Judicial redress for individual and micro-entrepreneurs

Verified 06 September 2024 - Directorate of Legal and Administrative Information (Prime Minister), Ministry of Justice

When a company is in cessation of payments, the head of company is obliged to make a declaration to the court (commercial or judicial) within 45 days. The court may then initiate judicial redress if there is a chance of continuing the activity. The judicial redress procedure begins with a period of observation.

The judicial redress procedure also concerns businesses. You can consult the dedicated card.

It's the head of company (sole trader or micro-entrepreneur) who must request the initiation of judicial redress proceedings. L'debt may consist either of professional debts only or of professional debts and personal debts.

This procedure may also be initiated at the request of a creditor or the public prosecutor's office.

Please note

Companies in difficulty with fewer than 20 employees with a indebted less equity less than €3 million may, under certain conditions, benefit from a simplified judicial remedy: the post-crisis treatment procedure.

The Head of company must request the initiation of judicial redress proceedings at the latest within 45 days that follow the cessation of payments .

Judicial redress proceedings may not be requested where a judicial redress procedure reconciliation is in progress.

The head of company who has deliberately delayed seeking judicial redress within 45 days may be sentenced by the court to a penalty of prohibition from managing, directing or administering a commercial, craft or agricultural company.

However, the court cannot impose a management ban on an entrepreneur engaged in a regulated liberal activity. In this case, only the professional order (e.g. Council of the Bar Association, Council of the Architects Association) can issue a disciplinary sanction.

The application for judicial redress shall be made to the commercial court or the court of justice depending on the activity carried out:

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Commercial or craft activity

In order to request judicial redress, the Head of company must complete the model application for the opening of proceedings next:

Application form for the opening of collective proceedings for the individual contractor (EI)

He must specify in this form the desired procedure:

  • or a court order if his debts are solely professional
  • or a procedure for over-indebtedness if the debts are only personal
  • either a judicial redress and an over-indebtedness procedure if he has professional debts and personal debts

In any case, it's the commercial court who decide the procedure, depending on the financial situation of the Head of company.

When personal and business debts are good distinct, the commercial court shall initiate a judicial redress procedure to deal with the professional liability and bring the matter before the over-indebtedness commission for personal liabilities. The agreement of the head of company is necessary.

Otherwise, the judicial redress process will deal with both professional and personal liabilities.

FYI  

The Banque de France provides a computer graphicswhich summarizes the different situations.

The application for judicial redress must be accompanied by subsequent documents :

  • Extract K-bis or certificate of registration in the National Register of companies (RNE)
  • State of current liabilities and available assets, and declaration of cessation of payments
  • Number of employees employed at the date of the request (name, address, etc.) and the amount of turnover at the closing date of the last accounting year
  • Quantified statement of claims and debts, indicating as appropriate the name or name and domicile or registered office of the creditors and, for employees, the total amount of sums outstanding
  • Statement of assets and liabilities of collateral and off-balance sheet commitment
  • Summary inventory of company assets
  • In the case of a business with members jointly and severally liable for social debts (for example, a CNS: titleContent), a list of them with their name and domicile
  • Annual accounts for the last financial year
  • Cash position (list of claims and liabilities) less than 1 month old
  • Honor certificate certifying that no ad hoc representative has been appointed or that conciliation has been opened within 18 months of the request
  • Act of waiver of protection of personal property the individual contractor with the name of the creditor concerned and the amount of the commitment
  • Request for treatment of over-indebtedness situation with detailed statement of income and assets and liabilities of the assets and liabilities

Please note

The cash position, the statement of amounts receivable and payable, the statement of assets and liabilities of securities and the statement of off-balance-sheet commitments and the summary inventory of assets must clearly distinguish which is the responsibility of occupational heritage and personal heritage.

This application must be filed or sent in 2 copies :

  • at the registry of the commercial court of the place where the company has its seat
Who shall I contact
  • or online through the digital court

Digital court

Liberal activity

In order to request judicial redress, the Head of company must complete the model application for the opening of proceedings next:

Application form for the opening of collective proceedings for the individual contractor (EI)

He must specify in this form the desired procedure:

  • or a court order if his debts are solely professional
  • or a procedure for over-indebtedness if the debts are only personal
  • either a judicial redress and an over-indebtedness procedure if he has professional debts and personal debts

In any case, it's the court of law who decide the procedure, depending on the financial situation of the Head of company.

