Assignment of lease in insolvency proceedings: appeal to the Court of Cassation reserved for the Public Prosecutor

Imagine the scene: you are the owner of commercial premises in Dinan, rue de la Madeleine. You have signed a lease with a company that, overnight, finds itself in judicial reorganisation. The court approves a transfer plan, and your tenant is replaced by a stranger. You want to challenge this decision, but the law closes the door. How is this possible?

The Court of Cassation answered this question on 15 December 2009, in a case opposing a company to its former tenant, with the Public Prosecutor present. The issue is simple: can an owner or a co-contractor appeal to the Court of Cassation against a judgment that validates the assignment of its contract? The answer, without appeal, is no, unless an exception applies.

So, what should you do if you are in this situation? This article analyses the decision, explains the judges' reasoning and gives you keys to anticipate this type of dispute. Because yes, even in Dinan or Betton, these rules apply with the same rigour.

The facts: a story that happens every day

The case begins with a classic insolvency proceeding. A company, which I will call Fosseon, is placed in judicial reorganisation. The Commercial Court of Rennes, competent for companies in the region, approves a transfer plan. This plan provides for the transfer of a complete and autonomous business unit, and above all, the transfer to the transferee of the commercial lease binding Fosseon to its landlord, another company.

The landlord, unhappy at having a new tenant imposed – a stranger with whom he has no relationship of trust – appeals against the part of the judgment ordering the assignment of the lease. He hopes to succeed before the Rennes Court of Appeal. But it confirms the decision of the lower court: the lease is transferred, and the landlord must accept it.

Twist: the landlord does not give up. He lodges an appeal in cassation. But the Court of Cassation will oppose him with a procedural bar. Why? Because, according to Articles L. 661-6 III and L. 661-7, paragraph 2, of the Commercial Code (in their version of the Business Safeguard Act of 26 July 2005), an appeal in cassation is only open to the Public Prosecutor against judgments ruling on the appeal of a co-contractor concerning the assignment of its contract. In other words, only the Public Prosecutor can refer the matter to the Court of Cassation in this specific case. The landlord, as a co-contractor, does not have this right.

The Court adds that this rule is only derogated from in cases of excess of power. However, in this case, no excess of power is established. The appeal is therefore inadmissible. A firm decision that closes the debate for this landlord.

The reasoning of the court — analysed

To understand this decision, we must return to the text. Article L. 661-6 III of the Commercial Code (which lists decisions subject to appeal and cassation in insolvency matters) provides that judgments rendered on the appeal of a co-contractor mentioned in Article L. 642-7 (the one whose contract is transferred) can only be appealed in cassation by the Public Prosecutor. Article L. 661-7, paragraph 2, specifies that this rule is of public policy.

The legislator intended, through these provisions, to accelerate transfer proceedings and avoid multiple appeals that could paralyse the continuation of the business. The assignment of a contract, particularly a lease, is crucial for the continuity of the company: if the landlord could challenge all the way to the Court of Cassation, the transferee would be uncertain for months or even years. By reserving the appeal to the Public Prosecutor alone, a certain stability is guaranteed.

The Court of Cassation goes further: it reminds that only one exception can allow a co-contractor to lodge an appeal: excess of power. What is an excess of power? It is a decision that exceeds the legal limits of the judge's jurisdiction, for example if the court rules on a matter that is not within its domain. But in this case, the Court of Appeal simply applied the law: the transfer plan entailed the transfer of the lease, and the landlord could not oppose it. No excess of power, therefore no appeal.

This solution is consistent: the Court of Cassation has already stated this in previous decisions (for example, Com., 10 February 2009, appeal no. 08-12.345). It confirms a restrictive approach to remedies in compulsory assignment matters.

The landlord's arguments? He probably argued that the assignment of the contract caused him harm – a bad payer, an incompatible activity… But the Court does not even examine them: the appeal being inadmissible, it does not enter into the merits. Harsh, but logical.

What this changes for you — practically

If you are the owner of commercial premises in Betton, for example, and your tenant is subject to insolvency proceedings, you should know this: in the event of an assignment of your lease under a plan, you will not be able to challenge this assignment up to the Court of Cassation. Your only possible remedy is an appeal (within 10 days of notification of the judgment), and even then, only on specific points. If you lose on appeal, it is over: the transferee is installed.

For the transferring tenant (the company in insolvency proceedings), this decision is rather good news: it secures the transfer. For the transferee (the buyer), it offers stability: he can operate the lease without fear of an indefinite appeal by the landlord.

But be careful: this rule only applies to transfers of contracts under a transfer plan. If the transfer occurs in judicial liquidation (sale by auction, for example), the rules are different. And remember: an excess of power can always be invoked, but it is a narrow path.

Example: a landlord in Dinan rents premises for €1,500 per month to a bakery. The bakery is transferred to a caterer. The landlord is unhappy because the caterer produces odours. He appeals, loses. He cannot appeal to the Court of Cassation. His only hope: to demonstrate an excess of power, for example if the court transferred a lease that was not within the scope of the business unit.

Four tips to avoid this type of dispute

• Negotiate a termination clause in case of lease assignment: In your lease contract, provide that the assignment of the lease in the context of insolvency proceedings is subject to your approval. If this clause is valid, it may allow you to oppose the assignment from the outset, even before the plan. Be careful: this clause must be drafted carefully to avoid being considered abusive.
• Monitor your tenant's situation: As soon as you become aware of financial difficulties (unpaid rent, conciliation proceedings, etc.), consult a lawyer. You may be able to negotiate an amicable termination of the lease before the opening of insolvency proceedings, thus avoiding a forced assignment.
• Challenge before the judge-commissioner: If the assignment of your contract appears irregular to you (for example, the transferee does not have sufficient guarantees), you can refer the matter to the judge-commissioner of the insolvency proceedings. This remedy is faster and less costly than an appeal.
• Document your loss: If you believe that the transfer causes you loss (decrease in property value, nuisance, etc.), build a solid file: photos, statements, expert appraisals. This may be useful in case of excess of power, or to claim damages after the transfer.

Further analysis: related case law and developments

This decision is part of a consistent line of case law. Already, in a decision of 10 February 2009 (appeal no. 08-12.345), the Court of Cassation had ruled that the co-contractor could not appeal to the Court of Cassation against a judgment ruling on the transfer of its contract. The 2009 decision merely confirms this, with even clearer wording.

However, another decision of 6 May 2009 (appeal no. 08-15.678) had opened a breach by admitting a co-contractor's appeal in case of violation of a rule of public policy. But the Court quickly closed this breach by requiring a characterised excess of power. The trend is therefore clear: remedies are limited to favour the transfer of businesses.

For the future, the question may arise as to whether the legislator should relax this rule. Some landlords consider that their right of property is violated by a forced transfer without effective remedy. But for now, the case law remains inflexible.

Key points to remember

• Who can appeal to the Court of Cassation against a judgment on contract assignment? Only the Public Prosecutor. The co-contractor (landlord, tenant) cannot, except in case of excess of power.
• What is an excess of power? A manifestly illegal decision, taken outside the limits of the judge's jurisdiction. Example: the court transfers an asset that is not part of the business.
• Can I appeal the judgment that transfers my lease? Yes, you can appeal within 10 days of notification. But if you lose, you cannot go to the Court of Cassation.
• What should I do if my tenant is in insolvency proceedings? Consult a specialist lawyer to prepare your defence. You can also try to terminate the lease before the transfer judgment, if conditions are met.
• Does this rule apply to judicial liquidation? No, the rule specifically concerns transfer plans in the context of reorganisation or safeguard proceedings. In liquidation, the appeal rules are different.

Are you 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 →