Bankruptcy Law

Under the terms of Article L. 631-15, II of the Commercial Code, the court may, at any time during the observation period, at the request of the debtor, the receiver, the legal representative, an auditor, the public prosecutor or ex officio, order the liquidation of the company if receivership proves manifestly impossible.
1) Formal requirements
Article R. 631-24 of the Commercial Code provides th …

Conversion of a receivership procedure into a court-supervised liquidation

Under the terms of Article L. 631-15, II of the Commercial Code, the court may, at any time during the observation period, at the request of the debtor, the receiver, the legal representative, an auditor, the public prosecutor or ex officio, order the liquidation of the company if receivership proves manifestly impossible.

Article R. 631-24 of the Commercial Code provides that in order to pronounce a court-supervised liquidation, the matter must be referred to the court by way of a petition or, where applicable, in the forms and according to the procedure provided for in Articles R. 631-3, relating to referral by the court of its own motion, or R. 631-4, relating to referral by the public prosecutor. The Court of Cassation considers that these provisions do not exclude the right of legal representatives and receivers to bring proceedings before the court by way of a writ of summons .

When the public prosecutor requests that the procedure be opened by means of a petition, Article R. 631-4 requires that the petition state the facts on which the request is based. The president of the court must, through the court registrar, summon the debtor by registered letter with acknowledgement of receipt to appear before the court within the time-limit set by the president. This summons must be accompanied by the public prosecutor's request.

The court may also take action of its own motion, in which case Article R. 631-3 provides that it must summon the debtor, at the registrar's request, by registered letter with acknowledgement of receipt, to appear before it within the time-limit it sets . The summons must be accompanied by a note setting out the facts that justify the exercise of his ex officio power . The summons to a conversion hearing must be clear and unambiguous. This is not the case of a simple mention, in the operative part of the judgment opening a receivership, of a reminder to attend a future hearing, without any further specification . Where the parties have not first been invited to present their observations or summoned to appear in the manner provided for in Article R. 631-3 of the Commercial Code, a judgment that automatically converts a receivership procedure into court-supervised liquidation is liable to be set aside .

The conversion of a receivership procedure into liquidation proceedings does not require a finding of cessation of payments, which by definition has already been established in the judgment initiating the receivership procedure, but only a finding that it is manifestly impossible to proceed with the receivership . To this end, the court may rely on the debtor's inability to pay the declared claims, even if some of them are disputed , but it is not required to refer to the composition of the liabilities due on the day it rules . The courts rule on the basis of a set of indications that receivership is manifestly impossible.

In the first instance, they assess the debtor's ability to pay its liabilities, and may find that the increase in liabilities during the business continuity period and the lack of cash to pay social security contributions are factors that characterize the manifest impossibility of receivership . The same is true when the debtor's turnover is very low, he has no credit reserve or moratorium from his creditors that would enable him to meet his liabilities, and the claims he has asserted are disputed . The conversion of a receivership into a court-supervised liquidation is justified when the debtor only partially pays the monthly provisions that it undertook to pay during the observation period, when it does not explain its ability to generate the announced turnover on its own and when it appears that the expected proceeds from a planned sale will not enable it to pay its liabilities . The same is true when the instalments of a loan taken out are not honored and a sum consigned to guarantee the enforcement of a possible receivership plan is insufficient to settle the liabilities . On the other hand, the debtor's receivership is not manifestly impossible simply because he has sold his business or retired, provided that he has real estate assets enabling him to pay off the remaining liabilities .

Secondly, the courts assess whether the debtor's business can continue. Conversion of a receivership procedure into liquidation by order of the court is required if it is not possible to take into account the funds in escrow or the capacity of the group of companies to which the debtor belongs to finance the continuation of the business  or if the financial effort proposed by the debtor appears difficult to make in view of the extent of its liabilities and the possibilities for developing its business . The courts also check whether the continuation of the business does not represent a risk for the employees . Conversely, there is no need to open a court-supervised liquidation if the business continues, is increasingly profitable and the debtor is able to comply with the moratoria granted and settle his debts .

