannot consist solely of a comparison of balance sheet items, even if this reveals a negative difference between liabilities and current assets , since these concepts cannot be identified  with those of “available assets” and “liabilities due”.

Nor can the court order the opening of a liquidation procedure solely on the basis of the debtor's debts . The existence of unpaid liabilities may be justified by the debtor's deliberate refusal to pay a claim that he is contesting . Consequently, the mere failure to pay a claim that is certain, liquid and due, as a result of a constraint, does not in itself make it possible to characterize the impossibility for the debtor to meet the due liabilities with his available assets . Where there is no material cessation of payments, apart from debts over which the debtor is in dispute, the debtor's cessation of payments status is not established . In addition, the debtor's liabilities must necessarily be compared with its assets in order to verify whether the latter are sufficient to cover them, so that a liability, even a substantial one, cannot in itself justify the opening of a court-supervised liquidation procedure . The mere fact that the company's financial situation has deteriorated is not sufficient. Consequently, the closing of the financial year with a loss and very high declared liabilities , the fact that shareholders' equity is steadily deteriorating and that short-term debt represents more than 100% of total assets over two years , the observation of a significant drop in the sales margin, added value and gross operating surplus, the absorption of added value by staff costs, the existence of long-standing tax and social security debts that remain unpaid , or the loss of the debtor's main customer and a loss on the previous year's results  are not sufficient in themselves to establish that the debtor is in a state of cessation of payments.

On the other hand, the absence of any available assets, where this has been established , or proof of derisory assets  is sufficient for the court to declare that the debtor is in a state of cessation of payments, without being obliged to hear the debtor on this point or to appoint another court before exercising its sovereign power of assessment . Indeed, in the presence of zero assets, the contestation of certain claims cannot call into question the debtor's state of cessation of payments . The absence of assets available to meet current liabilities may be inferred from the unsuccessful outcome of the enforcement measures taken by the creditor to obtain payment of the amount owed to him . This is the case in the event of a succession of unsuccessful third-party notices, some for lack of funds, others for account closure, and a consultation of the national bank account file which reveals that the debtor does not have an account . The small sums recovered from third-party notices and seizures for sale, and the fact that the debtor has ceased trading and no longer has any equipment or stock, show that he has no available assets and is unable to meet his liabilities . The opening of a court-supervised liquidation procedure is also justified when claims for old-age and disability insurance contributions due over several years remain unpaid despite enforcement measures being taken, and it is clear from the reports of default drawn up by the judicial commisars responsible for collection that the debtor's annual resources are insufficient to enable him to meet the liabilities due with his available assets .

Regardless of the factors put forward by the parties, the determination of whether a business is in a state of cessation of payments must in reality be based on a purely mathematical comparison between the amount of available assets and the amount of liabilities due . In this task, courts may rely on a range of indicators , such as the existence of tax and social security debts that are immediately due, for an amount that is significantly higher than the available cash, and that is constantly increasing, or on the absence of new contributions or assistance to finance the debtor's working capital , the absence of a credit reserve that would enable the debtor to meet its current liabilities on the date set by the court  or the absence of available assets combined with withdrawals exceeding the company's profit, while operating income is insufficient to cover expenses and the commercial lease has been terminated due to non-payment of rent . While the cessation of the debtor's business is not in itself sufficient to characterize a state of cessation of payments , it may, in combination with other factors, contribute to such a finding. In fact, a company that has ceased trading and no longer generates any sales must be considered to be in a state of cessation of payments as soon as it has no certain available assets to meet its current debts, even if some of these debts are disputed . Similarly, a debtor who has not received any contribution of funds or proposal to take over his business, which ceased several months ago, but a simple proposal to buy back his stock in cash, is in a state of cessation of payments as soon as he is unable to meet his current liabilities with his available assets . A debtor who no longer carries on any business and has no available assets that would enable him to meet his current liabilities, consisting of a URSSAF debt for which he has been refused a staggered payment plan and has only been granted a limited moratorium, is also in a state of cessation of payments .

