When a trader or a commercial company can no longer be placed under controlled management, suspend payments or seek a scheme of composition with its creditors in order to reorganise and continue its business activity, bankruptcy remains the only solution.
The trader or commercial company must then file for bankruptcy.
Any trader or commercial company that ceases payments and loses creditworthiness is in a state of bankruptcy and must file a bankruptcy petition.
The bankruptcy petition must be filed by:
- the trader himself, if the business is run on the form of a natural person;
- the decision-making body, if the business is run in the form of a commercial company (e.g. the business manager of a limited liability company (société à responsabilité limitée) or the board of directors of a public limited company (société anonyme)).
In order to file for bankruptcy, the declaring party must:
- be a trader, i.e. any natural or legal person who carries out commercial acts as his profession. This is recognised de facto for any commercial company;
- have ceased payments, i.e. the debtor is unable or refuses to meet his commitments or to pay his debts. The debt must be certain, of a fixed amount and due;
- have lost creditworthiness. This may result from an inability to obtain fresh funds in order to pay his debts and bring the cessation of payments to an end, or from the refusal of the creditors to grant an extension to the payment period.
The commercial district court (tribunal d’arrondissement) will assess whether or not the above-mentioned conditions are satisfied before declaring the bankruptcy proceedings open.
A trader or commercial company that is going bankrupt must file a bankruptcy petition with the clerk of the competent court within one month from the cessation of payments.
In principle, if a bankruptcy order is pronounced by a court of its own motion or following a creditor's petition, this indicates that the trader/commercial company failed to comply with the obligation to file for bankruptcy. For this reason, and to ensure that the manager or managers are not held personally liable, it is preferable to file a bankruptcy petition, even at a late stage, rather than do nothing.
The start date of effective cessation of payments is decided by the court before declaring the bankruptcy proceedings open. The date must fall within a time frame which is limited to 6 months before the declaration of bankruptcy.
Filing for bankruptcy
The trader must file for bankruptcy with the competent district court (which is determined depending on the domicile of the business or its registered office) within one month.
The file must be submitted in 2 copies. It is recommeded to make an appointment with the clerk of the competent district court.
The bankruptcy petition must be written on plain paper and indicate:
- the name and address of each of the partners (or the sole trader) who have joint and several liability for the commitments of the company in the case of:
- a partnership (société en nom collectif - SENC);
- a limited partnership (société en commandite);
- a cooperative company (société coopérative);
- the names of the directors or business managers, regardless of the type of company.
The bankrupt party must attach the following to the petition:
- the balance sheet of the business or a note indicating the reasons why this cannot be submitted; the balance sheet must be certified, dated and signed by the trader and must contain:
- a list and valuation of all the movable and immovable assets of the debtor;
- a statement of accounts receivable and payable;
- a profit and loss table;
- an expenses table;
- the ledgers (books and accounts) held for business accounting purposes in accordance with the general rules governing double-entry book-keeping.
Certain additional documents may also be requested, including but not limited to:
- an identity document;
- a recent extract from the Trade and Companies Register (Registre de Commerce et des Sociétés- RCS);
- a recent balance sheet and profit and loss account;
- a statement of the assets and liabilities of the company (bank balance, list of movable assets, receivable invoices, list of creditors and the amounts of receivable debts, etc.).
For every petition filed with the clerk of the court, the clerk notes receipt of the ledgers provided by the debtor and certifies the date of filing of the bankruptcy petition and appended documents with the clerk’s office.
On request, the clerk of the court will provide the bankrupt with a receipt.
Any other document concerning the bankruptcy can be submitted to the clerk’s office at a later stage without another act of deposit being necessary.
Judgement declaring the bankruptcy
The bankruptcy judgement will be handed down by the court after hearing the bankrupt party.
If the declaration of cessation of payments is not submitted within the legal deadlines, if it does not contain the names of all jointly and severally liable partners, if the bankrupt party has not supplied the required information or if such information is inaccurate, the bankrupt party may be held criminally liable.