Judicial winding-up of a business

Verified 15 December 2023 - Legal and Administrative Information Directorate (Prime Minister)

Judicial winding-up concerns a business in a state of cessation of payments and whose recovery is clearly impossible. The procedure terminates the company's activity. Its assets are then sold to allow payment to the various creditors. Small businesses may, under certain conditions, resort to simplified compulsory winding-up.

Judicial winding-up

Judicial winding-up proceedings must be requested by the head of the business in the 45 days that follow the cessation of payments.

Judicial winding-up proceedings may also be initiated at the request of the public prosecutor's office or on assignment of a creditor (supplier, owner of the commercial premises, Urssaf). A request for the opening of proceedings reconciliation may not have taken place during that period.

The court may order a management ban against the director who has not requested the opening of the judicial liquidation within the 45-day period.

Warning  

The director of a self-employed business (SEL) who is late in requesting the opening of a judicial winding-up is not sanctioned by the court. Only the professional body to which it is attached (for example, the Bar Association, architects) can impose a management ban on it. In this case, it is a disciplinary sanction.

The court competent to carry out the judicial winding-up depends on the activity carried out by the business.

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Commercial and/or craft activity

In order to request the opening of winding-up proceedings, the Head of company must complete the request for the opening of winding-up proceedings.

Form of application for judicial redress or liquidation

He must then file it with the Registry of the Commercial Court of the place of the registered office of the business.

Who shall I contact

The application for winding-up proceedings shall be accompanied by the following documents:

  • 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
  • A statement of the amount of the claims and debts, indicating, as appropriate, the name or name and domicile of the creditors and, in the case of employees, the total amount of the sums outstanding
  • Statement of assets and liabilities of collateral and off-balance sheet commitment
  • Summary inventory of company assets, rights and obligations
  • In the case of a business with members jointly and severally liable for social debts (for example, a CNS: titleContent, a list of them together with an indication of their name and domicile
  • The name and address of the representatives of the Social and Economic Committee (ESC) entitled to be heard by the Court if they have already been appointed
  • Annual accounts for the last financial year
  • Cash position (list of receivables and debts) 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

Liberal activity

In order to request the opening of a bankruptcy, the director must complete the following application form:

Form of application for judicial redress or liquidation

He must then file it with the Registry of the Court of Justice of the place where the business has its registered office.

Who shall I contact

The application for winding-up proceedings shall be accompanied by the following documents:

  • Unique company identification number (Siren)
  • 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 the name or name and domicile or registered office of the creditors and, for employees, the total amount of unpaid sums
  • Statement of assets and liabilities of collateral and off-balance sheet commitment
  • Summary inventory of company assets
  • Annual accounts for the last financial year
  • Cash position (list of receivables and debts) 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 business pursues a liberal profession subject to a legislative or regulatory statute or whose title is protected, designation of the professional order or authority to which the business belongs

FYI  

Judicial winding-up may be ordered during the period of observation of proceedings in backup or judicial redress.

If the liquidation application is accepted by the court, the court orders the opening of proceedings (i.e. opening judgment) and appoints the parties involved in this procedure (liquidator, judge-commissioner, employee representative).

Appointment of interveners to the proceedings

The court shall designate a judge-commissioner responsible for ensuring that the procedure proceeds expeditiously and that the interests at stake are protected. It shall also designate a receivership and one employee representative.

Appointment and assignment of the liquidator

The court shall appoint a liquidator who shall carry out the winding-up operations at the same time as the verification of claims.

As soon as the proceedings are opened, the liquidator shall administer the company and shall:

  • Company Management
  • Verification of claims
  • Sale of the goods (goods, materials, immovable property, right to lease, etc.) either as part of an overall sale of the company (disposal plan) or through separate sales (the funds are then divided among the different creditors according to the rank of each)
  • Dismissal of employees and payment of wages
  • Recovery of sums due to the company, if necessary in legal proceedings
Appointment of an employee representative

If it exists in the company, the Social and Economic Committee (ESC) must appoint a representative from among the employees of the company. This representative checks claims arising from employment contracts and checks the payment of sums to employees.

Publicity of the opening judgment

The opening judgment shall be published by the Registrar of the Court of First Instance:

  • At SCR: titleContent for a commercial activity or RNE: titleContent for an artisanal activity or the register kept by the court registry for other activities
  • To the Official Bulletin of Civil and Commercial Advertisements (Bodacc.fr)
  • In a legal listing support

FYI  

Within 2 months of the publication of the opening judgment in the Bodacc: titleContent, creditors must to declare their claims the liquidator in order to recover the amount of their claims.

The opening judgment has immediate consequences for the company, its manager and its employees.

Termination of business

The opening of the judicial liquidation shall entail the cessation of the activity of the company. Occasionally, continued activity is permitted.

Principle of cessation of activity

In principle, winding up by the courts entails the cessation of the business' activity.

The director is relieved of his duties and the management of the company is entrusted to the liquidator.

Maintenance of activity

The continuation of the activity may be authorized by the court for a maximum period of 6 months in one of the following cases:

  • Total or partial divestiture of the company is possible.
  • The public interest or the creditors' interest demands it.

In these 2 cases, the court appoints a court administrator to manage the company. He will exercise the powers of the liquidator.

