Trustee in Bankruptcy: No Action for Bankruptcy Without Creditors' Authorisation

Imagine a craftsman in Auxonne, Mr. Dupont, who supplied materials to a local company. The company goes bankrupt and the manager is suspected of misappropriating funds. The trustee (the professional appointed to manage the bankruptcy and represent the creditors) decides to file a complaint for bankruptcy (the act by a bankrupt trader of committing fraudulent acts such as concealing assets or falsifying accounts). But can he do so without the agreement of the other creditors? This is the question that the Court of Cassation decided in 1971, and which remains relevant for any professional facing collective proceedings.

The question every creditor asks: 'Can the trustee initiate criminal proceedings against the director without consulting us?' The answer is no, according to Article 137 of the Law of 13 July 1967 (now Article L. 654-1 of the Commercial Code).

What this decision answers: the trustee must obtain prior authorisation from the creditors' meeting, by a majority of those present, before taking action in matters of bankruptcy. And this applies whether he joins the action of the public prosecutor or acts alone. We will see together what this means in practice.

The Facts: A Story That Happens Every Day

In this case, a trustee had brought legal action for acts of bankruptcy without having previously consulted the creditors' meeting. The court declared it inadmissible (his claim was rejected without examination of the merits). The trustee appealed, but the court of appeal confirmed: without authorisation, no action is possible. The trustee then appealed to the Court of Cassation.

The story is simple: Mr. X, the director of a bankrupt company, is suspected of misappropriating assets. The trustee, appointed by the court, wants to prosecute him criminally. But he fails to convene a creditors' meeting to vote on authorisation. Result: his action is declared inadmissible.

The twist: the trustee argues that authorisation is not necessary when he merely joins the action of the public prosecutor. But the Court of Cassation rejects this argument: authorisation is required in all cases, whether the trustee initiates the action or intervenes in an action already commenced.

The Reasoning of the Court — Explained

The Court of Cassation, in its judgment of 29 April 1971, relies on Article 137 of the Law of 13 July 1967 (now Article L. 654-1 of the Commercial Code). This provision states that the trustee can only act on behalf of the mass (the body of creditors) in matters of bankruptcy after being authorised by a resolution passed by the creditors in a meeting, by a majority of those present.

The Court specifies that this authorisation is a substantive condition (an essential obligation) that cannot be circumvented. It does not matter whether the trustee sets the public action in motion himself (by joining as a civil party or by directly citing the director) or joins an action already brought by the public prosecutor. In both cases, authorisation is required.

In other words, the judges considered that the trustee is merely the agent of the creditors. He cannot commit their name to a criminal procedure without their explicit consent. This is a protection for creditors, who can thus collectively decide on the advisability of pursuing the director. Note however: this decision does not affect the power of the public prosecutor to act alone. But if the trustee wants to participate, he must first obtain the green light from the creditors.

What few people know: this rule still exists today, even though the law has been codified. undefined, I have encountered cases where trustees neglected this formality and faced a procedural bar (a straightforward rejection of their action).

What This Means for You — In Practice

If you are a creditor of a bankrupt company (collective proceedings), this decision directly concerns you. The trustee cannot initiate criminal proceedings against the director without consulting you. You therefore have a right of scrutiny over the advisability of such proceedings.

For a landlord in Nuits-Saint-Georges who leased commercial premises to a company that goes bankrupt: if the manager misappropriated the rent you paid, the trustee cannot file a complaint for bankruptcy without the creditors' agreement. You must be summoned to the meeting and vote. If the majority refuses, the trustee cannot act. You can also, individually, file a complaint yourself.

For a co-owner: this does not directly concern you, unless your co-ownership syndicate is a creditor of a bankrupt company. In that case, the co-ownership trustee must follow the same rule if he wants to act on behalf of the syndicate.

In practice, if you are a creditor, attend creditors' meetings or appoint a representative. If the trustee brings an action without authorisation, you can challenge its admissibility (have it declared invalid). The time limits for challenging are those of general law: you must act quickly, as soon as you become aware of the action.

Four Tips to Avoid This Type of Dispute

• Check the trustee's powers: Before any legal action, ask the trustee whether he has obtained the creditors' authorisation. Demand a copy of the minutes of the meeting.
• Attend creditors' meetings: As a creditor, you have the right to be summoned. If you do not receive a summons, report it to the commercial court (the court that handles bankruptcies).
• Challenge promptly: If the trustee brings an action without authorisation, raise the objection of inadmissibility in the first submissions (the initial written pleadings). Once the case has been decided on the merits, it is too late.
• Consult a lawyer lawyer: The rules of collective proceedings are complex. A lawyer can help you verify the regularity of the trustee's actions and, if necessary, act on your behalf.

Further Details: Related Case Law and Developments

This 1971 decision is part of a consistent line of authority from the Court of Cassation. Already, in a judgment of 26 November 1968 (No. 67-92.123), the Court had held that the trustee could not join as a civil party without authorisation. The 1971 decision extends this principle to intervention in an action already brought by the public prosecutor.

More recently, the Court of Cassation reiterated this principle in a judgment of 12 February 2013 (No. 11-88.087): the trustee must provide evidence of express and specific authorisation (which precisely mentions the acts of bankruptcy concerned). A general authorisation given at the start of proceedings is not sufficient.

The trend is therefore towards strengthening the rights of creditors. The judges want to prevent the trustee from initiating costly criminal proceedings without the agreement of those who pay (the creditors). For the future, it is likely that this rule will extend to other related offences such as bankruptcy by asset misappropriation.

In Practice: What to Do

FAQ:

1. Can the trustee act without authorisation in an emergency?
No, urgency does not dispense with authorisation. The trustee must convene an emergency meeting. If this is not possible, he may request authorisation from the judge-commissioner (the magistrate overseeing the collective proceedings).

2. What to do if the trustee acts without authorisation?
You can apply to the commercial court to have the action declared inadmissible. You can also seek annulment of any acts already performed.

3. Can I act individually as a creditor?
Yes, you can file a complaint yourself for bankruptcy, without going through the trustee. However, you will then have to bear the costs and the risk of an order for costs if you lose.

4. What is the cost of a creditors' meeting?
The costs are borne by the mass (the creditors). The trustee must convene the meeting by registered letter. In practice, expect between €200 and €500 depending on complexity.

5. Can I challenge a given authorisation?
Yes, if you believe the authorisation was obtained by fraud or that your vote was ignored. You can apply to the commercial court within 10 days from the resolution.

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 →