Assignment of debt and disappearance of an EURL: when the procedure is annulled

You are a landlord in Ifs, and you have entrusted the management of your property to a company. One day, it disappears without leaving an address. What can you do if it still owes you money? Or if you need to claim something from it? The law has an answer, but it is technical: a dissolved company no longer exists, and its rights and obligations pass to its sole member. If you forget to join him in legal proceedings, everything can be annulled. That is exactly what the Cour de cassation reminded us in this decision of 7 April 2010.

Imagine: an EURL (entreprise unipersonnelle à responsabilité limitée, a single-member limited liability company) obtains a judgment ordering a debtor to pay it €50,000. Then it is dissolved. The debtor, however, receives service of the judgment and a deed of assignment of the debt to another company. But the original creditor no longer exists, and its sole member has not been joined. Result: the entire procedure is annulled. A situation that can be costly, and which this decision clarifies.

So, how to avoid this trap? And what to do if you are affected? Analysis of the decision, practical advice and concrete examples, with a focus on the Caen area, particularly Ifs and Mondeville.

The facts: a story that happens every day

Mr X, a trader in Ifs, had been ordered by a judgment of 27 May 1997 to pay a sum to the company TSA, an EURL. On 23 June 1997, this judgment was served on him. Then, on 5 March 2003, a deed of assignment of debt was drawn up, transferring the debt from TSA to the SCI BEMA. So far, everything seems normal.

But in the meantime, TSA had been dissolved. Under Article 1844-5 of the Civil Code (in its version prior to the 2001 law), the dissolution of an EURL results in the universal transfer of its assets to the sole member. In other words, all the rights and obligations of the company pass to that natural person. However, in this case, no one thought to join that sole member to the proceedings. SCI BEMA therefore acted as if TSA still existed, and assigned a debt that was no longer its own.

The debtor, Mr X, challenged the validity of the service and the assignment. The court of appeal agreed with him: it annulled the deed of service of 23 June 1997 and the deed of assignment of 5 March 2003. SCI BAMA appealed to the Cour de cassation, but the High Court confirmed the annulment. Why? Because TSA no longer had legal existence at the time of the assignment, and the sole member, the only holder of the rights, had not been joined to the proceedings. This is a violation of the adversarial principle (Article 14 of the Code of Civil Procedure: no one may be judged without having been heard or summoned).

The reasoning of the court — explained

The Cour de cassation relies on two fundamental texts. First, Article 14 of the Code of Civil Procedure, which provides: "No party may be judged without having been heard or summoned." This is the adversarial principle: any person with an interest in a dispute must be able to present their defence. Second, Article 1844-5 of the Civil Code (pre-2001 version) provides that, in an EURL, the dissolution of the company results in the transfer of all its assets to the sole member. The latter therefore becomes the sole holder of the debts and liabilities.

Applied to the facts: TSA was dissolved before the assignment of the debt. Consequently, it no longer had the capacity to assign anything. The sole member, on the other hand, held the debt. But he was never informed of the service and assignment proceedings. As a result, the court of appeal annulled the deeds, and the Cour de cassation upheld this annulment. No reversal here: it is a classic application of the texts, but one that reminds us of a often overlooked rule.

The arguments of SCI BEMA? It probably argued that the assignment was valid because it was unaware of the dissolution. But the Cour de cassation is inflexible: ignorance is not enough. The legal personality of companies must be verified at each stage. This decision confirms consistent case law: a dissolved company no longer acts, and only its sole member can bring legal proceedings.

What this means for you — concretely

If you are a landlord in Mondeville, and you have entrusted the management of your building to an EURL, this decision directly concerns you. Imagine that this EURL obtains a judgment against a tenant for unpaid rent of €8,000. If it is dissolved before assigning its debt to you, the assignment is void if the sole member has not been joined. Result: you lose your right to recover the rent.

For a purchaser: if you buy a debt (for example, in the context of a portfolio sale), you must require proof that the assigning company still exists. Otherwise, you risk ending up with a void deed and having to reimburse the debtor.

For a tenant: if you are pursued by a company that has bought a debt, check that this company has standing to sue. Ask for the date of dissolution of the original company and whether the sole member was joined. This can be a defence.

Concretely, this decision requires verifying, before any legal action, the legal personality of your opponent or creditor. A simple consultation of the trade register (Infogreffe) can avoid years of proceedings.

Four tips to avoid this type of dispute

• Verify the legal existence of the company before any assignment of debt. Consult the Kbis on Infogreffe. If the company is struck off or dissolved, address yourself to its sole member.
• In case of dissolution of an EURL, immediately put the sole member on notice. Before assigning a debt, have him sign a deed of assignment or bring proceedings against him.
• Require a warranty from the assignor. When assigning a debt, include a clause by which the assignor warrants that the company still exists and has the right to assign.
• Consult a specialised lawyer before bringing recovery proceedings. A professional will check the sensitive points and save you from a costly annulment.

Further reading: related case law and developments

This decision is part of a consistent line. The Cour de cassation has already ruled, for example in a decision of 12 February 2008 (No. 06-21.123), that service of a judgment on a dissolved company is void if the sole member is not summoned. Similarly, the Commercial Chamber reminded in 2009 that the universal transfer of assets to the sole member operates automatically, without any particular formality.

Since the law of 15 May 2001, Article 1844-5 has been amended to provide that the dissolution of an EURL no longer automatically results in transfer to the sole member if he decides not to take it over. But for facts prior to 2001 (as here), the old version applies. The trend of the courts is therefore towards strictness: no valid assignment without verification of legal personality.

For the future, expect judges to be increasingly demanding as to proof of the existence of companies at the time of the deeds. Digitalisation of registers facilitates these checks, but they still need to be done.

In practice: what to do

If you are a creditor:

• Obtain a recent Kbis extract of the debtor or assignor company.
• In case of dissolution, identify the sole member via the register.
• Have the deed of assignment signed by the sole member, not by the dissolved company.

If you are a debtor:

• Check that the company pursuing you is properly registered.
• If the company is dissolved, raise the nullity of the proceedings.
• Consult a lawyer to challenge the deeds of service or assignment.

Time limits to remember: the action for nullity of a deed of assignment of debt is barred by 5 years from its discovery. But it is better to act quickly, as soon as the first notification.

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 →