Transfer of Shares and Judicial Reorganisation: When Ownership Has Not Been Transferred

You are the owner of a property in Meylan and have signed a promise to transfer shares in a property company (SCI) with a buyer. Before the notarial deed is signed, the buyer goes into judicial reorganisation. What happens to your contract? Is it void or still valid? This is exactly the question decided by the French Supreme Court (Cour de cassation) in a judgment of 22 October 1996. A question that could cost you dearly if you are not careful.

Let's take a concrete example: Mr Dupont, owner in Échirolles, signed a promise to transfer shares in an SCI on 15 January 2023. The price is €200,000, payable in cash at the signing of the notarial deed scheduled for 15 March. But on 1 March, the buyer is placed in judicial reorganisation. Who owns the shares? Is the contract still valid?

The French Supreme Court answered: as long as the transfer of ownership of the shares has not been completed (for example, by signing the notarial deed and paying the price), the contract is considered to be in progress at the opening of the collective proceedings. This means that the transferee cannot demand specific performance, but the transferor can seek termination of the contract or lodge a claim in the insolvency. Analysis.

The facts: a story like many others

In 1987, SNBB, a company, agreed to acquire the shares of an SCI from Mr X, owner in Meylan. The contract provided for a suspensive condition: the final incorporation of the SCI. The transfer of ownership of the shares was to take place on the day of the signing of the notarial deed, and the price would be paid in cash at that time. The SCI was incorporated on 27 March 1987. But before the notarial deed was signed, SNBB was placed in liquidation on 8 November 1989. The transfer was never completed.

Mr X, the transferor, then sought termination of the contract and damages. The Court of Appeal dismissed his claim, holding that the contract was void because the cash payment had not been made. But the French Supreme Court quashed this judgment: the contract was in progress at the date of the opening of the collective proceedings, since the transfer of ownership had not been completed. Consequently, the transferor was entitled to seek termination for non-payment, or to lodge a claim in the liquidation.

Imagine: you sell your shares in an SCI to a developer in Échirolles. On the day of the signing of the notarial deed, he does not show up because he was placed in judicial reorganisation the day before. You thought the sale was done? Not so fast: since the transfer of ownership has not taken place, you remain the owner of the shares. But be careful: the contract still exists, and you must act quickly to assert your rights.

The reasoning of the court — dissected

The French Supreme Court relies on Article L. 621-28 of the Commercial Code (former Article 38 of the Law of 25 January 1985), which provides that contracts in progress at the date of the opening of collective proceedings must be performed by the administrator. But for a contract to be 'in progress', the essential obligations must not have been fully performed. Here, the transfer of ownership of the shares had not taken place, because the notarial deed had not been signed and the price had not been paid. Therefore, the contract is in progress.

The lower courts had considered the contract void due to the failure to pay cash. But the French Supreme Court corrects this: voidness is not automatic. It must be declared by a court, and the contract remains in force until termination is pronounced. In this case, since SNBB (the transferee) was in liquidation, the transferor could seek termination of the contract for non-performance and obtain damages.

A crucial point: the French Supreme Court recalls that the transfer of ownership of shares is not conditional solely on payment of the price, but on the execution of the notarial deed. As long as this deed is not signed, ownership is not transferred. This is a fundamental difference from the sale of real estate, where ownership is transferred upon exchange of consents (subject to suspensive conditions). Here, the parties had expressly provided that the transfer would take place on the day of the notarial deed. This intention of the parties is paramount.

Thus, the reasoning is as follows: 1) The contract is in progress because the transfer of ownership has not taken place. 2) The transferor can therefore seek termination of the contract. 3) He can also lodge a claim in the insolvency, corresponding to the unpaid price or damages. This is a protective solution for the transferor.

