What happens to creditors if a French company goes bankrupt?

Dealing with an unpaying debtor can be a long and frustrating process. With many measures in place when dealing with an unpaying debtor, there is always a solution that could suit your case. But if a debtor is declared bankrupt, how does this impact your chances of a successful collection? On top of that, if your debtor is located in a different country, you can expect another layer full of complexities. Besides dealing with a bankrupt debtor, you will also have to deal with different legal proceedings than those in your own country.

Under French law, for instance, the rule is that collective proceedings of bankruptcy stop regular proceedings. For instance, say a company has initiated civil proceedings against an unpaying debtor. But it appears that there are several companies who are in the same situation as the creditor. Then all ongoing proceedings will no longer hold. This way, companies in distress can avoid the risk of facing multiple legal proceedings or enforcement of court decisions, if the court already knows that there are insufficient assets to pay their liabilities.

While this could limit the chances of recovering a payment, there are measures available within the French legal system with strict time limits that can help creditors. Our lawyers explain more below.

Creditors must act fast

The most important aspect of dealing with a bankrupt debtor, it to act fast. Time is of the essence, as the sooner a creditor acts, the greater your chances of recovering your debt. Before doing so, creditors should be aware of the actions that are required under French law.

Registering the claim

Once a creditor is aware that their debtor is a subject of liquidation, reorganisation or safeguard proceedings, the creditor should declare the claim to the debtor’s judicial representative or liquidator appointed by the French court. The deadline for doing so is 2 months from the date the debtor is declared bankrupt by the court. If a creditor is located abroad or in French overseas departments or territories, then this period is extended by 2 additional months. If the deadline has passed, then the creditor loses the right to claim the payment of the debt.

Retention of title

If the creditor wishes to invoke retention of title to recover goods that are still in the hands of the debtor, the claim must be sent to the liquidator within 3 months after the French courts have declared the debtor bankrupt.

If the liquidator fails to respond within 1 month from the date the retention of title has been invoked, then the creditor has an additional period of 1 month to submit a claim to the French Supreme Court. In order to do so, the following conditions should apply:

1. 1. The clause to invoke the retention of title has already been accepted by the debtor before the goods were supplied.
   2. The goods are still in the possession of the debtor.

Exceptions to these time restrictions

Under French law, there are certain claims that should stick to the time limits set by the French court. However, for some claims, it is possible to extend the deadline under specific conditions. This can be done with the help of a special request from the judge.

Creditors who have not been able to register their claim within 2-4 months exceed the time limit, can request the judge for an additional extension for a period of no more than six months from the date the debtor was declared bankrupt. If the judge agrees, the creditor has 1 extra month to act.

Claims that arise after the date the judge declares a debtor bankrupt, benefit from the right to payment on the due date. However, this only applies to regular claims.

Which condition applies: two practical examples

Knowing which deadline applies could of course be confusing in some cases. Let us take 2 examples and see which deadlines would apply.

1. 1. 1. A foreign company has an unpaid invoice from one of its customers. The customer has been declared bankrupt, with a verdict that was reached by the French court on 07-05-2020 and an official publication on 15-05-2020. The creditor can declare the claim until 15-09-2020 and can still request relief from foreclosure until 15-11-2020 if they require an additional month to act.
      2. A French company has an unpaid invoice from a customer. It is in judicial liquidation by a judgment of 20-03-2020, published on 30-03-2020. The creditor can declare its claim until 23-08-2020, make a claim until 30-06-2020 and act in foreclosure until 30-08-2020. After these dates, all deadlines expire.

Contact our French Desk

Companies dealing with French companies declared bankrupt should remain vigilant at all times. With specific time frames to declare a claim with a liquidator, it is important a creditor is aware of the dates and acts fast. If your debtor has been declared bankrupt, then our lawyers at the French Desk can ensure we act in a timely manner with a strategy that will maximise your chances of a successful recovery. For more information, feel free to contact us.

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