Director liability in France: guarantees, mismanagement, disqualification

In an SARL, SAS, EURL or SASU, your personal assets are not part of the liquidation: the company has its own estate, and shareholders bear losses only up to their contributions (Articles L. 223-1 and L. 227-1 of the French Commercial Code). Four situations are exceptions: a guarantee or mortgage you signed for the company; an order to pay the asset shortfall for mismanagement (Article L. 651-2); joint liability for the company's taxes ordered by a judge (Article L. 267 of the French Tax Procedures Code); commingling of your assets with the company's, which allows the proceedings to be extended to you (Article L. 621-2 of the French Commercial Code). Your home follows the same rule. Married under the French community property regime, a guarantee signed without your spouse's express consent binds only your own assets and income (Article 1415 of the French Civil Code). In a general partnership (société en nom collectif), the partners answer for all the debts.

Principle

Losses limited to contributions

Exceptions

Guarantee, fault, tax, commingling

Residence

Same rules, in France or abroad

A personal guarantee (caution) is a personal commitment: if the company does not pay the guaranteed debt, the bank can claim it from the director who signed. The procedure changes when it can do so. In safeguard (sauvegarde) and receivership (redressement judiciaire), the opening judgment suspends proceedings against an individual guarantor until the judgment adopting the plan or ordering liquidation (Articles L. 622-28 and L. 631-14 of the French Commercial Code); in safeguard, the guarantor can also rely on the plan (Article L. 626-11). In judicial liquidation, there is no suspension: the bank turns to the guarantor for what the liquidation will not pay. Moving abroad does not end the commitment. One protection exists: a guarantee manifestly disproportionate to your assets and income, signed since 1 January 2022 in favour of a professional creditor, is reduced to the amount you could then commit (Article 2300 of the French Civil Code).

Observation

Proceedings suspended

Liquidation

The bank can act

Abroad

The commitment remains

Only if the company is in judicial liquidation, its assets do not cover its liabilities, and mismanagement by the director contributed to that shortfall. The court can then order the director to pay all or part of it: this is liability for asset shortfall (responsabilité pour insuffisance d'actif, Article L. 651-2 of the French Commercial Code). It targets de jure directors, the manager (gérant) or president, and de facto directors, who ran the company without the title, such as a shareholder or investor that took the decisions in practice. The law draws no distinction based on residence: a director living abroad faces the same action, before the French court handling the proceedings. Since the Sapin 2 Act of 9 December 2016, mere negligence no longer suffices; judges look for clearer faults, such as carrying on a loss-making business or filing late. The liquidator or the public prosecutor brings the action, within three years of the liquidation judgment.

When

Liquidation of a company

Excluded

Mere negligence

Time limit

3 years after the liquidation judgment

Personal bankruptcy as a sanction is not a debt relief procedure: it is a penalty the court can impose on a director or sole trader during receivership or judicial liquidation, never on request and never automatically. It targets serious misconduct (Articles L. 653-3 to L. 653-6 of the French Commercial Code): using the company's assets as one's own, diverting or concealing assets, abusively carrying on a loss-making business for personal benefit, keeping fictitious or manifestly irregular accounts, favouring one creditor while aware of the insolvency. It bars the person from directing, managing or controlling any business or legal entity (Article L. 653-2). The court sets its length, 15 years at most (Article L. 653-11). For a sole trader, creditors also regain the right to sue after the liquidation (Article L. 643-11). The action is time-barred three years after the opening judgment (Article L. 653-1). It applies to individuals, including the permanent representative of a corporate director.

Duration

15 years at most

To act

3 years after the opening judgment

Who

Individuals: directors, sole traders

Management disqualification is a narrower sanction than personal bankruptcy: the court can impose it instead, for the same misconduct, and limit it to certain businesses (Article L. 653-8 of the French Commercial Code). It also punishes two specific failures: having, in bad faith, failed to give the court-appointed representative or liquidator the required information within a month of the opening judgment; and having knowingly failed to request receivership or liquidation within 45 days of insolvency, without requesting conciliation. The court sets its length, 15 years at most (Article L. 653-11). Ordered by a French court, it applies in France and is entered in the national register of disqualified directors (fichier national des interdits de gérer). Separate and more serious, bankruptcy fraud (banqueroute) is a criminal offence, notably for diverting assets or keeping fictitious or no accounts (Article L. 654-2), punishable by up to five years' imprisonment and a €75,000 fine (Article L. 654-3).

Deadline

45 days after insolvency

Condition

An omission made knowingly

Effect

Applies in France

Unless personal bankruptcy or management disqualification has been ordered against you, nothing in French law prevents you from setting up or running a new company, even right after the previous one's liquidation. The liquidation of your company does not put you on the FICP, the Banque de France register of credit repayment incidents and over-indebtedness cases. The Banque de France also keeps a register of businesses and their directors, FIBEN: since 2013, a single liquidation no longer leads to an adverse rating of the director. Sanctions, on the other hand, are entered in the national register of disqualified directors. A director without an employment contract is not covered by employees' unemployment insurance. France Travail, the public employment service, pays, under conditions, the self-employed workers' allowance (allocation des travailleurs indépendants, Articles L. 5424-24 et seq. of the French Labour Code): activity ended notably through judicial liquidation, length of activity, income and resources, depending on the director's social security status.

New company

Possible, unless sanctioned

FICP

No entry because of the liquidation

Allowance

ATI, paid by France Travail