What this means for you — practically

For the transferor (seller): If you have signed a promise to transfer shares and the buyer is placed in judicial reorganisation or liquidation before the transfer of ownership, you are not helpless. You must lodge your claim in the insolvency within two months of the publication of the judgment opening the proceedings. This claim may be for the agreed price, or damages if you prefer to seek termination. Example: in Meylan, Mr Martin transferred his shares for €150,000. The buyer is in reorganisation. He lodges his claim for €150,000 in the insolvency. He may recover part, but he can also seek termination to get his shares back and resell them.

For the buyer (transferee): You cannot demand the continuation of the contract if you are in collective proceedings, because the transfer of ownership has not taken place. The administrator may decide to continue the contract if it is favourable to the reorganisation, but he will have to pay the price. Otherwise, the contract will be terminated. If you are in liquidation, your chances are almost nil.

For the tenant or co-owner: You are not directly affected, but if your landlord is an SCI whose shares are being transferred, the collective proceedings may delay the transfer. Rest assured: your lease remains in force as long as the transfer contract is not terminated.

Let's take an example in Échirolles: an SCI owns a building with 10 flats. The manager transfers his shares to an investor. Before the notarial deed is signed, the investor is placed in judicial reorganisation. The tenants continue to pay their rent to the SCI, which remains the owner. The manager can seek termination of the transfer and keep his shares. The tenants suffer no change, unless the SCI itself is in difficulty.

Four tips to avoid this type of dispute

• 1. Require cash payment or a substantial deposit. If the price is payable at the signing of the notarial deed, ask for a deposit (10 to 20%) which will be forfeited if the buyer defaults. This discourages him from going into collective proceedings without having paid.
• 2. Include an automatic termination clause in case of opening of collective proceedings. Provide that the contract is terminated automatically if the buyer becomes subject to judicial reorganisation or liquidation before the transfer of ownership. This saves you from going to court.
• 3. Check the financial soundness of the buyer. Before signing, ask for guarantees: bank guarantee, solvency certificate, or sufficient personal contribution. A fragile buyer can drag you into a lengthy procedure.
• 4. Use a lawyer to draft the deed. A poorly drafted clause can cause you to lose your rights. A professional will know how to anticipate risks and provide protective mechanisms (suspensive condition of obtaining a loan, etc.).

Further reading: related case law and developments

This 1996 decision is part of a consistent line: the French Supreme Court protects the transferor by considering the contract to be in progress as long as the transfer of ownership has not taken place, even if the price has not been paid. In an earlier judgment of 28 March 1995 (No. 93-10.123), the Court had already held that a unilateral promise to sell real estate was in progress at the opening of the judicial reorganisation of the beneficiary, as long as the latter had not exercised the option. Here, for shares, the same principle applies: the notarial deed is the key moment.

Since 1996, case law has evolved on other points, notably the concept of 'contract in progress' for assignments of receivables or intangible rights. But for shares, the principle remains stable: the transfer of ownership follows the rules of the contract, and collective proceedings do not affect the validity of the contract as long as performance is not complete. In practice, courts require the transferor to prove that the transfer has not taken place, which is easy with the absence of a notarial deed.

Warning: if the contract provides for a transfer of ownership upon signature of the promise (without suspensive condition), the result might be different. But this is rare for SCI shares, where the notarial deed is often required for tax and publicity reasons.

What you absolutely must remember

FAQ:

1. Is my share transfer contract void if the buyer is in judicial reorganisation?
No, not automatically. It is in progress as long as the transfer of ownership has not taken place (notarial deed not signed, price not paid).

2. Can I get my shares back if the buyer does not pay due to the proceedings?
Yes, you can seek termination of the contract for non-performance. You become the owner of the shares again.

3. Do I have to lodge my claim in the insolvency?
Yes, if you want to obtain payment of the price or damages. You have two months from the publication of the judgment opening the proceedings.

4. What if the administrator wants to continue the contract?
He can do so, but he must pay the price. If he does not pay, you can seek termination.

5. What are the risks if I do nothing?
You risk losing your shares without compensation, because the collective proceedings can last for years and your rights lapse if you do not lodge your claim.

Are you 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 →