Assignment of Safeguard Plan: The Assignor's Guarantee Does Not Extend to Assigned Contracts

Imagine: you own a commercial premises in Amboise, leased to a company that goes bankrupt. A safeguard plan is adopted, providing for the assignment of the lease to an acquirer. Relieved, you think your rents will be paid. But the acquirer withdraws, and the original assignor tells you: "It's no longer my business, I assigned my rights." What to do? This question, central to French insolvency law, was decided by the Court of Cassation in a judgment of 7 January 2003.

The High Court had to determine the extent of the guarantee owed by the author of an assignment offer with a substitution option. In plain terms: can the person who proposes an assignment plan discharge themselves from all obligations to creditors by withdrawing in favour of a third party? The answer is nuanced: they remain bound to execute the plan itself, but their guarantee does not extend to obligations arising from the assigned contracts. A subtle distinction, with major practical consequences.

For landlord owners as for creditors, this decision draws an essential dividing line. It protects the assignor from unforeseen claims, but obliges creditors to turn to the acquirer for post-assignment debts. A fragile balance that this article helps you decipher.

The Facts: A Story Like Many Others

In the early 1990s, a transport group, the Transports Pignat group, experienced financial difficulties. Among its subsidiaries, the company Brevimmo had entered into a finance lease agreement with several companies in the group. This agreement concerned a property, likely a warehouse or logistics premises. When the group was placed in judicial reorganisation, an assignment plan was adopted. The plan provided for the assignment of all assets, including the disputed finance lease agreement.

To facilitate the takeover, the author of the assignment offer (the assignor) undertook to execute the plan but reserved the right to substitute a third party. In practice, they offered to take over, but with the possibility of passing the deal to another company. That is what happened: the assignor designated an acquirer, and the plan was executed. Except that problems arose with the finance lease agreement. The finance lessor demanded performance of the contractual obligations (payment of rents, return of the property...), but the acquirer and the assignor blamed each other.

The Paris Commercial Court was seized. It issued an order that seemed contradictory: it stated that the assignment offer with a substitution option did not discharge its author from the obligation to execute the plan, but that this guarantee did not extend to the performance of obligations arising from the contracts assigned by the plan. Dissatisfied creditors appealed to the Court of Cassation. The Court of Cassation, in its judgment of 7 January 2003, dismissed their appeal, confirming the lower court's position.

The Court's Reasoning — Deconstructed

The Court of Cassation relied on the general principles of French insolvency law, and more specifically on Article L. 621-87 of the Commercial Code (old version), which governs assignment plans. This article provides that the assignee undertakes to execute the plan, but it does not impose on the assignor an obligation to guarantee debts arising after the assignment. The High Court distinguished two obligations: the obligation to execute the plan (pay the price, take over staff...) and the obligation to perform the assigned contracts (pay rents, provide services...).

The Court explained that the assignment offer, even with a substitution option, binds its author to execute the plan. In other words, if the acquirer defaults, the assignor must step in to ensure the successful completion of the plan. This is a guarantee of result for the plan's creditors. However, this guarantee does not extend to obligations arising from the contracts themselves. Why? Because those obligations are linked to the status of party to the contract, not to that of author of the plan. Once the contract is assigned, the acquirer becomes the new contracting party, and it is for them alone to bear the associated burdens.

This solution is logical: it avoids imposing a double penalty on the assignor. If the plan fails, they must answer for the execution of the plan. But if the assigned contract is poorly performed by the acquirer, the contractual creditor must pursue the acquirer, not the assignor. The Court of Cassation here confirms consistent case law (notably Com., 19 November 1996, no. 94-21.462) and rejects the extension of the guarantee sought by creditors.

What This Changes for You — Practically

For landlord owners: if you own premises let under a finance lease to a company in judicial reorganisation, and the assignment plan provides for the takeover of that contract, you should know that your main contact becomes the acquirer. In the event of unpaid rents after the assignment, you must take action against them. The assignor is not liable, unless the plan itself is not executed. Example: in Loches, an owner lost 6 months' rent (€12,000) because they sued the wrong debtor. They should have checked who the actual assignee was.

For acquirers: you must be aware that taking over a contract fully binds you. You cannot rely on the assignor to pay post-assignment debts. If you encounter difficulties, you must manage them yourself, possibly by seeking a modification of the plan.

For creditors (banks, suppliers): know that the assignor's guarantee is limited to the execution of the plan. If you have an assigned contract, monitor the acquirer. In the event of default, act quickly. Do not waste time pursuing the assignor, unless the plan is not respected (e.g., non-payment of the assignment price).

For legal professionals (lawyers, judicial administrators): this decision reminds you of the importance of clearly drafting assignment offers. If you wish to extend the assignor's guarantee to the assigned contracts, this must be expressly provided for in the plan. Otherwise, the case law is clear: the guarantee is limited.

Four Tips to Avoid This Type of Dispute

• Check the identity of the actual assignee in the assignment plan. Do not rely on the author of the offer: ask for the substitution deed. If the plan provides for a substitution option, ensure that the acquirer has been designated and has accepted the contractual obligations.
• Require a personal guarantee from the assignor if the contract is strategic. During plan negotiations, you can obtain that the assignor acts as a joint guarantor for the performance of the assigned contract. This must be mentioned in the judgment approving the plan.
• Monitor the first payments after the assignment. As soon as the first rent is unpaid, put the acquirer on notice. If you have doubts about their solvency, petition the judge-commissioner to request termination of the contract or additional security.
• Consult a specialised lawyer before accepting an assignment plan. A professional can analyse the clauses and assess the risks. In Amboise, Maître Zakine offers a first consultation for €45.

Further Exploration: Related Case Law and Developments

This decision is part of a consistent line of case law. The Court of Cassation had already ruled, in a judgment of 19 November 1996 (no. 94-21.462), that the assignor is not liable for debts arising after the assignment, unless the plan provides otherwise. More recently, in a judgment of 10 May 2012 (no. 11-17.256), it specified that the guarantee of execution of the plan does not cover contractual debts arising before the assignment, which remain the responsibility of the original debtor.

The trend is therefore protective of the assignor. The courts want to avoid discouraging the author of an assignment offer by imposing too extensive a guarantee. However, in certain cases, if the plan is ambiguous or if the assignor has committed a fault (for example, by presenting an insolvent acquirer), their liability may be engaged under Article 1240 of the Civil Code (civil liability).

For the future, case law is likely to remain stable. Practitioners must therefore be vigilant when drafting plans: any extension of the guarantee must be express. In the absence of a clause, the rule is limitation.

What You Must Absolutely Remember

FAQ

1. If the acquirer does not pay the rents, can I sue the assignor? No, unless the plan provides for an express guarantee. You must take action against the acquirer.
2. Can the assignor be pursued if the assignment plan is not executed? Yes, because they are bound to execute the plan themselves. But this concerns the assignment price, staff takeover, etc., not the contracts.
3. Can I ask the court to extend the assignor's guarantee? Yes, during the plan's preparation. But once the plan is approved, it is too late.
4. What are the time limits for taking action against the acquirer? You have 3 years from the triggering event (e.g., the unpaid rent). But it is better to act quickly.
5. What if the acquirer is insolvent? You can request termination of the contract for non-payment, and possibly pursue the assignor if you prove their fault (e.g., choice of an acquirer without financial capacity).

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