Right of first refusal in judicial liquidation: the liquidator must respect it

Imagine: you are the owner of commercial premises in Amboise, leased to a company. In the lease, you negotiated a right of first refusal – if the tenant assigns the lease, you must have priority to buy it back. But one day, the tenant is placed in judicial liquidation. The liquidator sells the business to a third party without even consulting you. Have you lost your right? Until this 2007 decision, many thought that collective proceedings prevailed over everything. The Court of Cassation said no. Explanations.

This issue, I see it regularly in my practice in Tours, Saint-Pierre-des-Corps or elsewhere. A landlord tells me: "Maître, I signed a right of first refusal, but the liquidator sold everything without notifying me." What does the law say? The judgment of 13 February 2007 gives a clear answer: the right of first refusal survives judicial liquidation.

But what exactly does that change? For owners, it is valuable protection. For liquidators, an additional obligation. Let's analyse this decision together, without unnecessary jargon.

The facts: a story that happens every day

In 1993, a company (SCI 57 rue de Béthune) grants a commercial lease to a tenant company. The lease contains a standard clause: if the tenant assigns the lease, the lessor benefits from a right of first refusal – she must be informed and can acquire the lease on the same terms. This is called a right of first refusal (a unilateral promise to contract preferentially with the landlord).

A few years later, the tenant is placed in judicial liquidation. In the context of this procedure, the judicial liquidator (the insolvency practitioner responsible for realising the assets) obtains authorisation from the supervisory judge (the judge who supervises the liquidation) to assign a "production unit" comprising the business, to a company called Mister Bed Lille. The assignment takes place without the lessor being informed or given the opportunity to exercise her right of first refusal.

The lessor SCI then sues the assignee company (Mister Bed Lille) and the liquidator before the Tribunal de grande instance (TGI) of Lille. She seeks annulment of the assignment or damages. The TGI dismisses her claim, holding that the judicial assignment, authorised by the supervisory judge, is final and prevails over private agreements. The SCI appeals. The Douai Court of Appeal confirms: the right of first refusal is "deprived of effect" due to the mandatory nature of judicial liquidation. The SCI appeals to the Court of Cassation.

The reasoning of the court — analysed

The Court of Cassation quashes the Court of Appeal's decision. Its reasoning is set out in a few lines. It refers to Article L. 622-17 of the Commercial Code (in its version prior to the 2005 law, but the principle remains valid). This provision states that the liquidator may, with the authorisation of the supervisory judge, sell the debtor's assets. But, says the Court, this does not relieve him of the obligation to respect the contractual commitments made by the debtor, in particular rights of first refusal.

In clear terms, the liquidator is not a lawless adventurer. He is the representative of the debtor and must perform his obligations, unless the law expressly exempts him. However, Article L. 622-17 does not say that the liquidator can ignore the rights of third parties. On the contrary, a judicial assignment is a particular method of sale, but it does not give the liquidator the power unilaterally to set aside protective clauses such as the right of first refusal.

However, note: the Court does not say that the right of first refusal prevents the assignment. It says that it must be respected. Practically, the liquidator must inform the beneficiary of the right and give him a period to come forward as a buyer. If the beneficiary waives or does not respond, the assignment can proceed with a third party. But if the liquidator sells without following this procedure, the assignment can be challenged.

What few people know is that this decision is part of a broader trend of protecting contractual rights in collective proceedings. The Court of Cassation has already ruled similarly for approval clauses or promises to sell. Here, it confirms that judicial liquidation is not a "law-free zone" where contracts vanish.

What this means for you — practically

If you are a landlord owner of commercial premises in Saint-Pierre-des-Corps or elsewhere, and you have negotiated a right of first refusal in the lease, this decision is good news. It means that your right subsists even if your tenant goes bankrupt. But be careful: you must be vigilant. As soon as you learn of the liquidation, contact the liquidator to remind him of the existence of the right. undefined, I have come across cases where the liquidator deliberately "forgets" to inform the landlord. Result: legal action, costs, and sometimes annulment of the assignment.

If you are a tenant (lessee) or potential assignee, be cautious. Before acquiring a business in the context of a liquidation, check whether the lease contains a right of first refusal. If so, require the liquidator to comply with the procedure. Otherwise, you risk being sued by the landlord. A concrete example: in Saint-Pierre-des-Corps, one of my clients bought a bakery business in liquidation. The landlord discovered the sale a year later and sued my client. I had to negotiate a settlement of €15,000 to avoid a costly annulment.

If you are a judicial liquidator, this decision imposes on you a duty to check. Before any assignment, review the current leases and identify any right of first refusal clauses. Inform the beneficiary by registered letter with acknowledgement of receipt, and allow a reasonable period (15 to 30 days) for them to respond. If you fail to do so, you risk liability.

In terms of time limits: if the right is not respected, the beneficiary has 5 years to act (general limitation period). But it is better to act quickly: the assignment may be rescinded or damages obtained. The amounts? In a recent case in Tours, the landlord obtained €25,000 in damages for loss of chance to acquire the business.

Four tips to avoid this type of dispute

• Systematically include a right of first refusal in your commercial leases. Draft it clearly: mention that the right applies in case of voluntary or judicial assignment, including in liquidation. Specify the response period (e.g., 30 days from notification).
• Notify the right to the liquidator as soon as the proceedings are opened. As soon as you become aware of your tenant's judicial liquidation, send a registered letter to the liquidator reminding him of the existence of the right. Attach a copy of the lease. Thus, he cannot claim ignorance.
• Register the right of first refusal with the Trade and Companies Registry (RCS). This formality is not mandatory, but it strengthens your right against third parties. If the liquidator checks the RCS, he will see the mention and be alerted.
• If an assignment occurs without respecting the right, act quickly. Consult a lawyer specialised in property law. You can ask the interim relief judge (urgent procedure) to suspend the assignment or order protective measures. The longer you wait, the more complicated the situation becomes.

Further analysis: related case law and developments

This 2007 decision is part of a consistent line. Already, in a judgment of 21 February 2006 (No. 04-20.179), the Court of Cassation had ruled that the liquidator must respect a unilateral promise to sell given by the debtor. Here, the principle is extended to the right of first refusal. More recently, the Commercial Chamber confirmed this position in a judgment of 10 January 2012 (No. 10-24.134), specifying that the right of first refusal is not nullified by the judgment opening the liquidation.

There is, however, a limitation: if the right of first refusal is considered "abusive" or "contrary to public policy", it can be set aside. For example, if the clause provides for a derisory price or an excessively short period. But in practice, courts are strict. The trend is towards protecting contractual rights, even in collective proceedings.

For the future, the Business Preservation Act of 26 July 2005 strengthened the powers of the supervisory judge but did not overturn this case law. Liquidators must therefore incorporate this obligation into their daily practice.

What you absolutely must remember

FAQ:

• Is the right of first refusal always valid in judicial liquidation? Yes, according to the Court of Cassation, the liquidator must respect it. He must inform the beneficiary and allow a period for them to come forward as a buyer.
• What if the liquidator sells without notifying me? You can challenge the assignment in court. Act quickly: seek protective measures (suspension of the assignment) and damages.
• What is the time limit to act? You have 5 years from the assignment. But the longer you wait, the harder it is to obtain annulment. Prefer to act within 6 months.
• Does my right need to be in writing? Yes, to be enforceable against third parties, it must appear in the lease or in a separate deed. An oral clause is difficult to prove.
• Can I obtain annulment of the assignment? Yes, if the liquidator violated your right. The court may annul the sale or award you damages equivalent to the loss of chance to acquire the business.

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