SCI Dividends: No Legal Existence Before Distribution Decision

Imagine: you are a partner in a SCI in Brest, and the French Treasury (Trésor public) seizes from the SCI the rents that the company owes you. Except that the company never voted a distribution of dividends. Result? The seizure fails, and the Treasury is left empty-handed. This is exactly what happened in the case decided by the Court of Cassation on 13 September 2017 (No. 16-13.674). So, can a partner claim dividends without a collective decision? And can the Treasury seize them? The answer is no, and this is a lesson for all SCI owners.

This decision answers a practical question: when does a dividend debt arise? For non-lawyers, the trap is to believe that accumulated profits are automatically due. In reality, as long as the general meeting has not voted on the allocation and determined each person's share, there is no debt. The managing partner, even if also a debtor of the Treasury, cannot rely on a non-existent debt.

What to remember? Before counting on dividends, check that the collective decision has indeed been taken. And if you are a creditor of a partner, do not seize the SCI without proof of an effective distribution. Otherwise, you risk wasting your time and money.

The Facts: A Story Like Many Others

Mr. A..., manager and partner of the SCI SM Patrimoine, had a significant tax debt to the Treasury. To recover this sum, the public accountant carried out a garnishee order (saisie-attribution) against the SCI, considering that the SCI owed dividends to Mr. A... As the garnishee (the person holding sums for the account of the debtor), the SCI had an obligation to declare the extent of its obligations and to pay the seized funds.

Except that the SCI contested: it claimed that it did not owe any dividend to its managing partner, because no general meeting had decided to distribute profits. Even though Mr. A... was the manager, this did not automatically create a debt of the SCI towards him. The Treasury, dissatisfied, sued the SCI for breach of its obligations as garnishee, claiming payment of the cause of the seizure.

The Court of Appeal ruled in favour of the Treasury, ordering the SCI to pay. But the Court of Cassation quashed that judgment: it held that the SCI was not indebted, for lack of a collective decision finding distributable sums and fixing Mr. A...'s share. The seizure was therefore unfounded, and the SCI could not be ordered to pay.

The Reasoning of the Court — Explained

The Court of Cassation relies on principles of company law: dividends only have legal existence from the moment when the competent corporate body (the general meeting of partners) finds the existence of distributable sums and determines the share allocated to each partner. This is a protective rule: it prevents partners or creditors from claiming sums that have not been allocated.

In this case, the SCI SM Patrimoine had not taken any distribution decision. Consequently, it was not indebted to Mr. A... for dividends. The Treasury, in seizing the SCI, came up against a non-existent debt. The High Court reminds that a garnishee can only be ordered to pay for breach of its obligations if it is actually indebted to the judgment debtor. Here, the SCI was not.

This reasoning confirms settled case law: the distribution of dividends is a voluntary and collective act, not an automatic obligation. Even if the company makes profits, the partners must meet and vote. This is a safeguard against abuses, especially when the partner is also the manager and might be tempted to help themselves.

What This Means for You — Practically

For landlord partners of a SCI: never consider profits as acquired until the general meeting has voted on their distribution. If you are also the manager, you might be tempted to award yourself dividends without a decision, but this exposes the SCI to challenges, particularly from other partners or the Treasury.

Let's take a concrete example: the SCI Dupont, in Plougastel-Daoulas, makes €50,000 net profit in 2023. The two partners, Mr. and Mrs. Dupont, think they can divide this sum. But they have not held a meeting. If the Treasury seizes the SCI for a personal debt of Mr. Dupont, the SCI can argue the absence of a decision and the seizure will be annulled. On the other hand, if the meeting voted a distribution of €20,000 to Mr. Dupont, the SCI must pay that sum to the Treasury.

For creditors of a partner: before seizing a SCI, ask to see the minutes of the general meeting deciding the distribution. Without this, the seizure risks being declared void, and you might even have to pay damages to the SCI for wrongful seizure.

For property professionals (notaries, managers): advise your clients to formalise any distribution by a meeting minutes. This is the only proof of the existence of a dividend debt.

Four Tips to Avoid This Type of Dispute

• Hold a general meeting each year: even if you do not distribute dividends, have the results and allocation (e.g., to reserves) recorded. This avoids any ambiguity.
• Draft precise minutes: mention the amount of distributable sums, each partner's share, and the payment date. Have all partners sign.
• Do not confuse profits with cash flow: a credit current account is not a dividend. If you want to repay a partner, do so via a distribution decision or a repayment of a current account.
• Anticipate seizures: if a partner is a debtor to the Treasury, do not distribute dividends without considering the consequences. It is best to consult a lawyer to secure the procedure.

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Further Reading: Related Case Law and Developments

This decision follows a consistent line: the Court of Cassation requires a collective decision for dividends to arise (Civ. 3e, 19 May 2016, No. 15-12.436). It rejects the idea that a partner can claim dividends without a vote, even if they are the manager.

Conversely, some older decisions allowed tacit distributions to be proved by regular payments. But the current trend is towards formalism: only an express decision is valid. In the future, we can expect courts to reinforce this requirement, particularly to combat tax fraud.

If you are faced with a seizure on unvoted dividends, know that the case law is clear: the SCI can argue the absence of a decision. You therefore have a solid defence.

Summary and Next Steps

FAQ:

1. Can I pay myself dividends without a general meeting? No, this is illegal. Without a collective decision, you are entitled to nothing, even if the company has profits.
2. What should I do if the Treasury seizes my SCI for a partner's debt? Check if a distribution was voted. If not, contest the seizure on the ground of no debt.
3. What is the risk if I do not hold a meeting? Apart from being unable to distribute, you may be in breach of the SCI's articles, which can lead to nullity of decisions and civil penalties.
4. Can I regularise after the fact? Yes, you can call a meeting to approve past accounts and decide a distribution, but this does not retroactively affect creditors.

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 →