In a group of companies, in order to establish that several companies are in a state of cessation of payments, the court must identify, for each of them, the factors that show that it is unable to meet its current liabilities with its available assets . For each company in a group, cessation of payments is objectively characterized by its inability to meet its current liabilities with its available assets, notwithstanding the fact that it is up to date with its social security contributions or has offered additional redundancy pay to each of its employees . Conversely, a debtor whose declared liabilities, consisting of tax and bank debts, are assumed by another company, which undertakes to pay them when they are called, cannot be considered unable to meet its current liabilities with its available assets .

Finally, the debtor's state of cessation of payments must be established on the date on which the court rules . If an appeal is lodged against the opening judgment on the basis of a dispute as to whether the debtor is in a state of cessation of payments or not, the court of appeal must once again assess the debtor's state of cessation of payments as at the date of its decision , without being able to rely on a simple approximation of the admitted liabilities and the assets existing at the time of the opening of the insolvency procedure . Any improvement in the debtor's financial situation between the judgment and the appeal hearing must, where applicable, be taken into account, unless it is established that on the day the court rules, the debtor is not in a position to meet the new debts that have become due .

Cass. com., 10 March 2004, LawLex202100004234JBJ (RJ) ; 2 February 1999, LawLex202100002061JBJ (LJ).

"Current assets": assets used by the business in the course of its operations, such as inventories.

"Current liabilities": financial, tax and social security debts payable in the short term, i.e. less than twelve months.

Cass. com., 8 July 2008, LawLex202100004203JBJ (LJ).

Cass. com, 5 January 1991, LawLex202100001900JBJ (RJ); 8 October 2003, LawLex202100004254JBJ (RJ); 18 January 2011, LawLex202100004157JBJ (LJ); 5 May 2015, LawLex202100004158JBJ (RJ); 14 March 2018, LawLex202100004159JBJ (LJ); 25 September 2019, LawLex202100004181JBJ (LJ); CA Versailles, 22 September 2011, LawLex202200000090JBJ (RJ); CA Pau, 25 April 2013, LawLex202100005127JBJ (LJ). See also Cass. com, 17 June 1997, LawLex202100004207JBJ (RJ), holding that the state of cessation of payments is characterized by the absence of any available assets, even if only a tiny part of the liabilities has been demanded; 7 February 2012, LawLex202100001906JBJ (LJ), emphasizing that the debtor's state of cessation of payments, in which even a small part of the liabilities due is not contested, and whose available assets are non-existent following the gift of all her movable assets to her daughter, is characterized without the court having to indicate the exact amount of the contested and non-contested liabilities.

Cass. com. 8 April 2015, LawLex202100006079JBJ (LJ), all the more so when, in addition, the debtor has lost a large part of its customer base.

Cass. com., 2 July 1979, LawLex202100002058JBJ (RJ).

Cass. com., 5 December 1995, LawLex202100004347JBJ (LJ).

Cass. com, 22 June 1993, LawLex202100001899JBJ (RJ); 16 March 2010, LawLex202100004265JBJ (RJ); 20 March 2019, LawLex202100004188JBJ (RJ) holding that when a claim is due and the procedures for enforcing the judgment of condemnation have resulted in a statement of default, the absence of available assets and the impossibility of meeting the liabilities due are characterized; 17 June 2020, LawLex202100003620JBJ (RJ); CA Bastia, 8 June 2022, LawLex202200006453JBJ (RJ). Comp. Cass. com. 14 March 2018, LawLex202100004195JBJ (RJ), holding that the existence of an unpaid debt for which recovery attempts have remained unsuccessful is not sufficient to establish that the debtor is in a state of cessation of payments, in the absence of details as to the consistency of its available assets.

Cass. com, 13 September 2017, LawLex202100004186JBJ (LJ) ; 16 June 2004, LawLex202100004264JBJ (RJ) ; 15 November 2005, LawLex202100004255JBJ (RJ) ; CA Rennes, 17 November 2009, LawLex202100005834JBJ (RJ) considering that a debtor's state of cessation of payments is characterized when the numerous seizures-attributions carried out on his assets have not enabled him to meet his current liabilities estimated at EUR 127,979.58.

