Time-Bar and Illegal State Aid: Impossible Recovery after Judicial Liquidation

Imagine: you are the owner of a building in Bayonne, and you learn that your tenant has received State aid to carry out works. But this aid was illegal under European law. The State demands repayment… except that your tenant is in judicial liquidation. What happens if the State has not declared its claim on time? This question was asked by a property developer from Pau in 2012, and the answer of the Court of Cassation set a precedent. In this article, we dissect the judgment of 11 December 2012 (no. 11-28.053) which deals with time-bar (i.e. the maximum period to act) and relief from time-bar (the possibility of catching up on that period).

What few people know is that even a State claim does not escape the strict rules of insolvency proceedings. In this case, the Société Stéphanoise de Construction Mécanique (SCM) had benefited from State aid in the form of a tax exemption, declared illegal by the European Commission. When the company was placed in judicial liquidation, the State tried to recover what was due, but too late. The question was: can a claim still be submitted after the legal deadline?

The answer of the Court of Cassation is final: no, if the deadline for declaring claims has expired, and the relief from time-bar procedure itself was not initiated in time, the claim is definitively lost. Explanations.

The facts: a story like any other

It all starts in Saint-Étienne, where the Société Stéphanoise de Construction Mécanique (SCM) benefits from a tax exemption under Article 44 septies of the General Tax Code. This aid, granted by the French State, is challenged by the European Commission which considers it incompatible with the common market. In 2008, the Court of Justice of the European Union (C-214/07) confirms the illegality of the aid and orders its recovery.

In the meantime, SCM is placed in judicial liquidation. The liquidator, Me X, must recover the claims. The State, which must claim repayment of the illegal aid, declares its claim… but late. The legal deadline for declaring claims (two months from the publication of the opening judgment) has passed. The State then attempts a relief from time-bar (i.e. a request to be allowed to declare out of time), but this request itself comes after the six-month period provided for by the former Article L. 621-46 of the Commercial Code.

The liquidator raises the objection of inadmissibility: the State's claim is extinguished. The Lyon Court of Appeal, on 23 September 2011, rules in favour of the liquidator: recovery has become manifestly impossible. The State appeals to the Court of Cassation, relying on EU law. But the Court of Cassation dismisses its appeal on 11 December 2012. In short, the State lost its claim because it did not comply with the deadlines of the insolvency proceedings.

The reasoning of the court — dissected

The heart of the dispute concerns the relationship between national insolvency law and EU competition law. The State argued that EU law requires every effort to be made to recover illegal aid, including granting relief from time-bar for late claims. The Court of Cassation examined this point in light of the CJEU judgment of 13 November 2008 (C-214/07).

The CJEU had said: if the deadline for submitting claims has expired, the national authorities must, if a relief from time-bar procedure exists and is still open, implement it. In other words, the State must use the legal avenues available to make up for its delay. But be careful: this obligation does not create an automatic right. It presupposes that the relief from time-bar procedure is itself open. However, under French law, relief from time-bar must be requested within six months of the publication of the opening judgment (former Article L. 621-46, paragraph 3). This period is a preclusive period (i.e. it cannot be extended or interrupted).

In our case, the State submitted its request for relief from time-bar after the expiry of this period. The Court of Appeal deduced, and the Court of Cassation confirmed, that recovery had become 'manifestly impossible'. Why? Because the only legal way to declare the late claim was closed. The judges therefore applied strict national law, without EU law requiring a different solution. Indeed, the CJEU had provided that if the relief from time-bar procedure itself has expired, the State can no longer do anything.

What few people know is that this solution protects the legal certainty of insolvency proceedings. If the State could always come back after the deadlines, no liquidator could close a file. The Court of Cassation therefore made the closure of deadlines prevail over the recovery of illegal aid, in compliance with European case law.

What this means for you — concretely

You are a landlord owner in Pau? You have a claim for unpaid rent that you did not declare within the deadlines of your tenant's insolvency proceedings? If the declaration deadline (2 months after the publication of the opening judgment) has passed, you can attempt a relief from time-bar within 6 months. But after this period, your claim is definitively lost. Example: your tenant owes €5,000 in rent. If you do not declare within 2 months, you still have 6 months to request relief from time-bar. Beyond that, goodbye €5,000.

You are a tenant? If your landlord is in liquidation, you must declare your security deposit as a claim. Same logic: respect the deadlines.

You are a property developer? If you have benefited from public aid that could be considered illegal, the State can claim sums from you. But if you are in insolvency proceedings, the State must declare its claim within the deadlines, otherwise it loses its right, as in this case.

undefined, I have encountered cases where public creditors (Urssaf, tax authorities) forgot to declare their claims on time. Result: hundreds of thousands of euros lost. The lesson: in insolvency proceedings, deadlines are imperative.

Four tips to avoid this type of dispute

• Declare your claim immediately upon the opening of insolvency proceedings. As soon as you learn of the liquidation or judicial reorganisation of your debtor, declare your claim by registered letter with acknowledgement of receipt. Do not rely on the two-month deadline: do it within the first few weeks.
• Monitor legal publications. Opening judgments are published in the Bodacc (Official Bulletin of Civil and Commercial Announcements). Subscribe to a watch or regularly consult the site to avoid missing proceedings concerning your debtors.
• In case of delay, act quickly for relief from time-bar. If you have missed the declaration deadline, you have a period of six months (from publication) to request relief from time-bar from the judge-commissioner. After this period, no further recourse.
• Consult a specialised lawyer at the first signs of your debtor's difficulties. A professional can help you manage deadlines and prepare your claim declaration file. In Bayonne or Pau, Maître Cécile Zakine can assist you.

Further analysis: related case law and developments

This decision is part of a line of judgments where the Court of Cassation is strict on deadlines for declaring claims. For example, in a judgment of 15 November 2011 (no. 10-25.320), the Court had already ruled that relief from time-bar must be requested within the six-month period, and that this period is preclusive (cannot be interrupted).

On the other hand, the CJEU has sometimes tempered this strictness. In case C-214/07, it invited Member States to use any available relief from time-bar procedure. But the Court of Cassation clarified that this does not create a new right: if the national procedure is closed, EU law does not require creating one.

Since the Business Safeguard Law of 26 July 2005, the deadlines have been slightly modified: the declaration deadline is still two months, but relief from time-bar can be requested within one year (Article L. 622-24 of the Commercial Code). Note that this period is longer, but it remains imperative. The trend of the courts is towards firmness: creditors must be vigilant.

Key points to remember

• What is time-bar? It is the loss of the right to take legal action because the legal deadline has passed. In insolvency proceedings, the deadline for declaring claims is 2 months (except for exceptions).
• What is relief from time-bar? It is a procedure that allows declaring a claim after the deadline, if you justify a legitimate reason. But it must be requested within a period of 6 months (old regime) or 1 year (new regime) from the publication of the judgment.
• What to do if you are late? Consult a lawyer immediately to attempt relief from time-bar. The longer you wait, the more you risk losing your claim.
• Does this decision apply to all creditors? Yes, including the State. Even the Public Treasury can lose its claim if it does not respect the deadlines.
• What is the message from the Court of Cassation? The deadlines of insolvency proceedings must be respected by all, on pain of final inadmissibility.

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 →