Confusion of Assets: Certified Accounts Are Not Enough to Exclude It

Imagine: you own a commercial property in Le Chesnay. You lease it to a SARL which, one day, goes into judicial liquidation. The liquidator claims unpaid rent from you, but also... tries to extend the liquidation to your personal SCI, on grounds of confusion of assets. Yet you have accounts certified by an accountant and approved at a general meeting. That should protect you, right? The Court of Cassation's answer is unequivocal: no. Accounts in proper form are not everything. Paradoxically, they may even reveal abnormal financial links.

This decision of 27 September 2016 (appeal no. 14-29.278) is enough to make more than one landlord tremble. The dispute pitted a judicial liquidator against a landlord SCI and its manager. At the heart of the debate: the concept of confusion of assets, that formidable mechanism that allows 'piercing the corporate veil' and attacking the personal assets of a shareholder or parent company. Here, the Versailles Court of Appeal had rejected the liquidator's claim, holding that the certified accounts established the absence of confusion. But the High Court censured this reasoning: regular accounts are not enough to rule out the existence of abnormal financial relations, such as payments without consideration or unbalanced flows.

What does this judgment mean concretely for you, a landlord owner in Trappes or elsewhere? It requires you to be extremely vigilant in your relations with your tenant. An unpaid rent, a loan granted without interest, a bill paid by mistake: all signals that could be interpreted as confusion of assets. The accounts, even if impeccable, will not be a shield. Let us examine together the facts, the judges' reasoning, and above all the lessons to be learned.

The Facts: A Story Like Those That Happen Every Day

Mr. Gérard, manager of a fast-food SARL in Le Chesnay, had also set up a family SCI, owner of the premises. The SCI leased the property to the SARL. For several years, everything worked: the SARL paid its rent, the SCI declared its rental income, the accounts were certified. But one day, the SARL goes bankrupt. The judicial liquidator, delving into the accounts, discovers anomalies: cash advances from the SCI to the SARL without interest, rents paid late but always accepted, and even cross-debt repayments. He applies to the court to extend the liquidation to the SCI, alleging confusion of assets.

The SCI defends itself: 'We have accounts certified by an accountant and approved at a general meeting. This proves that our assets are distinct.' The Versailles Court of Appeal agrees in 2014. But the liquidator appeals to the Court of Cassation. His argument: the accounts may be regular while revealing confusion. The Court of Cassation agrees and sets aside the appeal judgment, referring the case back to the Versailles Court of Appeal differently composed.

This case illustrates a common phenomenon: financial links that are too close between a parent company and its subsidiary, or between a landlord and its tenant. Here, the SCI and the SARL shared the same manager and a common address. But that is not illegal in itself. What tipped the scales were the abnormal financial flows: the SCI regularly advanced funds to the SARL without interest, and the current accounts of the shareholders were confused. The certified accounts merely recorded these anomalies without correcting them.

The Reasoning of the Court — Analysed

The Court of Cassation relies on Article L. 621-2, paragraph 2, of the Commercial Code (now L. 641-1, II). This text allows the extension of a collective procedure to a legal person in case of confusion of assets. Confusion of assets is not defined by law, but case law characterises it by abnormal financial relations: absence of consideration, unjustified flows, unbalanced current accounts, etc.

In its judgment, the High Court states: 'The establishment of certified and approved accounts does not allow proof of the absence of confusion of assets between a landlord and its tenant, where it reveals the existence of financial relations incompatible with normal reciprocal contractual obligations.' In other words, formally correct accounts are not proof of substantive regularity. On the contrary, they can serve to demonstrate the anomaly.

The lower courts must therefore analyse the very content of the accounts: are there advances without interest? Repayments of debts that do not correspond to any claim? Rents paid irregularly? The mere certification by an accountant is not enough to rule out these indications. In this case, the Court of Appeal had erred by relying solely on accounting regularity without examining the underlying flows.

This solution is part of a strict trend of the Court of Cassation against opaque arrangements. It confirms that accounting transparency must not be a facade. For landlords, it is a warning: even if your accounts are kept by an expert, the liquidator can challenge the independence of the assets. The burden of proof lies on the person alleging confusion, but once indications are found, it is up to the landlord to demonstrate that the flows are normal. And accounts alone are not enough.

What This Changes for You — Practically

For landlord owners, this decision requires a review of your practices. If you lease to a company in which you are also a shareholder or manager, every financial flow must be justified by a written contract: loan with interest, invoice for services, etc. Do not mix bank accounts. A transfer from your SCI to your SARL without a written contract is a ticking time bomb.

Concrete example: in Trappes, an SCI owns a property leased at €1,200/month to a SARL. In 2023, the SCI advances €5,000 to the SARL to pay an electricity bill. If this advance is not formalised by a loan agreement at market rate, the liquidator may see it as confusion. Even if the accounts are certified, the risk of extension of the judicial liquidation exists. And the consequences are serious: your personal assets (the SCI) can be seized to pay the SARL's debts.

For tenants, the decision is a protection: if the landlord tries to recover rents by confusing its accounts with yours, you can argue the absence of confusion if your relations are normal. Be careful, however: if you accept benefits without consideration, you could be considered complicit.

For purchasers of a business, check the relations between the seller and its landlord. If the seller is also a shareholder of the landlord SCI, be wary of current accounts. Ask for written contracts. An accounting due diligence is essential.

If you are in this situation, you should: (1) formalise any loan in writing, (2) charge interest at market rate, (3) do not use the same bank account, (4) keep separate accounts and have them certified each year, but do not rely on them blindly.

Four Tips to Avoid This Type of Dispute

• Formalise any cash advance in writing: whether it is a loan, guarantee or service provision, draft a signed contract with market conditions. Without writing, any flow is suspect.
• Respect normal market conditions: an interest-free loan or at a reduced rate is an indication of confusion. Apply the legal rate or the Banque de France rate. Similarly, an abnormally low rent may be recharacterised.
• Avoid common bank accounts: each company must have its own account. No transfers between companies without an invoice or contract. If the manager is the same, strictly separate the operations.
• Have your financial relations audited: once a year, ask your accountant to check the flows between your SCI and your SARL. A written report will protect you in case of control.

Further Reading: Related Case Law and Developments

This decision is part of a consistent line: Cass. com., 4 May 1999, no. 97-10.943 (confusion between an SCI and its manager); Cass. com., 20 June 2006, no. 04-18.262 (absence of separate accounts). The trend is towards strengthening transparency requirements. Since 2016, several judgments have specified that even regular accounts do not exclude confusion if the flows are abnormal (Cass. com., 18 May 2017, no. 15-24.109).

Conversely, some earlier decisions seemed to give more weight to accounting certification. The 2016 judgment therefore marks a turning point: it reminds that form must not mask substance. For the future, courts will likely be more demanding on justifying flows between related companies. Judicial liquidators are now encouraged to scrutinise accounts, not only their formal regularity but also their substance.

This development is salutary: it protects creditors against artificial arrangements. But it imposes increased rigour on landlords. If you manage several companies, anticipate: an annual legal and accounting audit is an investment that can save you.

Checklist Before Acting

• Do I have a written contract for each financial flow between my SCI and my SARL? (loan, service, guarantee...)
• Are the conditions market conditions? (interest rate, term, guarantees)
• Are my accounts separate? (no joint account, no transfer without invoice)
• Has my accountant verified the relations between companies? (ask for a specific annual report)
• In case of difficulty, have I consulted a specialist lawyer? (a first consultation can avoid extension of liquidation)

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 →