Bankruptcy Law

Under Article L. 621-2 of the Commercial Code, which is applicable to the receivership procedure on the basis of Article L. 641-2, a procedure against a debtor may be extended to one or more other persons if the legal entity is fictitious.
The notion that a legal person is fictitious refers to an entity which only has the appearance  of a company but which does not have the legal elements necessar …

Legal persons in appearance

Under Article L. 621-2 of the Commercial Code, which is applicable to the receivership procedure on the basis of Article L. 641-2, a procedure against a debtor may be extended to one or more other persons if the legal entity is fictitious.

The notion that a legal person is fictitious refers to an entity which only has the appearance  of a company but which does not have the legal elements necessary for its incorporation. The legal person is in reality 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 : the sole purpose of such a finding is to extend the procedure initiated against the company to another company or to its managers.

First of all, fictitious status is recognized where there is no affectio societatis , i.e. no intention on the part 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 enough to show that they have formed a shell company. The Court of Cassation assesses the real reasons for which the company was formed. 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 business  of its manager, using the assets contributed by the latter . The extension of the procedure is justified where a manager pursues the same commercial activity using different but fictitious legal frameworks, without it being necessary to investigate whether there was further merger of their assets and liabilities .

The fictitious nature of a legal entity is also demonstrated when the company to which the procedure is to be extended does not carry on any real economic activity , particularly in the case of a non-trading property company (SCI) that does not actually use its real estate assets, since their acquisition alone is not sufficient to establish the existence of an autonomous activity . However, the Court of Cassation has ruled that the fictitious nature of a legal entity whose purpose is the purchase and resale of real estate, but which has acquired only one property, never used or resold, is not established where 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 company is not fictitious if the economic existence of each of the companies is characterized by the exercise of its 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 the royalties have not been paid and if misappropriation of customers is alleged .

Lastly, the fictitious nature of a legal person is established when it has no decision-making autonomy  or is financially dependent on another company in insolvency procedure . The procedure initiated against one company may thus be extended to another, considered fictitious, where the partner of the first is the true master of the business of the second, under cover of the legal person . 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 establish that the legal person is fictitious .

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 persons designated, distinct in appearance, a single company.

Cass. com., 15 January 1991, LawLex202100006421JBJ (LJ).

Cass. com., 8 February 1994, LawLex202100003714JBJ (LJ) ;  15 October e2013, 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 after having taken out a loan to finance the work, is carrying out a real activity in relation to its object, which precludes it from being considered fictitious.

Cass. com. 21 November 1995, LawLex202100003709JBJ (RJ). See however, Cass. com. 15 November 2017, LawLex202100003706JBJ (RJ), considering that an SCI that is duly constituted, identified and registered, whose corporate purpose is achieved by purchasing a building and making it available to the seller, is not fictitious if the managing partner pays the property taxes.

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

Cass. com. 15 October 2013, aforementioned; Contra. AC Paris, 1 March 2011, LawLex202100004054JBJ (LJ), holding that the fact that a parent company organizes the accounting, invoicing and payment of invoices of one of its subsidiaries, created to take over the customer base of a company whose activity was not compatible with the corporate purpose of the other companies in the group, This does not mean that the subsidiary is fictitious because it has no decision-making autonomy or separate legal personality, but only that it has pooled resources under a logistical and technical assistance agreement, which does not justify extending the procedure against the parent company.

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

See, a contrario, Cass. com. 19 February 2002, cited above, considering that the fact that two companies share the same shareholders, 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 object, does not allow the procedure opened against one of the companies to be extended to a shareholder, 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 proof of the fictivity of a company is not provided when the liquidator does not establish that the partners have not made the contributions provided for in the articles, have not shared the profits and losses and that there has been no affectio societatis; CA Chambéry, 18 December 2007, LawLex202100003629JBJ (LJ); Cass. com, 15 November 2017, LawLex202100003706JBJ, holding 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. 6th July 1999, LawLex202100004078JBJ (LJ). See also. Cass. com, 24 October 1995, LawLex202100004147JBJ (RJ), holding that the fictitious nature of a company, created for the sole purpose of sheltering the assets of another company from its creditors, is established when the latter has transferred all its real estate assets to the company in order to become a mere lessee of the premises and be required to pay a rent which has enabled the first company to acquire land and buildings; 1 October 1997, LawLex202100002154JBJ (LJ), holding that a merger of assets and liabilities 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 assets 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 cessation of payments, with the aim of continuing the latter's activity and paying her invoices is fictitious in nature; 10 March 2021, LawLex202100002786JBJ (LJ), holding that the absence of a desire to keep a company alive, created for the sole purpose of pursuing the project of the son of the sole partner, who is the sole owner of the business, to maintain the commercial activity of a company that is being judicially liquidated, establishes the fictitious nature of the company and justifies extending the judicial liquidation against it.

See in particular Cass. com, 19 November 1996, LawLex202100003715JBJ (LJ); CA Chambéry, 18 December 2007, LawLex202100003629JBJ (LJ), holding that the fictitious nature 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 a court-supervised liquidation procedure, using its operating equipment and with its former employees, neither redundant nor resigning.

Bankruptcy Law

641. Legal persons in appearance

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

641. Legal persons in appearance

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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