Judicial Liquidation: When the Judge Must Protect Creditors Ex Officio

Imagine you own an apartment in Vallauris, which you have leased to a small ceramics business. For six months, the rent has not been paid. You decide to take action, to apply to the courts to recover what is owed to you. But in the meantime, this company has been placed in judicial liquidation (a procedure for the definitive cessation of business with the sale of assets). What happens to your claim? Must you abandon all hope of recovering your money?

I encounter this situation regularly in my practice, whether in Grasse for villa owners or in Sophia-Antipolis for commercial property landlords. The question is always the same: when faced with a bankrupt company, what are my rights as a creditor? Must I resign myself to losing my money, or are there protections?

The decision of the Cour de cassation of 1 February 1984 provides a clear answer, and above all, it reminds us of a fundamental principle: judges must protect creditors ex officio (that is, without the parties requesting it) in a liquidation procedure. But what exactly does this change for you, as a property owner, tenant, or real estate professional? This is what we will analyse together.

The facts: a story that happens every day

The story begins with a real estate company, owner of several apartments. Like many companies in the 1980s, it encountered financial difficulties. One of its creditors, the Crédit Foncier de France (a credit institution specialising in real estate financing), decided to act to recover its funds. It initiated a procedure for saisie immobilière (forced sale of a property to pay a debt) on these apartments.

The company, formally summoned to attend the sale, did not appear. The apartments were sold. But here is the twist: in the meantime, the company had been placed in liquidation des biens (the former name for judicial liquidation). It then challenged the sale, arguing that it had not been properly informed of the procedure and that, in any case, as a debtor in liquidation, it benefited from specific protections.

The creditor, the Crédit Foncier, countered that its action had been initiated before the declaration of liquidation, and that it did not have a titre exécutoire (a document allowing enforcement of recovery, such as a judgment) at the time it acted. It therefore considered it legitimate to continue its seizure. The lower courts (first instance and appeal courts) had to decide this conflict. But how? Should they take the liquidation into account, even if the creditor does not invoke it? This is where the Cour de cassation intervenes.

The court's reasoning — analysed

The Cour de cassation, in its judgment, reminds us of an essential principle: the provisions relating to the procedure for verification of claims (the process allowing creditors to have their rights recognised in a liquidation) are of public policy (mandatory rules that apply to everyone, with no possibility of derogation). In other words, these rules are so important for the protection of collective interests that they must be applied by judges, even if the parties do not invoke them.

Concretely, the court explains that when a debtor is in liquidation, any creditor claiming payment of a sum of money for a cause prior to the opening of the liquidation must submit to the procedure for verification of claims. In other words, they cannot act alone, as the Crédit Foncier did with its saisie immobilière. They must present their claim to the liquidator (the person in charge of managing the liquidation) and wait for it to be verified and entered on the list of claims.

This reasoning applies even in two particular situations: first, when the creditor does not have a title (such as a judgment) and must therefore have their right recognised; second, when the action was initiated before the declaration of liquidation. The Cour de cassation therefore quashes the decision of the lower courts which had not applied this principle ex officio. It thus confirms consistent case law: the rules protecting equality among creditors in a collective procedure are inviolable.

undefined, I have encountered cases where property owners, thinking they were doing the right thing, initiated individual proceedings against a commercial tenant in difficulty, without knowing that the tenant was in liquidation. Result: procedures annulled, time wasted, and unnecessary costs. This decision serves as a reminder that, in such situations, the collective route is the only possible one.

What this changes for you — concretely

If you are a property owner-landlord, this decision has direct implications. Imagine you lease premises in Sophia-Antipolis to a technology startup. It stops paying its rent, which amounts to €3,000 per month. You decide to apply to the court to obtain a titre exécutoire. But if, during the procedure, the startup is placed in liquidation, you will no longer be able to act alone. You will have to declare your claim (the unpaid rent, say €18,000 over six months) to the liquidator. The forced sale of its assets, if it takes place, will occur within the framework of the liquidation, and you will be paid according to the order of creditors established by law.

For a tenant, the situation is different but just as crucial. If your landlord (a company, for example) is in liquidation, you might be tempted to continue paying your rent normally. But be careful: this rent might be due to the liquidator, and no longer to the initial landlord. In a recent case in Vallauris, a tenant paid six months' rent to the former manager of an SCI (real estate company) in liquidation, without knowing that the manager no longer had the right to collect these funds. Result: they had to pay a second time to the liquidator, thus losing €4,800.

For a purchaser, this decision means that buying a property resulting from a saisie immobilière initiated before a liquidation can be risky. The sale could be annulled if the procedure for verification of claims has not been respected. In short, before buying an apartment at a reduced price at an auction, always check whether the seller is not in a collective procedure. Otherwise, you could lose your acquisition.

Finally, for co-owners, if your syndic (property manager) is a company in liquidation, the unpaid charges must be declared to the liquidator. Do not attempt to recover directly, at the risk of having your action dismissed. What few people know is that in a co-ownership in Grasse, I have seen co-owners initiate individual proceedings against a syndic in bankruptcy, only to have to start everything again via the collective procedure, with additional delays of several months.

Four tips to avoid this type of dispute

• Check the financial health of your contracting party: before signing a lease or contract, consult the commercial register to see if the company is in a collective procedure. In Sophia-Antipolis, where there are many startups, this check can save you a lot of trouble.
• Act quickly in case of non-payment: if your tenant or debtor stops paying, do not delay. Initiate an amicable recovery procedure, then a judicial one if necessary. But as soon as you learn of a liquidation, stop everything and contact the liquidator.
• Keep all your supporting documents: invoices, contracts, email exchanges. In case of liquidation, you will have to prove your claim. In a case in Vallauris, a property owner lost €12,000 in unpaid rent because they could not prove the exact date when the non-payment began.
• Consult a specialised lawyer at the first signs of difficulty: early consultation can help you navigate the complexities of collective procedures. Do not attempt to manage such a complex situation alone.

Further analysis: related case law and developments

This 1984 decision is part of a consistent line of case law. Already in the 1970s, the Cour de cassation had affirmed the public policy nature of collective procedure rules. For example, in a 1978 judgment, it had reminded that the suspension of individual proceedings in case of redressement judiciaire (a procedure for safeguarding the company) had to be applied ex officio by judges.

Since then, the trend has only strengthened. With the reform of the law on companies in difficulty in 2005, then in 2021, the legislature has further increased the protection of creditors and the importance of collective procedures. The courts today are very vigilant about compliance with these rules. In a recent judgment by the commercial court of Grasse, a real estate sale was annulled because the creditor had continued its seizure while the debtor was in liquidation, without going through the verification of claims.

For the future, this means that real estate professionals must be even more attentive. Collective procedures are multiplying, especially after the health crisis. Knowing how to react quickly and correctly becomes a major issue to protect one's interests.

Key points to remember

• If your debtor is placed in liquidation, you must immediately cease all individual proceedings and declare your claim to the liquidator.
• The rules of collective procedure are of public policy: judges must apply them ex officio, even if you do not invoke them.
• Even if your action was initiated before the liquidation, it must be integrated into the procedure for verification of claims.
• Keep solid evidence of your claim: without a title or supporting document, your declaration could be rejected.
• In case of doubt, consult a lawyer: the deadlines in collective procedures are short (often 2 months to declare a claim), and a mistake can be costly.

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