When personal and business debts are good distinct, the court shall initiate a judicial redress procedure to deal with the professional liability and shall bring the matter before the over-indebtedness commission for personal liabilities.

The agreement of the head of company is necessary. Otherwise, the judicial redress process will deal with both professional and personal liabilities.

FYI  

The Banque de France provides a computer graphics which summarizes the different situations.

The Head of company shall deposit the form with the court registry the location of the seat of the company.

Who shall I contact

The application for judicial redress must be accompanied by subsequent documents :

  • Certificate of registration in the National Register of companies (NCR)
  • State of current liabilities and the available assets (supplemented by the list of debts for which payment is continued on the assets in question) and declaration of cessation of payments
  • Number of employees employed at the date of the request (name, address, etc.) and the amount of turnover at the closing date of the last accounting year
  • Statement of assets and liabilities of collateral and off-balance sheet commitment
  • Summary inventory of company assets (distinguishing between those belonging to the professional heritage and those belonging to the personal assets). The acts of waiver the protection of personal property shall also be mentioned, specifying the name of the creditor concerned and the amount of the commitment.
  • Annual accounts for the last financial year
  • Cash position (list of claims and liabilities) less than 1 month old
  • Honor certificate certifying that no ad hoc representative has been appointed or that conciliation has been opened within 18 months of the request
  • Where the company is engaged in a regulated or protected profession, designation of the professional body or authority to which it is subject
  • Act of waiver of protection of personal property the individual contractor with the name of the creditor concerned and the amount of the commitment
  • Request for treatment of over-indebtedness situation with detailed statement of income and assets and liabilities of the assets and liabilities

The court pronounces the judgment to initiate judicial redress when a plan to get the company out of its difficulties seems possible.

The Registrar of the Court inform the contractor the opening of proceedings within 8 days of its delivery.

It shall also carry out the following publicity formalities:

  • Mention to SCR: titleContent for a commercial activity and/or RNE: titleContent for a craft or professional activity
  • Notice to the Official Bulletin of Civil and Commercial Advertisements (bodacc)

This opening decision has the following effects:

  • It is setting up an observation period that will allow a diagnosis of the company to be made and a recovery plan to be prepared.
  • It designates the procedural bodies which will intervene in the procedure: it is the Judge-Commissioner, judicial representative and the court administrator.

1. Establishment of an observation period

The judgment initiating the redress procedure shall open a observation period which makes it possible to assess the chances of recovery.

The observation period lasts a maximum of 6 months. It may be renewed once, for a maximum period of six months, at the request of the administrator, the company in difficulty or the public prosecutor's office. The public prosecutor may request a second renewal. The observation period may therefore last up to 18 months.

This period allows for a diagnosis of the situation and a balance sheet of wealth, income and debts to determine the measures that will allow to continue the activity.

The receiver, with the help of the company in difficulty, prepares the draft recovery plan.

2. Appointment of interveners to the proceedings

The court shall designate the different speakers to the proceedings:

  • Judge-Commissioner. He is responsible for ensuring that the procedure is carried out properly.
  • Judicial agent. It represents the community of creditors and acts on their behalf and in their interests.
  • Judicial administrator . He is responsible for assisting the contractor or for the administration of the company, wholly or in part, on the basis of the task assigned to him by the court. It establishes an economic and social balance sheet for the company. The appointment of a judicial administrator shall be obligatory where the company has more than 20 employees and a turnover excluding taxes of more than €3 000 000.

Please note

The court agent and the court administrator are paid by the company. This remuneration is fixed by a decree for each of their missions (e.g. assistance mission, preparation of the social and economic assessment). It also depends on the number of employees and the turnover of the company.

The judgment initiating the judicial redress opens a period of observation. At any time during this observation period, the court may order the partial cessation of the activity at the request of the Head of company himself, the judicial representative, the Public Prosecutor's Office.

The opening of an observation period has consequences for the situation of the Head of company, the contracts in progress and the creditors.

Situation of the Head of company

The Head of company shall remain in office during the observation period. His remuneration is maintained, but the judicial administrator may ask the judge commissioner to amend it.

He can no longer modify his professional assets if this results in a decrease in professional assets. For example, it cannot invest in new equipment.

If he's been surety of the company in difficulty, he may benefit from the cessation of the rate of interest and from the cessation of any interest for late payment or increase.

FYI  

In the absence of remuneration, the entrepreneur can obtain subsidies (sums paid as relief) on the assets of the company, as determined by the judge-commissioner.

Status of outstanding contracts

The business' activity continues during the observation period with the assistance of the judicial administrator, who may be responsible for overseeing the management of the company or co-managing the company with the head of company.

The Head of company continues to exercise over the company's heritage acts of disposition and administrative which are not reserved for the court administrator.

The opening of judicial redress proceedings shall not result in the termination of open contracts. It is the court administrator who determines which contracts are to be continued and which are to cease:

  • The commercial lease continues in principle. It may be terminated at the request of the owner of the premises if the tenant does not pay his rent. The court administrator may also choose not to continue the lease. In this case, the decision is binding on the owner of the premises.
  • The employment contracts employees are still going on. When there is a Social and Economic Committee (ESC) in the company, the latter must appoint a representative of the employees. Where economic dismissals are urgent, unavoidable and indispensable, the judge may authorize them.

Situation of creditors

The opening of judicial redress proceedings affects all creditors. The consequences are different depending on whether their claim arose before or after the opening judgment.

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Claims existing before the opening judgment

The opening of the judicial redress procedure has the following effects:

  • ban for the company in difficulty to pay all claim prior to the opening judgment. In practice, this means that the company no longer pays its claims from the date on which the judgment for judicial redress is issued. Creditors must therefore make a declaration of their claims to the judicial representative.
  • Suspension of individual proceedings : creditors who have not sued the company for the settlement of their claims before the opening judgment can no longer do so after.
  • Interests price interruption (legal, conventional and late) and surcharges. The bonds (natural persons) of the company in difficulty may benefit from the cessation of interest rates. However, loans of one year or more are not affected by the interruption of interest rates.

Please note

Creditors must report their claims to the judicial representative, within two months of the publication of the opening judgment in the official gazette of the civil and commercial advertisements (bodacc).

Claims arising after the opening judgment

In principle, the company in difficulty does not pay claims arising after the judgment initiating the judicial redress procedure.

In practice, the cash contributions made after the opening judgment must be repaid before all other claims. It's called the privilege of judicial redress.

However, wage claims are an exception to this rule and are always paid first.

Others debts they shall also be paid when due:

  • Claims necessary for the conduct of the procedure or observation period (e.g. payment of a delivery of goods necessary for the activity of the business)
  • Consideration for a service provided to the company in difficulty during this period (e.g. payment for plumbing)
  • Maintenance claims

To promote the continuation of the company's activity, the judge-commissioner may also authorize the payment of carriers' invoices.

At the end of the observation period, the Tribunal shall make one of the following determinations:

  • Closure of judicial redress
  • Establishment of a continuation plan (or judicial redress plan)
  • Delivered by judicial liquidation
Closure of judicial redress

Where the company has sufficient funds to pay its creditors, the court shall order the termination of judicial redress. This situation is very rare in practice.

Establishment of a continuation plan (or judicial redress plan)

Where there are substantial possibilities for redress of the company, the court shall establish a continuation plan (or court redress plan) ending the observation period. This plan is intended to enable the company to continue operating, to maintain jobs and to pay its liabilities.

After hearing the officers of the company, the administrator, the judicial representative and the staff representatives, the court shall adopt a business continuation plan. This plan shall be drawn up for duration not exceeding 10 years.

In addition, for the duration of the plan, the court shall appoint a director or agent to oversee the proper execution of the plan. At the request of the Public Prosecutor's Office, it may decide to replace one or more company officials.

The recovery plan may provide for redundancies which are necessary for the survival of the company. When a job protection plan must be drawn up, the administrator shall implement the procedure laid down in the Labor Code within one month of the judgment.

The plan may also provide for the cessation or disposal of one or more activities.

Please note

where the company in receivership can no longer pay the wages due to its employees, the latter shall be paid by wage guarantee insurance (AGS).

Delivery of the judicial liquidation

Where the remedy appears to be impossible, the court shall order the judicial liquidation.

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