Lastly, the courts check whether a continuation or disposal plan has been proposed . The absence of a proposed plan is, in some cases, an indication that receivership is manifestly impossible. However, this is not always the case: if there are no liabilities to pay off  or if the debtor continues to operate , there is no reason to wind up the business.

Even in the presence of a proposed plan, the courts must ensure that it is viable . In the absence of any prospect of receivership for the debtor, who cannot prove that he has sufficient cash flow to meet the annual instalments under the plan , or any reference to the prospects for safeguarding and maintaining the business and production possibilities , liquidation must be declared. Similarly, the opening of a court-supervised liquidation is justified when the proposed continuation plan is based on unrealistic forecasts in light of past results and those obtained during the observation period, the announced recapitalization has never been implemented and the undertaking given by the guarantor does not guarantee the performance of its obligation , or when the debtor's projections are based on mere assertions and his proven income alone is insufficient to consider a receivership plan with a view to continuing the business and discharging the liabilities . Conversely, conversion is unfounded where the plan presented, which provides for deadlines, remissions and debt waivers, enables the business to continue, jobs to be maintained and liabilities to be cleared .

Cass. com., 17 November 2015, LawLex202100005090JBJ (LJ).

Cass. com., 22 January 2013, LawLex202100001846JBJ (LJ).

Cass. com., 10 May 2012, LawLex202100002085JBJ (LJ).

Cass. com., 15 May 2019, LawLex202100002077JBJ (LJ).

Cass. com., 29 April 2014, LawLex202100002086JBJ (LJ).

Cass. com., 17 November 2015, LawLex202100005090JBJ (LJ) ; LawLex202100002605JBJ (LJ).

Cass. com., 6 July 2010, LawLex202100004434JBJ (LJ).

Cass. com., 6 October 1992, LawLex202100005902JBJ (LJ).

CA Metz, 3 March 2022, LawLex202200006452JBJ (LJ).

Cass. com. 11 February 1997, LawLex202100004172JBJ (LJ), holding that the conversion of a receivership common to several companies into a court-supervised liquidation due to the merger of their assets and liabilities is justified in the absence of the drafting of a settlement plan concerning all the natural and legal persons involved.

Cass. com., 17 December 2003, LawLex202200007307JBJ (LJ).

CA Bordeaux, 9 June 2021, LawLex202100006075JBJ (LJ).

C. com., art. R. 631-3. See for applications, see Cass. com., 9 February 2010, LawLex202100001840JBJ (LJ);  24 May 2018, LawLex202100001839JBJ (LJ).

Cass. com. 17 June 1997, LawLex202100005149JBJ (LJ), considering that in the absence of evidence to support the contestation of the debtor's liabilities to the Treasury and URSAFF, liquidation by order of the court is required if the proposed receivership plan does not appear to be viable.

CA Douai, 23 March 2017, LawLex202100006041JBJ (LJ).

Cass. com., 12 November  1997, LawLex202100002070JBJ (LJ).

CA Aix-en-Provence, 12 June 2014, LawLex202100006030JBJ (LJ).

Cass. com., 21 February 2012, LawLex202100002072JBJ (LJ).

CA Lyon, 13 May 2015, LawLex202100005316JBJ (LJ).

Cass. com., 1 March 2016, LawLex202100001849JBJ (LJ).

Cass. com., 20 June 2018, LawLex202200004403JBJ (LJ)

Cass. com., 8 July 2008, LawLex202100005395JBJ (LJ); 28 February 2018, LawLex202100002062JBJ (LJ); 23 April 2013, LawLex202100002060JBJ (LJ).

Cass. com., 20 March 2019, LawLex202100001797JBJ (LJ).

Cass. com., 4 May 2017, LawLex202100002090JBJ (LJ).

Cass. com., 4 July 2018, LawLex202100004219JBJ (LJ).

Bankruptcy Law

638. Conversion of a receivership procedure into a court-supervised liquidation

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638. Conversion of a receivership procedure into a court-supervised liquidation

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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