Bankruptcy Law

In addition to establishing that the debtor is in a state of cessation of payments, the immediate opening of a court-supervised liquidation procedure requires that it be established that its recovery is manifestly impossible . Following an application to open a receivership procedure, the court may decide of its own motion to open a court-supervised liquidation procedure, provided that the formali …

Immediate opening of a court-supervised liquidation procedure

In addition to establishing that the debtor is in a state of cessation of payments, the immediate opening of a court-supervised liquidation procedure requires that it be established that its recovery is manifestly impossible . Following an application to open a receivership procedure, the court may decide of its own motion to open a court-supervised liquidation procedure, provided that the formalities set out in Articles R. 631-3 and R. 631-11 of the Commercial Code have been complied with . If it appears that the debtor does not meet the conditions required for the opening of a receivership procedure, the court must reject the application, in accordance with Article R. 631-11. It may then exercise its power ex officio and must, to this end, pursuant to Article R. 631-3, summon the debtor at the registrar's request, by registered letter with acknowledgement of receipt, to appear within the time-limit it sets, unless the interested parties have previously been invited to present their observations. The summons is accompanied by a note setting out the facts that justify the court exercising its ex officio power.

If a court orders the liquidation of a manager from the outset, it must state the reason why the manager's personal receivership seems manifestly impossible . Immediate liquidation is justified when a combination of factors demonstrates that the opening of a receivership procedure would not enable the debtor to meet its liabilities (i), continue its business (ii) and/or adopt a viable receivership plan (iii).

The Court of Cassation must first establish the existence of liabilities due and payable on the date of the judgment  and verify that the debtor is unable to meet them with his available assets. The absence of payment of a substantial claim and the debtor's inability to meet its liabilities with its available assets are in effect a clear indication of the impossibility of any receivership and justify a decision to wind up the business . Courts take into account the debtor's available assets , or those of the companies in the group to which it belongs . They also assess the existence of any future income and consider that the precarious financial situation of a self-employed professional, resulting from the size of his past liabilities, the fixed term of the employment contract he is about to enter into and the low level of his monthly income, make its receivership manifestly impossible . A debtor who is unable to put a figure on the amount of his pension, and whose future expert mandates are necessarily uncertain, is also unable to establish that his financial situation can be restored . Furthermore, a court to which a debtor has referred an application for the opening of an immediate court-supervised liquidation may not reject it on the basis of the applicant's motives alone, which would consist of providing legal certainty for the economic redundancies envisaged, provided that the debtor's state of insolvency has been established . The courts consider that the manifest impossibility of receivership can be established when the available assets do not allow the debtor to pay the employees and lead to their dismissal, when the continuation of the business is not established and when the disciplinary sanctions imposed on the two partners do not allow them to continue to manage the company .

In order to declare that receivership is manifestly impossible and consequently order the immediate opening of a court-supervised liquidation procedure, the Court of Cassation secondly verifies that the debtor is not continuing its business . In fact, a debtor's receivership is manifestly impossible when his sales have fallen by 75%, he is making losses and has ceased his craft business in order to take up salaried employment . A receivership procedure is also manifestly impossible to a company that is no longer in business and whose premises are empty , or a company whose principal place of business has been closed, whose business assets have been sold and which has been dormant for several years .

Thirdly, the Court of Cassation assesses any proposed receivership plan. The absence of a concrete proposal to turn around the business is likely to characterize the manifest impossibility of receivership . However, a debtor's receivership cannot be considered manifestly impossible simply because he has not made any serious proposal to turn around the business and has never sought to regularize his situation with the social security bodies . In fact, even in the absence of a proposed plan, the courts must verify whether the adoption of a viable receivership plan is conceivable . Court-supervised liquidation of a farm is justified when the managers, who claim to be able to pay off their liabilities, make no reference to the prospects for safeguarding and maintaining the business, and the absence of any agricultural production makes any receivership plan illusory . The same applies when the debtor's situation appears catastrophic and she provides no information on the conditions under which she carries on her business .

Finally, where, contrary to the assessment of the court of first instance, the debtor can show that there are real prospects for receivership, due to a significant increase in its sales and partnerships entered into for the distribution of its products, the decision to open an immediate court-supervised liquidation must be reversed .

Cass. com., 13 May 2014, LawLex202100004358JBJ (LJ).

Cass. 1re civ., 27 February 2007, LawLex202100004343JBJ (LJ).

See in particular, Cass. com., 4 January 2005, LawLex202100002066JBJ (LJ).

CA Aix-en-Provence, 13 November 2014, LawLex202100005582JBJ (LJ).

Cass. com., 12 January 2010, LawLex202100004256JBJ (LJ).

Cass. com., 25 September 2019, LawLex202100004181JBJ (LJ).

Cass. 1re civ., 27 February 2007, LawLex202100004343JBJ (LJ); Cass. com., 16 June 2009, LawLex202100004439JBJ (LJ); 26 October 1999, LawLex202100002080JBJ (LJ).

Cass. com., 26 May 2010, LawLex202100002088JBJ (LJ).

Cass. com. 13 May 2014, LawLex202100002078JBJ (LJ), holding that reasonable chances of receivership are non-existent in the absence of a sufficiently solid partner to help finance the observation period and the cost of the social restructuring recommended by an audit report.

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

Cass. com., 7 February 2012, LawLex202100001906JBJ (LJ).

Cass. com. 23 November 2004, LawLex202100004440JBJ (LJ); 4 January 2005, LawLex202100002066JBJ (LJ), holding that the pronouncement of the immediate and personal liquidation of two managers is justified, even in the absence of merger between their assets and those of the legal entity, when they have no property or assets and the company of which they are managers does not carry on any activity and holds no assets.

CA Basse-Terre, 10 May 2021, LawLex202100002923JBJ (LJ).

See in particular. Cass. com. 10 January 2012, LawLex202100004441JBJ (LJ), considering that a court of appeal cannot confirm the immediate opening of a court-supervised liquidation procedure solely on the basis of the effects of the opening judgment without characterizing liabilities due on the date of the judgment.

Cass. com., 26 October 1999, LawLex202100002080JBJ (LJ); 16 June 2009, LawLex202100004439JBJ (LJ); 8 July 2014, LawLex202100002079JBJ (LJ) ; 25 September 2019, LawLex202100004181JBJ (LJ).

Cass. com. 12 January 2010, LawLex202100004256JBJ (LJ), citing the closure of the debtor's bank account for several months as a factor making it possible to characterize the manifest impossibility of receivership; Cass. com. 8 July 2014, LawLex202100002079JBJ (LJ), considering that the accounting result generated, which is insufficient to meet the levies and pay off the liabilities, is an indication that makes it possible to conclude that any receivership is manifestly impossible.

Cass. com., 13 May 2014, LawLex202100002078JBJ (LJ).

CA Rouen, 21 October 2016, LawLex202100005822JBJ (LJ).

Cass. com., 16 June 2009, LawLex202100004439JBJ (LJ).

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

Bankruptcy Law

636. Immediate opening of a court-supervised liquidation procedure

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636. Immediate opening of a court-supervised liquidation procedure

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