VAT Credit in Liquidation: A Liquidator's Fault Can Cost You Dear

Imagine: you are the owner of a commercial property in Bastia, let to a company that goes bankrupt. The liquidator is appointed, he manages the final invoices but forgets to claim from the tax authorities a VAT credit of several thousand euros. Result? This refund, to which the company was entitled, falls into oblivion. And who pays? The creditors, and sometimes you yourself if you are an unpaid supplier.

This seemingly technical question directly affects the pockets of owners and professionals. For if the liquidator commits a fault by neglecting to claim this refund, his personal liability may be engaged. But it must still be shown that the company retained its status as a VAT taxable person after the liquidation, which some judges had denied.

The judgment of 23 November 2022 of the Court of Cassation settles the matter: yes, a company in judicial liquidation remains subject to VAT as long as it carries out economic transactions, even after the cessation of activity. And if the liquidator does not claim the VAT credit relating to these transactions, he commits a fault. A decision with heavy consequences for liquidators, but also for creditors and landlord owners.

The Facts: A Story Like Many Others

The case begins in Paris, but could just as well take place in Bastia. A company, which we will call SARL Saint-Florent Loisirs, is placed into judicial liquidation in 2015. The liquidator is appointed: Maître X, an experienced professional. The company's business was the rental of real estate, notably a building located in Saint-Florent, Haute-Corse. After the opening of the liquidation, the liquidator incurs costs to manage the end of operations: lawyer's fees, security costs, property taxes. These expenses generate a VAT credit of approximately €12,000. But the liquidator does not request its refund from the tax authorities.

Why? Because he considers that the company lost its status as a VAT taxable person as soon as the judgment opening the proceedings was made. He therefore thinks that the VAT credit is definitively lost. But a creditor, the company Bastia Immobilier, contests this inaction. It sues the liquidator for personal liability, arguing that his omission caused harm to the body of creditors.

Before the Court of Appeal, the liquidator is acquitted. The judges hold that the company had ceased all economic activity on the date of the opening judgment, and therefore it was no longer a taxable person. No fault, therefore. But the Court of Cassation quashes this judgment. It recalls that the cessation of activity does not automatically cause the loss of taxable person status: if expenses are incurred to bring the operations to an end, they have a direct link with the prior economic activity. The liquidator should have requested the refund.

The Reasoning of the Court — Analysed

The Court of Cassation relies on two legal pillars. First, Article 1240 of the Civil Code (formerly 1382), which provides that 'any act of man which causes damage to another obliges the person by whose fault it occurred to make reparation.' Second, Article 271 of the General Tax Code, which provides for the deductibility of VAT that has burdened the elements of the price of a taxable transaction, and its refund if the deduction could not be made. Finally, it refers to the case law of the Court of Justice of the European Union (judgment Fini H, 2005) which specifies that liquidation costs are inherent to the economic activity, and that the right to deduction subsists as long as there is no fraud or abuse.

The lower court judges (the Court of Appeal) had considered that the company had lost its status as a taxable person on the date of the judgment, because it no longer carried out taxable transactions. But the Court of Cassation replies: you are wrong. The status of taxable person does not disappear merely because of the cessation of activity. It must be examined whether the subsequent expenses have a direct and immediate link with the prior commercial activity, or whether they were incurred to bring the operations to an end. In this case, that was so. Therefore, the liquidator should have requested the refund. By failing to do so, he committed a fault which engages his liability.

This decision is a confirmation of European case law, but it marks a tightening for liquidators. Gone is the 'reflex' of considering that VAT is lost. They must now be vigilant and systematically check for the existence of a VAT credit arising after the opening of proceedings.

What This Changes for You — Practically

If you are a landlord owner of a commercial property in Bastia or Saint-Florent, and your tenant is in liquidation, this decision concerns you. Indeed, the VAT credit should have been refunded and would have increased the assets of the liquidation, which would have allowed more creditors to be paid, including yourself if you are a creditor for unpaid rents.

For real estate professionals (agents, developers, syndics), the message is clear: in the event of liquidation of your company, do not let the liquidator neglect the VAT credit. As a creditor, you can demand an account from him. And if he refuses to act, you can bring an action for liability against him.

Concretely, if you are in this situation, you must: ask the liquidator to justify all tax steps taken, particularly the VAT refund request. If the liquidator has done nothing, you can apply to the judge-commissioner to order him to act, or bring a liability action within 5 years of the triggering event. Example: for a VAT credit of €12,000, as in the case, the loss corresponds to the amount not recovered, plus interest at the legal rate. A not insignificant sum for a small owner.

Four Tips to Avoid This Type of Dispute

• Systematically check the post-opening VAT credit: as soon as appointed, the liquidator must request a statement of deductible VAT from the tax authorities, even if the company has ceased its activity.
• Require precise accounting monitoring: the liquidator must isolate the liquidation expenses (lawyer's fees, security, taxes) and justify their link with the prior activity.
• Do not delay in claiming the refund: the request must be made within two years of the VAT credit arising (standard limitation period). After this period, the credit is lost.
• As a creditor, remain vigilant: you can consult the liquidator's report and, if you notice an omission, apply to the commercial court to have the fault declared.

Further Reading: Related Case Law and Developments

This decision follows on from the CJEU judgment Fini H (2005), which had already laid down the principle. But it goes further by specifying that the failure to request a refund constitutes a personal fault of the liquidator. Before this judgment, some courts considered that the liquidator had no obligation of result, only an obligation of means. Now, the Court of Cassation imposes an enhanced duty of vigilance.

Another important decision is the Bodson judgment (CJEU, 2017) which recalls that liquidation costs are general costs linked to economic activity. The trend is therefore clear: liquidators must be proactive. In the future, we can expect courts to sanction omissions more easily, which strengthens creditor protection.

Checklist Before Acting

1. Do I have a VAT credit to claim? Check expenses after the opening of the liquidation (management costs, fees, taxes).
2. Has the liquidator requested the refund? Consult the annual report or ask him in writing.
3. What is the amount of the credit? Calculate the deductible VAT on these expenses (standard rate 20% or reduced rate depending on the property).
4. What is the time limit for acting? The refund request must be made within two years. The liability action against the liquidator is 5 years from the fault.
5. Who can act? The aggrieved creditor, the public prosecutor, or any interested party. Apply to the judge-commissioner or the commercial court.

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 →