Transaction during the observation period: caution regarding the authorisation of the judge-commissioner

Imagine: you are the owner of a commercial premises in Château-Gontier. Your tenant is in judicial reorganisation (redressement judiciaire), but an administrator offers you a transaction to settle the unpaid rent and vacate the premises. You accept, relieved. Then, a few days later, the administrator withdraws. Is that possible? The Court of Cassation answers yes, if the authorisation of the judge-commissioner had not yet been obtained. A decision that upsets the certainties of landlords and real estate professionals.

Article L. 622-7 of the Commercial Code requires that any transaction entered into by the administrator must be authorised by the judge-commissioner (the magistrate who supervises the collective proceedings). Without this prior authorisation, the transaction is void. The Court of Cassation, in a judgment of 20 January 2021, specified that even if acceptance is given subject to this authorisation, the offer can be withdrawn as long as the judge has not given the green light. In other words, the meeting of the minds does not occur until the authorisation has been granted.

What does this change for you? Whether you are a landlord, tenant, or professional, this judgment reminds us of a mandatory rule: during the observation period, do not sign anything without verifying that the judge-commissioner has authorised the transaction. A lesson that also applies in Craon, where commercial leases are often the economic backbone of small towns.

The facts: a story that happens every day

The company Victoires, tenant of a commercial premises in Château-Gontier, is placed in judicial reorganisation. A judicial administrator is appointed to manage the observation period. The owner, Mr X, wishes to recover his premises and settle the unpaid rent. The administrator proposes a transaction: the company Victoires will vacate the premises by 30 November at the latest, and settle the accounts according to a schedule. Mr X accepts by letter, specifying that his agreement is given subject to the authorisation of the judge-commissioner.

Before the judge-commissioner has ruled, the administrator changes his mind and withdraws his offer. Mr X then seizes the court to have the transaction declared perfected, since the offer had been accepted. The Court of Appeal rules in his favour, considering that the offer could no longer be revoked after acceptance. But the administrator appeals to the Court of Cassation.

The Court of Cassation quashes the appeal judgment. It recalls that the administrator's power to transact is subject to prior authorisation from the judge-commissioner. As long as this authorisation has not been given, the administrator does not have the power to propose a transaction. Consequently, the offer can be withdrawn at any time before authorisation, even after a conditional acceptance. In short, Mr X cannot rely on a perfected agreement as long as the judge-commissioner has not said yes.

The reasoning of the court — dissected

The decision is based on Article L. 622-7, II, of the Commercial Code, which provides that the administrator cannot transact without being authorised by the judge-commissioner. This text is of public policy (mandatory, cannot be derogated from by contract). The Court of Cassation draws a logical consequence: the administrator does not have the power to make an offer of transaction before having obtained the authorisation. An offer made without authorisation is void, or at least, it does not bind the administrator until the authorisation has been given.

The Court of Appeal made an error by applying the general law of contracts (Articles 1113 et seq. of the Civil Code), according to which an offer cannot be revoked after acceptance. But in the law of collective proceedings, general law gives way to special rules. In other words, the principle of the meeting of minds (consensualism) is set aside in favour of a formal requirement: the prior authorisation of the judge-commissioner.

undefined, I have encountered cases where landlords thought they had concluded an agreement with the administrator, only to be faced with a refusal to transact. This case law clarifies the situation: as long as the judge-commissioner has not authorised, the administrator can withdraw without fault. However, note: if the administrator has already partially performed the transaction (for example, by paying an indemnity), the situation could be different. But in this case, nothing had been performed.

What this changes for you — concretely

For landlords: if you are in discussions with a judicial administrator, do not take an agreement for granted before the judge-commissioner has issued his order. Even if the administrator confirms the agreement in writing, you may find yourself without a solution if authorisation is not obtained. Example: in Craon, an owner of an 80 m² premises rented at €1,200 per month accepted a transaction to settle €15,000 of arrears. The administrator withdrew before authorisation. Result: the tenant was liquidated, and the owner recovered nothing.

For tenants in judicial reorganisation: you may be tempted to negotiate directly with the landlord to avoid eviction. But know that the administrator is the only one authorised to transact, under the supervision of the judge-commissioner. Any direct agreement with the landlord could be challenged.

For professionals (lawyers, administrators, notaries): this decision recalls the importance of chronology. It is imperative to request the authorisation of the judge-commissioner before any proposal of transaction. A simple reservation clause is not enough. If you are in this situation, you must: (1) draft a reasoned request to the judge-commissioner, (2) wait for the order, (3) only then formalise the agreement.

A practical tip: if you are a landlord and the administrator proposes a transaction, systematically ask him to provide you with the authorisation order before accepting anything. This will save you time and money.

Four tips to avoid this type of dispute

• Check the prior authorisation: Before accepting a transaction with a judicial administrator, demand a copy of the judge-commissioner's order authorising him to transact. Without this, the agreement is fragile.
• Have a precise written document drafted: If the agreement is conditional, expressly state that acceptance is subject to the authorisation of the judge-commissioner. But know that this does not fully protect you: the administrator can still withdraw before authorisation.
• Do not vacate the premises too quickly: As long as authorisation has not been obtained, do not make any irreversible commitments (such as signing a new lease or vacating the premises). Wait for the order.
• Consult a lawyer lawyer: Collective proceedings are complex. A lawyer will help you anticipate risks and react quickly in case of withdrawal.

Further reading: related case law and developments

The Court of Cassation had already affirmed, in a judgment of 10 July 2012 (No. 11-19.004), that the authorisation of the judge-commissioner must be prior to the conclusion of a transaction. But the question of withdrawal before authorisation remained unclear. The 2021 judgment provides a welcome clarification: even if acceptance is given subject to reservation, the offer can be withdrawn as long as authorisation has not been granted. This effectively means that the offer is not firm before authorisation.

This solution is consistent with the purpose of collective proceedings: to protect the interests of all creditors by preventing the administrator from making hasty commitments. In the future, we can expect judge-commissioners to be even more careful in delivering reasoned authorisations, and landlords to be doubly cautious.

Note: another decision of 8 March 2023 (No. 21-24.321) specified that even the administrator may be held liable if he transacts without authorisation, but this does not affect the validity of the transaction. However, in the judgment of 20 January 2021, the absence of authorisation renders the transaction non-existent. This is more radical.

Summary and next steps

Here is a checklist of actions to take if you are faced with a transaction during the observation period:

1. Identify the judicial administrator and check whether he has been appointed with a mission of assistance or representation.
2. Demand the authorisation order from the judge-commissioner before any agreement.
3. Do not sign or perform anything until you have received this order.
4. In case of withdrawal, consult a lawyer to assess possible remedies (administrator's liability, claim for damages, etc.).

FAQ:

• Can I negotiate directly with the tenant during the observation period? No, only the administrator can transact. Any direct agreement is unenforceable against the proceedings.
• What should I do if the administrator withdraws after my acceptance? Check whether the judge-commissioner's authorisation had been obtained. If not, the withdrawal is valid. You may possibly claim damages if you have suffered harm.
• What is the time limit for obtaining the judge-commissioner's authorisation? Generally, a few days to a few weeks, depending on the complexity of the case. The administrator must file a reasoned request.
• Does this decision apply to residential leases? Yes, if the landlord is a legal entity in collective proceedings. For individuals, the rules are different.

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 →