Cass. com., 14 January 2004, LawLex202100004155JBJ (LJ).

Cass. com., 15 May 2001, LawLex202100004257JBJ (RJ).

Cass. com, 5 May 2015, LawLex202100004211JBJ (LJ), holding that the state of cessation of payments of a debtor is characterized when he does not contest the extent of his current liabilities estimated at EUR 196,612.04, nor does he demonstrate a change in his available assets of EUR 11,862, invoked to meet them ; 22 May 2013, LawLex202100001858JBJ (LJ), deducing the debtor's state of cessation of payments from the appearance in its last closed balance sheet of debts due in excess of available funds and the absence of moratoria granted by creditors; 28 April 2009, LawLex202100004183JBJ (RJ), emphasizing that current liabilities, consisting of two debts, greater than the amount of cheques given in payment but also greater than available assets due to a lack of liquidity, establish the debtor's state of cessation of payments; 18 March 2008, LawLex202100005913JBJ (LJ), holding that a company that cannot meet its current liabilities, estimated at EUR 6,296,536.23, with its available assets, consisting of cash of EUR 1,311,808.63 and the proceeds of certain sales, is in a state of cessation of payments; 22 January 2002, LawLex202100004217JBJ (RJ), holding that a debtor who owes more than EUR 35,000 to an old-age insurance fund, while his available assets are limited to a credit savings account of EUR 6,300, is unable to meet his current liabilities with his available assets.

Cass. com., 28 September 2004, LawLex202100004190JBJ (LJ).

Cass. com., 18 May 2016, LawLex202100004228JBJ (RJ).

Cass. com., 22 June 1999, LawLex202100004300JBJ (RJ).

Cass. com., 18 January 2011, cited above.

Cass. com., 12 January 2010, LawLex202100004256JBJ (LJ) ; 17 September 2013, LawLex202100002074JBJ (LJ).

Cass. com., 15 January 1991, cited above.

Cass. com., 8 June 1999, LawLex202100004148JBJ (RJ).

Cass. com., 3 July 2012, LawLex202100002065JBJ (RJ).

Cass. com., 27 April 1993, LawLex202100004229JBJ (RJ).

Cass. com., 24 May 2005, LawLex202100004249JBJ (LJ).

Cass. com. 9 February 2010, LawLex202100004270JBJ (RJ), holding that the debtor's failure to contest the results of a tax audit and the constraints issued by the URSSAF, as well as his inability to pay the amount on the day of the summons, do not constitute grounds for characterizing his inability to meet his current liabilities with his available assets on the day the court rules.

Cass. com., 13 February 2007, LawLex202100004192JBJ (RJ) ; 10 February 2015, LawLex202100004198JBJ (LJ) ; CA Aix-en-Provence, 30 April 2008, LawLex202200000500JBJ (RJ).

Cass. com., 3 December 2003, LawLex202100004231JBJ (LJ).

Cass. com., 9 June 2022, LawLex202200006466JBJ (LJ).

Cass. com., 25 February 1997, LawLex202100002067JBJ (RJ).

Cass. com. 23 November 1999, LawLex202100002069JBJ (RJ). See already, Cass. com. 16 March 1993, LawLex202100004361JBJ (RJ), holding that the impossibility for a company in a healthy financial situation to meet its current liabilities with its available assets cannot be deduced from its refusal to settle a claim, the amount of which it disputes and to which only provisional authority is attached.

Cass. com. 17 February 2009, LawLex202100004223JBJ (LJ), holding that the non-payment of several previous tax debts and a debtor's refusal to submit to an enquiry into his economic and financial situation do not constitute sufficient evidence to establish his inability to meet his current liabilities with his available assets.

Cass. com., 19 March 2002, LawLex202100004230JBJ (LJ).

Cass. com., 17 October 2000, LawLex202100001929JBJ (RJ).

Cass. com., 9 July 2002, LawLex202100004232JBJ (LJ).

634. Inability to cope