Liquidation in France: the judgment, the liquidator, buyers, the closing

The court orders judicial liquidation when the business is insolvent (cessation des paiements) and its rescue is manifestly impossible (Article L. 640-1 of the French Commercial Code). It broadly corresponds to a compulsory liquidation in the UK or a Chapter 7 case in the US. It applies to companies and to all self-employed people, liberal professions included (Article L. 640-2). The director must apply within 45 days of insolvency, unless conciliation was requested in that time (Article L. 640-4). A creditor can also petition, and the public prosecutor (ministère public) can refer the case (Article L. 640-5). The case goes to the commercial court (tribunal de commerce), to the economic activities court (tribunal des activités économiques) where one exists, or to the civil court (tribunal judiciaire) for non-commercial activities. A company registered abroad whose centre of main interests is in France comes under these proceedings (Article 3 of Regulation (EU) 2015/848). Everything takes place in French.

Conditions

Insolvent, rescue manifestly impossible

Deadline

45 days to apply

From the judgment, the directors can no longer manage or sell the company's assets: the liquidator acts in their place until the closing (Article L. 641-9 of the French Commercial Code). The judgment appoints the liquidator (liquidateur) and a supervising judge (juge-commissaire), fixes the insolvency date and when the closing will be reviewed (Article L. 643-9). It stops creditors' individual actions and bars payment of debts that arose before it (Article L. 641-3). Debts not yet due become payable (Article L. 643-1). The business stops, unless the court allows it to continue for a limited period, in particular with a view to a sale (Article L. 641-10). The company is dissolved, but its directors stay in office for what is not entrusted to the liquidator. The judgment is published in the BODACC (Bulletin officiel des annonces civiles et commerciales), which starts the creditors' deadlines. For a buyer, any purchase now goes through the liquidator, not the directors.

From

The date of the judgment

Who manages

The liquidator

Liquidation is simplified by law when the business owns no real property, had no more than 5 employees in the six months before the opening and has a turnover, excluding VAT, of €750,000 at most (Articles L. 641-2 and D. 641-10 of the French Commercial Code). For a sole trader, only the absence of real property counts. The liquidator sells the movable assets, by private sale or at auction, within 4 months of the decision, the window for buyers (Article L. 644-2), and checks only the claims that can be paid and those of employees (Article L. 644-3). The court closes the case no later than 6 months after the decision, or one year when the business has more than 1 employee and a turnover above €300,000; it can extend this by 3 months at most (Article L. 644-5). At any time, it can return to the standard rules by a specially reasoned judgment (Article L. 644-6).

Thresholds

No property, 5 employees, €750,000

Closing

6 months or a year at most

The liquidator sells the assets, checks the claims and shares the proceeds among the creditors (Article L. 641-4 of the French Commercial Code), on behalf of the creditors, not the directors. A buyer has two routes. When the court considers a sale of the business feasible, it sets a deadline for offers to reach the liquidator (Article L. 642-2); each offer is in writing, states the assets, contracts, financing, price and jobs concerned, is filed at the court registry (greffe) and cannot be withdrawn. The court then adopts the sale plan (plan de cession) that best secures jobs, pays the creditors and offers the strongest guarantees (Article L. 642-5). Other assets are sold at auction or by private sale authorised by the supervising judge (Article L. 642-19). The debtor, its directors, their relatives up to the second degree and creditors acting as controllers (contrôleurs) cannot bid, even through an intermediary (Articles L. 642-3 and L. 642-20).

Offers to

The liquidator, by the court's deadline

Who decides

The court or the supervising judge

In an SARL, SAS or EURL, the company's debts do not become the director's: liquidation does not reach personal assets, except in a few cases. A director who gave a personal guarantee (caution) can be asked to pay. If mismanagement contributed to the shortfall of assets (insuffisance d'actif), the court can order the director to bear all or part of it; mere negligence is not enough, and the action is time-barred 3 years after the liquidation judgment (Article L. 651-2 of the French Commercial Code). Personal sanctions are also possible: disqualification from managing (interdiction de gérer) can target a director who knowingly failed to apply within 45 days (Article L. 653-8), for up to 15 years (Article L. 653-11). Deliberately failing to cooperate with the liquidator can lead to personal bankruptcy (faillite personnelle), a sanction rather than a procedure (Article L. 653-5). These rules cover de jure and de facto directors, wherever they live.

Guarantee

The creditor can claim from you

Mismanagement

Action possible for 3 years

Liquidation ends with a closing judgment, usually for insufficient assets; creditors then do not recover the right to pursue the debtor (Article L. 643-11 of the French Commercial Code). In a standard liquidation, the opening judgment sets the date for reviewing the closing, which the court can postpone; after 2 years, any creditor can ask for it (Article L. 643-9). In a simplified liquidation, the closing comes no later than 6 months or one year after the decision (Article L. 644-5). The company is then struck off the register. Still owed: sums claimed from a guarantor, debts arising from a criminal offence, rights attached to the creditor's person, and fraud against social security bodies. Actions resume in cases of personal bankruptcy, criminal bankruptcy (banqueroute), fraud, or a previous liquidation closed for insufficient assets less than five years earlier. A creditor who did not file in time, and was not granted relief, takes no part in the distributions (Article L. 622-26).

Standard

Date set by the judgment

Simplified

6 months or a year at most