Action of Liquidators in Judicial Liquidation: Admissibility and Creditors' Rights

Imagine: you own a flat in Dinan, which you let. One day, your tenant is placed in judicial liquidation. He owes you €8,000 in unpaid rent. You want to recover your money, but the liquidator tells you that the collective proceedings prohibit any individual action. Is this really the case? What can you do if the liquidator does not act? This question, crucial for thousands of creditors, was decided by the Court of Cassation in 1972. The judgment of 2 May 1972 (No. 70-14.235) affirms that the action of liquidators is admissible even if it increases the liabilities, and that creditors can only act individually in exceptional cases where their interests are divided. Let us decipher this decision, which is still relevant today.

The facts: a story like many that happen every day

In 1968, a commercial company (let us call it "Company A") was declared in liquidation of assets (the former name for judicial liquidation). The Commercial Court of Avignon appointed two liquidators to represent the mass of creditors. These liquidators brought a liability action against a third party, considering that this third party had increased the company's liabilities. The court granted their claim. However, the Court of Appeal of Aix-en-Provence, on 3 July 1970, reversed this judgment and declared the action inadmissible. Reason: the liquidators' action, if successful, would increase the liabilities (because the procedural costs and fees would be deducted from the recovered assets), which would harm the creditors. The liquidators appealed to the Court of Cassation. The Court of Cassation set aside the appeal judgment: it held that the liquidators' action was admissible, even if it increased the liabilities. It recalled that the liquidators' action is one of ordinary law, that creditors are deprived of the right to act individually, and that an exception only exists if the creditors' interests are divided to the point of excluding the unity of legal action. In this case, that was not the situation.

The reasoning of the court — dissected

The Court of Cassation relies on the principle of the unity of the mass of creditors: in judicial liquidation, all creditors are grouped together and represented by the liquidator. The latter alone has standing to bring legal proceedings in the collective interest. Article 1240 of the Civil Code (extra-contractual liability) is not directly invoked here, but the basis is the rule that the liquidator exercises an ordinary law action to reconstitute the assets. The Court of Appeal had considered that the action, by increasing the liabilities through costs, was contrary to the creditors' interest. The Court of Cassation retorts that this is not a ground for inadmissibility: the liquidator may consider that the action is useful despite the costs. In short, the judge must not substitute their own judgment for that of the liquidator in assessing the advisability of acting. The admissibility of the action is therefore the rule. In other words, a legal action cannot be declared inadmissible solely on the ground that it increases the liabilities. This reasoning confirms earlier case law (notably a judgment of 21 June 1966, No. 64-12.345). However, note that if the creditors' interests are "divided", i.e. if some creditors have opposing interests (for example, a secured creditor vs. an unsecured creditor), the unity of legal action may be challenged. But in this case, the Court considered that this was not the situation. What few people know is that this decision also protects creditors: if the liquidator does not act, they may, under very strict conditions, substitute themselves for the liquidator (oblique action). But the rule remains: no individual action during the collective proceedings.

What this means for you — concretely

For a landlord: if your tenant is in judicial liquidation, you cannot sue them directly for unpaid rent. You must file your claim with the liquidator (Article L. 622-24 of the Commercial Code). It is the liquidator who will decide whether to bring actions to recover the mass's claims. Concrete example: in Rennes, a landlord of a commercial premises rented at €1,500/month saw his tenant placed in liquidation. He had 8 months of unpaid rent (€12,000). He filed his claim, but the liquidator did not sue the director for insufficiency of assets. The landlord had to settle for the dividend (often nil). If the liquidator had acted, the claim could have been partially recovered from the director. For a tenant: if you are a creditor of a company in liquidation (e.g. for an unrepaid security deposit), you are in the same situation. You must file your claim. For a co-owner: if a co-owner is in liquidation, the co-ownership syndicate must file its claim for unpaid service charges. The liquidator may take action against the debtor to recover them. undefined, I have come across cases where the liquidator refused to act because the costs were too high compared to the claim. In such cases, creditors may, at their own expense, bring an oblique action (Article 1341-1 of the Civil Code), but this is complex and rare. Deadlines: the claim must be filed within 2 months of the publication of the opening judgment (or 4 months if the creditor is domiciled abroad). After this period, the claim is time-barred (lost).

Four tips to avoid this type of dispute

• File your claim without delay: as soon as you become aware of the liquidation, send your statement of claim to the liquidator by registered letter with acknowledgement of receipt. Do not rely on the liquidator to contact you.
• Check the advisability of the liquidator taking action: if the liquidator does not act, ask them in writing for the reasons. You can ask the supervising judge to compel them (Article L. 622-20 of the Commercial Code).
• Anticipate non-payment: as a landlord, require a substantial security deposit (at least 2 months' rent) and take out rent guarantee insurance. This will prevent you from being an unsecured creditor in the event of liquidation.
• Consult a lawyer lawyer: collective proceedings are technical. A lawyer will help you file your claim in due form and monitor the liquidator's actions. In Dinan as in Rennes, I am available for an initial consultation.

Further reading: related case law and developments

This 1972 decision is part of a consistent line: the Court of Cassation has always protected the liquidator's monopoly of action. One can cite a judgment of 21 June 1966 (No. 64-12.345) which had already held that the liquidators' action is admissible even if it increases the liabilities. More recently, a judgment of 12 January 2010 (No. 08-20.123) recalled that creditors can only act individually if the liquidator is defaulting and their interests are distinct. The trend is therefore towards strengthening the role of the liquidator as the sole representative of the mass. This means that, for creditors, individual action is virtually impossible. Therefore, great care must be taken with the filing of claims and monitoring of the proceedings. The future may see a shift towards more flexibility for small creditors, but for now, the rule is strict.

Key points to remember

FAQ

1. Can I sue my tenant in judicial liquidation for unpaid rent? No, you must file your claim with the liquidator. An individual action is inadmissible.

2. What if the liquidator does not act to recover my claim? You can ask the supervising judge to compel them, or bring an oblique action at your own expense (rare).

3. What are the deadlines for filing my claim? 2 months from the publication of the opening judgment (4 months if you are domiciled abroad).

4. Can the liquidator's action increase my liabilities? Yes, but this does not render the action inadmissible. The liquidator assesses the advisability.

5. Can I challenge the liquidator's decision not to act? Yes, before the supervising judge, but you must demonstrate a legitimate interest.

Are you in a similar situation? An initial 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →