Group insolvency proceedings: the autonomy of the SCI does not block the global plan

An SCI holds a rental property in Paris, valued between 1.3 and 1.6 million euros. It is part of a family group where several companies are in difficulty. The court opens a sauvegarde proceeding (preventive measure to avoid cessation of payments) for all the entities, then examines a global plan providing for the sale of the SCI’s property in order to bail out the group. The SCI objects: "I am a separate legal entity, my fate must be settled independently of the others!" This is a conflict that any owner of a property investment company can dread. Can an essential asset be sacrificed to save a group? How far does the principle of company autonomy go? The judgment handed down by the Court of Cassation on 19 December 2018 provides nuanced answers that will interest both landlords and commercial property investors.

This decision settles a delicate question at the crossroads of company law and insolvency law. It reminds that a company, even within a group, retains its own estate. However, it also opens the door to a more global approach when the court approves the reorganisation plan. What does this subtle balance mean in practice for your properties and your rents? Let’s break down this case law that could well change the game for many property structures.

Are you the owner of an SCI subject to cash-flow tensions within a group? A tenant of premises held by a complex structure? A developer considering an acquisition in a restructuring context? This article gives you the keys to anticipate the risks and seize the opportunities revealed by the highest court.

The facts: a story as it happens every day

The company Les Sources, a property investment company (société civile immobilière), owns a prestigious property located in Paris. Its value, between 1.3 and 1.6 million euros, makes it a strategic asset. It is part of a family group comprising several operational companies. Financial difficulties arise. Rather than waiting for cessation of payments (the state where available assets no longer allow meeting due liabilities), the directors seek the opening of a sauvegarde proceeding for all the entities. The Commercial Court grants this request after verifying that each company individually satisfies the legal conditions.

When it comes to developing a lasting solution, disagreements break out. The global plan draft provides that the property of SCI Les Sources will be sold during the plan execution phase, seeking the best possible offer, in order to release cash to clear the group’s liabilities. But the SCI protests: it considers it has sufficient own resources, notably thanks to the rents collected, to pay off its debts without selling off its assets. It invokes the principle of a legal entity’s autonomy, according to which each company has a separate estate and cannot be compelled to answer for the debts of the other companies in the group. The judicial battle begins.

The court nevertheless approves the plan including the sale of the property. The SCI appeals, arguing that this decision disregards its legal independence. The Court of Appeal confirms the judgment, holding that "the coherence of the entire project requires a global approach." The SCI then lodges an appeal to the Court of Cassation, hoping to have a violation of the fundamental principle of autonomy recognised. Can you imagine the anguish of the manager of this SCI, seeing his working tool threatened by the debts of third-party companies? This is nevertheless a situation experienced by many property owners integrated into group structures, in Paris as elsewhere.

The court's reasoning — decoded

The Court of Cassation first recalls a principle set out in article L. 620-2 of the Commercial Code (relating to the opening of collective insolvency proceedings): the autonomy of the legal entity requires that the conditions for opening collective proceedings be assessed separately for each company in a group. In concrete terms, one cannot open a sauvegarde or judicial reorganisation for a company simply because it belongs to a group in difficulty; it must itself be in the legal conditions (difficulties justifying a sauvegarde, or state of cessation of payments for reorganisation). Each company is therefore examined individually, taking into account its own assets, its liabilities, its recovery prospects.

But then, and this is the heart of the judgment, the Commercial Chamber adds: "nothing prohibits the court, when examining the solution proposed for each of them, from taking into account, by a global approach, the coherence of the project in light of the solutions envisaged for the other companies in the group." In other words, once the proceedings have been validly opened for each entity, the judge can – and must – ensure that the reorganisation plans do not contradict each other and that they form a coherent whole effectively enabling the saving of the economic activity as a whole. The solution adopted for the SCI can therefore be influenced by the necessities of the group’s reorganisation, including by imposing the sale of an asset if that serves the collective purpose of the proceedings.

The Court thus dismisses the ground of appeal that criticised the lower courts for having "given precedence to the group’s interest over that of the SCI." It confirms that this global approach, far from disregarding autonomy, is its pragmatic extension: the proceedings are distinct but interdependent in their effects, and the court must avoid contradictory decisions that would lead to the ineffectiveness of the measures taken. The judgment does not constitute a spectacular reversal, but it opportunely clarifies a grey area. It is part of a jurisprudential trend that, since the 1990s, has been admitting bridges between the proceedings of companies in the same group provided that commingling of estates is avoided. Here, no commingling (the estates remain distinct), but a forced coordination of the plans.

