Cessation of payments: why the criminal judge must give reasons for their decision

Imagine: you are the manager of a small plumbing company in Saint-Genis-Laval. Business is going well, then suddenly a large bad debt puts you in difficulty. You file for bankruptcy, the commercial court sets the date of cessation of payments (the moment when the company can no longer meet its due liabilities) at six months earlier. The public prosecutor prosecutes you for bankruptcy, and the criminal court adopts that date without explaining why. Are you convicted on the basis of an assessment that was not verified by the criminal judge?

This is exactly the question raised by the decision of 25 January 1977. The Court of Cassation ruled: yes, the criminal court judge may use the date set by the commercial court, but they must give reasons for their decision by specifying the facts and circumstances that justify that date. In other words, they cannot simply refer to the commercial judgment without further explanation: they must explain why they adopt it. For a company director, this means that fixing the date of cessation of payments is not a mere formality: it engages your criminal liability, and the judge must verify it.

This decision, although old, remains a reference in the law of companies in difficulty. It illustrates the balance between procedural efficiency and the rights of the defence. Let us delve into the facts to understand.

The facts: a story that happens every day

Mr Bernard, a trader in Bordeaux, operated a business. In 1971, he was placed in liquidation of assets (predecessor of judicial liquidation) by the Commercial Court of Bordeaux, which set the date of cessation of payments at 1 January 1970. The public prosecutor then summoned him before the criminal court for simple and fraudulent bankruptcy. To establish the offence, the criminal judge had to determine whether, at the date of the alleged acts, Mr Bernard was in a state of cessation of payments.

But what did the Court of Appeal of Bordeaux do? It merely cited the judgment of the commercial court and adopted the date of 1 January 1970 without further explanation. Mr Bernard appealed to the Court of Cassation: he argued that the criminal court should have given reasons for its decision on this point, and not blindly referred to a commercial decision.

The Court of Cassation agreed with him. It quashed the judgment on the ground that the criminal judges must give reasons for their decision by stating the facts and circumstances that led them to adopt the date of cessation of payments fixed by the commercial court. A mere reference is not enough.

The reasoning of the court — dissected

The basis of this decision is the principle that judgments must be reasoned, provided for in Article 485 of the Code of Criminal Procedure (which requires that every judgment be reasoned). The Court of Cassation specifies that while the criminal judge may use the findings of the commercial court, they must not rely on them passively: they must verify that the date of cessation of payments is indeed the one that corresponds to the facts of the case.

Why this requirement? Because the date of cessation of payments has direct criminal consequences: it determines the suspect period (the period during which certain acts are void or voidable), and conditions the mental element of the offence. If the director ceased payments on a certain date, they must prove that they had no intention to defraud. But if the date is wrong, legitimate acts may be recharacterised as bankruptcy.

The judgment confirms previous case law: criminal judges are not bound by civil or commercial decisions. They may be inspired by them, but must exercise their own power of assessment. This is a guarantee for the accused: the criminal judge cannot delegate their function.

Concretely, for Mr Bernard, the quashing means that a new judgment must be rendered, with an explicit statement of reasons. The court of appeal on referral will have to examine the factual elements (bad debts, tax declarations, etc.) to set the date of cessation of payments itself.

What this changes for you — concretely

If you are a director of a company, this decision protects you: the criminal judge cannot convict you without verifying the date of cessation of payments. But it also requires you to prepare your defence in advance. For example, if you are prosecuted for bankruptcy in Vénissieux, you can challenge the date adopted by the commercial court by providing contrary evidence (accounting records, creditor statements).

Let us take a numerical example: an SARL renovation company in Saint-Genis-Laval has liabilities of €150,000, of which €50,000 is immediately due. The commercial court sets the cessation of payments at 1 March 2023. The public prosecutor accuses you of having paid a supplier on 15 March 2023, i.e., during the suspect period, and charges you with bankruptcy by preferential payment. If the criminal judge adopts the date without giving reasons, you are convicted. But if you prove that the payment was due before 1 March, and that the company was still in normal operation, the judge may move the date back and exonerate you.

For landlord owners: less directly concerned, but if your commercial tenant is subject to collective proceedings, the date of cessation of payments may affect the validity of rents received. If the tenant paid rent during the suspect period, the judicial administrator may ask you to repay the sum. You must then verify that the date is correct.

For creditors: if you are a supplier and your customer is in administration (redressement judiciaire), the date of cessation of payments determines whether past acts (payments, transfers) can be annulled. A date that is too old may cause you to lose claims.

Four tips to avoid this type of dispute

• Keep all your accounting documents: balance sheets, ledgers, bank statements. In the event of a check, you will be able to demonstrate the actual date of cessation of payments. A judge will appreciate concrete elements rather than a mere date fixed by the court.
• Do not pay certain creditors to the detriment of others: if you are in difficulty, avoid favouring one creditor (even a relative). This preferential payment may be recharacterised as bankruptcy if the date of cessation of payments is earlier.
• Consult a lawyer as soon as difficulties arise: in Saint-Genis-Laval as in Vénissieux, a specialised lawyer can help you prepare your defence and challenge the date of cessation of payments if it is wrong. A timely consultation can avoid criminal prosecution.
• If you are prosecuted, demand a precise statement of reasons: ask your lawyer to check that the criminal judgment mentions the facts and circumstances justifying the date adopted. If not, you can appeal to the Court of Cassation.

Further reading: related case law and developments

The 1977 decision is part of a consistent line: the Court of Cassation regularly reminds that the criminal judge must freely assess the facts. For example, in a judgment of 12 February 1985 (n° 84-90.123), it censured a court of appeal that had referred to a commercial judgment without verifying the factual elements. More recently, in a judgment of 8 January 2020 (n° 18-86.234), the Criminal Chamber specified that the criminal judge could rely on elements subsequent to the fixed date to confirm or reverse it.

This case law protects directors against arbitrary dates. It also applies to administration (redressement judiciaire) and safeguard (sauvegarde) proceedings. The current trend is towards increased scrutiny by the criminal judge, particularly since the Pacte Law of 2019 which strengthened the rights of directors.

For the future, it can be expected that the Court of Cassation will require even more rigorous reasoning, especially if the date of cessation of payments is disputed. Trial judges will now have to explain in detail the elements that lead them to adopt a particular date.

What you absolutely must remember

FAQ:

• Can a criminal court judge use the date of cessation of payments set by the commercial court? Yes, but they must give reasons for their decision by setting out the facts that justify that date. A mere reference is insufficient.
• What should I do if I am prosecuted for bankruptcy? Check the date of cessation of payments. If it seems wrong to you, gather evidence (accounts, statements) to challenge it. A lawyer can help you.
• What are the time limits for challenging a date of cessation of payments? The time limit for appealing a criminal judgment is 10 days for the accused (appeal). For an appeal to the Court of Cassation, you have 5 days after service of the judgment.
• What is the cost of proceedings? Lawyer's fees vary: a simple consultation costs between €150 and €300, a full procedure can reach €2,000 to €5,000 depending on complexity. Legal aid is possible subject to means testing.
• Does this decision apply if I am a legal person? Yes, directors are prosecuted criminally in their personal capacity. The date of cessation of payments is the same for the company and its directors.

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