Termination of employment contracts

The liquidator must implement the procedure for economic redundancy and must consult the Social and Economic Committee (ESC) if it exists.

The employment contracts between the employees and the company in difficulty shall be terminated within 15 days of the judgment pronouncing the winding-up by the courts or of the expiry of the authorization to continue the activity.

This period shall be extended to 21 days where employment protection plan (ESP) is established.

If the liquidator is obliged to set up a PSE, he must submit it to the Dreets: titleContent for validation or approval.

The Dreets shall take a decision within 4 days of the date of the last meeting of the ESC.

Claims arising from the termination of the employment contract (wages, bonuses, allowances, contributions and social contributions, etc.) shall be covered by the contribution to the wage guarantee scheme (AGS).

Effect of judgment on creditors

The opening judgment has the following effects.

Discontinuation of individual proceedings

The opening judgment prevents any legal action against the company to obtain payment of a sum of money: it may be an action for payment of rent or a sale price.

Any legal action to terminate a contract for default is also suspended or prohibited.

Interests price interruption

The opening judgment sets the price of interest (contractual, legal, etc.) and surcharges, with the exception of interest on loans of more than 1 year.

The court shall declare the liquidation closed in one of the following situations:

  • When all creditors are uninterested (exceptional situation), that is, the company has been able to repay all creditors and still has money that it will distribute to the partners
  • When the company faces a shortage of assets, that is, the company no longer has enough money to repay all the debts

After the winding-up has been completed, individual creditors' actions against the company in liquidation are no longer possible.

However, in the event of tax evasion, concealment of assets or personal or criminal sanctions against the director, creditors regain their right to sue the company in liquidation.

Simplified judicial winding up

A business shall benefit from simplified winding-up where 3 following conditions are respected:

  • The asset does not include real estate (land, building for example)
  • The number of employees during the 6 months preceding the opening of the simplified winding-up procedure shall be no more than 5.
  • Revenue excluding tax is less than or equal to €750,000.

The court has the possibility to revert to the common rules of judicial liquidation at any time if the liquidator discovers the existence of a real estate asset.

In order to request the opening of the simplified winding-up procedure, the director must complete the form request opening of the winding-up proceedings

He must then file it with the registry of the court on which the business depends.

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Business with a commercial/craft activity

In order to request the opening of winding-up proceedings, the director must complete the request for the opening of winding-up proceedings.

Form of application for judicial redress or liquidation

He must then file it with the Registry of the Commercial Court of the place of the registered office of the business.

Who shall I contact

The application for winding-up proceedings shall be accompanied by the following documents:

  • 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
  • A statement of the amount of the claims and debts, indicating, as appropriate, the name or name and domicile of the creditors and, in the case of employees, the total amount of the sums outstanding
  • Statement of assets and liabilities of collateral and off-balance sheet commitment
  • Summary inventory of company assets, rights and obligations
  • In the case of a business with members jointly and severally liable for social debts (for example, a CNS: titleContent, a list of them together with an indication of their name and domicile
  • The names and addresses of the representatives of the Social and Economic Committee entitled to be heard by the Court if they have already been appointed
  • Annual accounts for the last financial year
  • Cash position (list of receivables and debts) 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

Business engaged in a liberal activity

In order to request the opening of the simplified winding-up procedure, the director must complete the following application form for the opening of the winding-up procedure:

Form of application for judicial redress or liquidation

He must file it with the registry of the court of justice of the place of the registered office of the company.

Who shall I contact

The application for judicial winding-up shall be accompanied by the following documents:

  • 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 the name or name and domicile or registered office of the creditors and, for employees, the total amount of unpaid sums
  • Statement of assets and liabilities of collateral and off-balance sheet commitment
  • Summary inventory of company assets
  • Annual accounts for the last financial year
  • Cash position (list of receivables and debts) 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 business pursues a liberal profession subject to a legislative or regulatory statute or whose title is protected, designation of the professional order or authority to which the business belongs

1. Verification of claims

In practice, debts shall not be verified as a whole.

Only wage claims and those which can be settled with the available assets (according to their rank).

2. Sale of property

The liquidator shall sell the movable property within 4 months of the decision ordering the simplified winding-up procedure.

This is done in one of the following ways:

  • Over-the-counter (over-the-counter with the agreement of the seller and buyer)
  • At public auction

3. Settlement of creditors

After the verification of claims and the sale of assets, the liquidator shall include his proposals for apportionment in the statement of claims.

It shall assess the amount of foreseeable legal costs.

The statement of claims is thus completed and lodged at the Court Registry.

The statement of claims shall be published only if the sums to be apportioned allow payment of all creditors.

If the sums to be allocated allow only the payment of preferred creditors (i.e. those with a safety or the Treasury, for example), the statement of claims is not published.

Any interested party may take cognizance of this statement of claims and lodge a complaint before the Judge-Commissioner.

The liquidator then allocates the sums according to the proposals of the liquidator or the decision of the judge-commissioner.

The simplified judicial winding-up shall be closed at the latest within 6 months after the opening of the simplified bankruptcy procedure.

However, the proceedings have been closed within 1 year when the 2 conditions are met:

  • The company employs more than 1 employee
  • Duty-free turnover is greater than €300,000

In any case, the court can extend the procedure by 3 months.