What this changes for you — in practical terms

If you hold an SCI within a group, this decision should alert you. Your property may be considered a "mutualised" asset in the event of global difficulty. Even if your company is healthy, the judges could impose its sale as part of a group plan if justified by overall coherence. For example, imagine a Parisian SCI owning a commercial premises rented for €5,000 per month. If the group is in judicial reorganisation, the court may decide to sell this property to clear the liabilities of other entities, even though the rents are sufficient to cover the SCI’s charges.

For tenants of such a building, a change of owner during a plan may lead to a renegotiation of leases or, conversely, reassuring continuity if the new owner continues the letting management. If you are a tenant in Paris, always check the financial health of the group behind your landlord: a global plan can affect your rights, even indirectly.

As for potential purchasers, the judgment opens up opportunities. The sale ordered within a global plan is often made at attractive prices, because the goal is to obtain liquidity quickly. A property in Paris valued at 1.5 million euros could be sold for 1.2 or 1.3 million in this context. You must nevertheless be extremely reactive and well advised to seize these deals. Careful: the court controls the process and requires total transparency; any attempt at fraudulent undervaluation is sanctioned.

Finally, if you are the manager of an SCI in difficulty or a member of a group, anticipate. A clear separation of activities and estates is no longer sufficient to guarantee impermeability between companies when plans are drawn up. It becomes essential to present individualised reorganisation projects that are compatible with a consolidated vision, failing which the court could impose its own solution.

Four tips to avoid this type of dispute

• Regularly audit intra-group links: Carry out an annual review of financial flows, cross-guarantees, the SCI’s commitments to the other entities. A precise mapping will allow you to detect contagion risks upstream.
• Ensure genuine separate governance: Each company must have autonomous management, separate accounts, and decisions taken in its own interest. This reinforces respect for autonomy before the court.
• Prepare individualised plan Bs: For each SCI, develop an independent crisis scenario: what charges can be reduced, what assets could be sold independently of the other companies. In the event of proceedings, you will be able to propose a dedicated solution, consistent with the 2018 judgment.
• Consult a specialist lawyer before any strategic decision: A restructuring or sale project within a group must be analysed from the perspective of collective insolvency proceedings. A preventive one-hour consultation can save you from costly conflicts.

In-depth analysis: related case law and developments

The judgment of 19 December 2018 is part of a jurisprudential line that admits exceptions to the principle of autonomy in the presence of commingling of estates or fictitiousness. For example, the Court of Cassation had already ruled that collective proceedings of companies in a group could be extended on grounds of commingling (Cass. com., 19 Feb. 2002, no. 99-10.388). Here, we do not go as far: no extension, but a coordination of plans.

More recently, the Commercial Chamber recalled that the global approach does not allow infringing the own rights of each company's creditors (Cass. com., 16 Sept. 2020, no. 19-13.722). The balance is therefore subtle. The trend is towards greater consideration of the economic reality of the group, without totally sacrificing legal autonomy. Property law practitioners in Paris and Île-de-France must integrate this collective dimension into their structures.

Key takeaways

FAQ:

• Can my SCI’s property be sold against my will if another company in the group is in difficulty? Yes, if the court considers that the sale is consistent with the overall group reorganisation plan, and this even if your SCI is not in cessation of payments.
• Can the judge commingle the estates of all the companies in the group? No. The judgment maintains the separation: the opening conditions remain assessed individually. Commingling of estates (where assets and liabilities are mixed) is subject to strict conditions, which were not met here.
• What remedies if the SCI opposes the global plan? You can challenge the judgment approving the plan, but chances of success are limited if the Court of Appeal considers the global approach justified. Prepare credible alternatives beforehand.
• Does this case law apply only to sauvegarde? It applies to all collective insolvency proceedings (sauvegarde, judicial reorganisation, even liquidation) whenever a plan is drawn up for several entities.
• Can a tenant object to the sale of the leased property during the plan? The tenant has no standing to oppose the sale itself, but benefits from the continuation of the lease, unless otherwise provided or decided by the court in exceptional cases.

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