There are 3 insolvency procedures that apply only to traders (natural persons and legal persons):
- the bankruptcy procedure, whose purpose is to liquidate the estate of an insolvent trader who has lost their creditworthiness. The aim of this procedure is to satisfy creditors' claims;
- an arrangement with creditors (concordat préventif de faillite), which is an alternative available to debtors under certain conditions, and whose purpose is also to satisfy creditors' claims from the debtor's estate without causing the debtor to go bankrupt;
- the administration procedure (gestion contrôlée), whose purpose is to reorganise the business of traders who apply for it. However, traders can also file for administration in cases where they wish to ensure the best possible realisation of their assets.
The bankruptcy procedure is initiated either:
- by acknowledgment of the debtor;
- by way of a court summons by one or more creditors; or
- automatically by the court.
The creditor of a trader or a commercial company who is certain that their debtor can no longer meet their financial commitments can file a bankruptcy petition against the debtor.
Who is concerned
Any creditor who has an outstanding debt with a trader or a commercial company can file a bankruptcy petition against the latter.
To be declared bankrupt, the debtor must meet all 3 of the following criteria:
- be a commercial company or a natural person registered as a trader: i.e. the debtor carries out commercial acts as his/its profession;
- be in a state of cessation of payments: i.e. it is impossible for the debtor to pay their debts. Having occasional financial difficulties is not enough;
- have lost their creditworthiness. This may come about as a result of their being unable to obtain fresh funds in order to pay off their debts and bring the cessation of payments to an end, or their creditors' refusal to grant an extension to the payment period.
In order to file an allowable bankruptcy petition, the creditor must:
- have a claim that is:
- unquestionable, i.e. the claims actually exists and is indisputable;
- liquid, i.e. the amount of the claim may be valued in a currency that is legal tender;
- payable, i.e. the claim is due for payment;
- act in good faith. Filing a bankruptcy petition:
- may not be used to intimidate a debtor;
- is not an ordinary debt collection procedure.
How to proceed
Filing a bankruptcy petition
The creditor must summon the debtor to appear before the commercial district court having jurisdiction (tribunal d’arrondissement siégeant en matière commerciale) within 8 days. This is the court whose jurisdiction corresponds to the trader's registered address or the location of the commercial company's registered office.
The bankruptcy petition must include:
- the date;
- if the creditor is:
- a natural person: their surname, first name, profession and home address;
- a legal person:
- its legal form, company name and registered office;
- listed in the Trade and Companies Register (Registre de commerce et de sociétés): its registration number;
- the surname, first name, address and signature of the court bailiff;
- surname, first name, profession of the debtor;
- purpose of the claim and a summary of the arguments;
- the court with jurisdiction over the application;
- the 8-day deadline to appear in court;
- the documents on which the application is based;
- a statement that if the notification is served and the defendant does not appear, the judgement to be rendered will be deemed to have been rendered in the presence of the parties involved and may not be challenged;
- the location, date and time of the hearing at which the case will be called.
The summons is served to the opposing party by a bailiff.
Appearance in court
The debtor must appear in person or be represented by:
- a lawyer;
- their spouse or partner;
- relatives by blood or marriage in the direct line of descent; parents, grandparents, great-grandparents, children, grandchildren, great-grandchildren, etc.;
- relatives by blood or marriage in the collateral line up to the 3rd degree, including: brother, sister, uncle, aunt, nephew, niece, brother-in-law, sister-in-law, etc.;
- persons exclusively in their personal employ or the employ of their company.
The creditor(s) must prove the existence of:
- their claim(s);
- the 3 criteria required for bankruptcy.
The court will base its judgement on the information provided, and:
- will dismiss the claim if it is not justified; or
- issue a declaration of bankruptcy if all the criteria are met.
Generally, the declaration of bankruptcy sets the date of cessation of payments to a date prior to the declaration. As a general rule, this date may be no more than 6 months prior to the bankruptcy.
The period between the 'actual' date of cessation of payments and the starting date of the bankruptcy is referred to as the 'suspect period' (période suspecte).
Means of recourse against the declaration of bankruptcy
Debtors who do not appear at the proceedings that result in their bankruptcy may lodge an objection to the declaration of bankruptcy.
The objection must be lodged within 8 days of the publication of the bankruptcy in the newspaper that is published in the location closest to the debtor's registered address.
Any individual who has an interest in having a declaration of bankruptcy withdrawn and who was not party to the proceedings that resulted in the bankruptcy may also lodge an objection.
Such an individual has 15 days from the publication of the bankruptcy in the newspapers that are published in the locations or cities closest to the bankrupt party's place of residence or registered office.
The objection is lodged with the commercial district court that issued the contested declaration of bankruptcy. It must be lodged under the same conditions as the bankruptcy petition.
The district court's decision may be appealed within 15 days of the notification of the judgement.
Only those persons who were party to the proceedings that resulted in the declaration of bankruptcy may lodge an appeal.
The appeal is filed with the Court of Appeal.
The services of a lawyer admitted to the bar must be engaged.