Garnishment of Company Shares: The Validation Decision Does Not Transfer the Titles

Imagine: you are an owner in Brignoles, you have invested in a société civile immobilière (SCI) with friends. One day, a creditor of the SCI obtains a garnishment on your shares. You think everything is settled? Not so fast. The decision validating this garnishment does not automatically divest you of your titles. This is what the Court of Cassation reminded us in 1983.

Many owners and real estate professionals are unaware of this fundamental distinction. A garnishment (seizure of a debt in the hands of a third party) is not a forced transfer. The creditor must take an additional step to actually become the owner of the shares. So, concretely, what happens after validation?

This decision, handed down nearly forty years ago, remains a reference in litigation over seizure of company shares. It protects the debtor against too rapid a loss of ownership, but imposes additional steps on the creditor. Let's analyse it together, as if we were having a coffee in Sanary-sur-Mer.

The Facts: A Story That Happens Every Day

In the early 1970s, the SCI Résidence Saint James, based in the Var, was in debt. London Mercantile, a British credit company, claimed more than 200,000 francs (about 300,000 euros today). To get paid, it obtained on 23 February 1977 an interim order (ordonnance de référé) authorising a garnishment on the 1,433 shares of the SCI held by a certain Mr Y, a partner in Brignoles.

Northern Trust, another creditor, had already attempted a similar seizure, unsuccessfully. London Mercantile prevailed before the enforcement judge. Mr Y contested: in his view, the validation of the garnishment should result in the transfer of the shares to the creditor, which would extinguish the debt. He wanted the court to 'transfer' the titles.

The tribunal de grande instance of Draguignan agreed with him in 1980. But London Mercantile appealed to the Court of Cassation. The Supreme Court quashed the appellate decision: no, the decision validating a garnishment does not itself bring about the transfer of the shares. Mr Y remained the owner until a separate judgment ordered the attribution of the titles. A real judicial saga, where each step has its importance.

The Reasoning of the Court — Analysed

The Court of Cassation relied on Articles 557 and 558 of the former Code of Civil Procedure, now incorporated into the Code of Civil Enforcement Procedures. Garnishment is a protective measure: it freezes sums or assets in the hands of a third party, but does not transfer them to the creditor. To obtain payment, the creditor must request the court to judicially attribute the seized debt. Applied to company shares, this means that validation of the seizure does not amount to a transfer.

The judges distinguished two phases: first, the seizure (the attachment), which makes the shares unavailable; second, the transfer, which requires an express decision. In this case, the Court of Appeal had mistakenly confused the two. The Court of Cassation, on a pure point of law, restored the rule: the validation decision does not transfer ownership of the titles.

This solution protects the debtor against hasty enforcement. Imagine a malicious creditor who obtains validation of a seizure on shares worth 100,000 euros for a debt of 10,000 euros: without this distinction, he would become owner of the whole, instead of simply being paid from the proceeds of sale. The Court thus guarantees a balance between the rights of the creditor and those of the debtor.

What This Means for You — Concretely

For an owner of SCI shares in Sanary-sur-Mer: if a creditor obtains a garnishment on your shares, you do not immediately lose your titles. You can continue to vote at general meetings and receive dividends, until an attribution judgment is made. This gives you time to negotiate a repayment plan or contest the debt.

For a creditor (bank, supplier): do not believe that a simple validation order is enough. You must initiate a judicial attribution procedure, which can take several months. Concrete example: if the SCI owes €50,000 and the shares are worth €80,000, you cannot claim all the shares. The judge will order their sale at auction, and you will be paid from the price.

For a buyer of shares: if you buy shares in an SCI that is subject to a garnishment, check whether the transfer has been ordered by a judgment. If not, the seller is still the owner and can validly transfer his titles to you, but you risk facing the creditor. Advice: ask for a certificate of non-seizure from the court registry.

Four Tips to Avoid This Type of Dispute

• Check the legal status of the shares before investing: request a statement of seizure registrations from the registry of the commercial court or the judicial court. In Brignoles, the registry is competent for SCIs registered with the Trade and Companies Register.
• Draft anti-dilution SCI articles: include an approval clause that limits the transfer of shares to third parties, even in case of seizure. This gives you a right of oversight.
• In case of seizure, contest quickly: you have one month to object to the validation order. After this period, the seizure becomes final and you must wait for attribution.
• Negotiate a staggered repayment of the debt: if you are the debtor, propose a repayment plan to the creditor before he requests attribution of the shares. This avoids a forced sale, often at a loss.

Further Analysis: Related Case Law and Developments

This 1983 decision is part of a consistent line of the Court of Cassation. Already in 1976 (Civ. 2e, 12 May 1976, No. 75-10.321), it had held that garnishment does not confer on the creditor a right of ownership over the seized debt, but only a right of pledge. More recently, the Commercial Chamber reiterated in 2018 (No. 16-26.827) that judicial transfer of company shares requires an express decision, even in the event of insolvency proceedings.

The trend is therefore stable: the distinction between seizure and transfer is firmly established. However, a legislative development occurred with the law of 9 July 1991, which simplified the attribution procedure. Now, the creditor can request attribution as soon as the seizure is validated, without waiting for a second judgment, provided the debt is certain, liquid, and due. Nevertheless, the principle remains: validation does not equal transfer.

For the future, we can expect case law to clarify the modalities of attribution, particularly in the case of multiple creditors. But the substantive rule established in 1983 remains: ownership of shares is not transferred by the seizure alone.

Frequently Asked Questions

1. Can I sell my SCI shares after a validated garnishment?
Yes, as long as judicial attribution has not been ordered. But beware: the sale price will be seized by the creditor. It is better to inform the buyer of the situation.

2. What should I do if I am a creditor and the debtor does not pay?
After validation of the seizure, initiate an attribution procedure before the enforcement judge. Provide the statement of debt and proof of seizure. The judge will order the transfer or sale of the shares.

3. What is the time limit to obtain attribution of the shares?
Allow 2 to 6 months after validation of the seizure, depending on the complexity of the case and the court's workload. In Toulon, the delays are about 3 months.

4. Can a partner oppose the attribution of shares to an external creditor?
Yes, if the articles provide for an approval clause. The creditor must then obtain authorisation from the management or the general meeting. Failing that, a sale at auction may be ordered.

5. Does this rule apply to shares of sociétés anonymes (public limited companies)?
Yes, the same principle applies. Garnishment of listed or unlisted shares does not amount to a transfer. A specific procedure (seizure-sale) is necessary for listed shares.

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