Petitioning for Reorganisation Proceedings Against Your Debtor: The Creditor's Lever

A customer has stopped paying your invoices. Reminders go unanswered, the formal notice has achieved nothing, and you suspect that other suppliers are in the same position. Before starting a payment order procedure (injonction de payer) that will take months only to run into an insolvent debtor, another route exists: summoning that debtor directly to court-supervised reorganisation proceedings (redressement judiciaire). This lever, provided for by the French Commercial Code, puts the creditor on the offensive and can unblock a stalled situation. This guide sets out, strictly from the standpoint of the petitioning creditor, the conditions to be met, how to demonstrate cessation of payments (cessation des paiements), the trade-off with conventional debt recovery, the role of the creditors' representative (mandataire judiciaire) and a usable model summons.

The principle: a creditor can bring about the opening of reorganisation proceedings

Contrary to a common belief, the opening of collective insolvency proceedings is not reserved to the debtor itself. Article L. 631-5 of the French Commercial Code expressly provides that reorganisation proceedings may be opened on the summons of a creditor, whatever the nature of its claim. This point is decisive: the creditor does not need to be a commercial or preferred creditor. An unpaid supplier, a landlord, a subcontractor or a service provider may take the step.

A creditor's petition for reorganisation proceedings is nonetheless subject to one clear limit: it is not possible where conciliation proceedings (procédure de conciliation) are under way in respect of the debtor. The legislature wished to protect amicable settlement attempts. Outside that case, the route is open. The operation of these amicable preventive procedures is presented in our article on conciliation and ad hoc mandates.

Two neighbouring procedures must be distinguished. Safeguard proceedings (sauvegarde), governed by Book VI of the French Commercial Code, may be requested only by a debtor that anticipates its difficulties without yet being in cessation of payments. The creditor therefore has no access to safeguard proceedings. Its ground for action is reorganisation proceedings, or even compulsory liquidation (liquidation judiciaire) directly where reorganisation appears manifestly impossible.

Cessation of payments: the core of the case

A precise legal definition

Everything rests on a technical notion: cessation of payments. Article L. 631-1 of the French Commercial Code gives it a rigorous definition. The debtor is in cessation of payments when it is in the impossibility of meeting its due liabilities out of its available assets.

Two masses must be compared. Due liabilities (passif exigible) comprise debts that have fallen due, are certain and liquidated, and whose payment is actually demanded. Available assets (actif disponible) are immediate liquidity and whatever can be mobilised without delay: cash, an authorised and unused bank overdraft, and bills of exchange that can be discounted. A building, a business as a going concern (fonds de commerce) or stock does not constitute available assets, as they cannot be mobilised immediately. On the treatment of a disputed claim in assessing due liabilities, see our commentary on the decision clarifying the scope of the disputed claim in matters of cessation of payments.

Cessation of payments is therefore neither a mere delay in payment nor an accounting shortfall of assets. A debtor may be loss-making while honouring its payments as they fall due, and conversely a profitable debtor that is temporarily short of liquidity may find itself in cessation of payments. This distinction is the foundation of any serious creditor's case.

The burden of proof lies on the creditor

This is the most delicate point of the strategy. By issuing the summons, the creditor takes on the burden of showing that the debtor can no longer meet its due liabilities. Yet it does not have access to its debtor's internal accounts. A convincing body of evidence (faisceau d'indices) must therefore be built from external and verifiable elements.

Several concrete elements usefully support the summons:

• the existence of the creditor's own claim, which is certain, liquidated and due, supported by the invoices, the contract and the unsuccessful formal notice
• published registrations of statutory preferential claims, notably the preferential claim of the Treasury (Trésor public) or that of the social security bodies, which can be consulted at the registry and reveal unpaid tax and social security debts
• unpaid cheques or bills of exchange that have been returned unpaid
• other recovery proceedings brought by third parties, unsuccessful seizures, and orders to pay (commandements de payer) that have had no effect
• repeated delays towards several suppliers, if the information is accessible

The registration of preferential claims by the Treasury and the URSSAF (the French social security contributions collection body) is often the most telling indication, as it shows the debtor's inability to meet its highest-ranking obligations. A prudent creditor therefore requests from the registry of the commercial court a statement of registrations and preferential claims before issuing the summons.

The date of cessation of payments

The court fixes a date of cessation of payments in its judgment opening the proceedings. By default, that date is the date of the judgment, but it may be moved back by up to eighteen months. This issue goes beyond the petitioning creditor alone: the date of cessation of payments starts the suspect period (période suspecte), during which certain acts carried out by the debtor may be annulled. The creditor has an interest in documenting how long the difficulties have existed, because moving the date back may undermine payments or security granted to third parties during that period.

Reorganisation or liquidation: what the creditor can seek

Reorganisation proceedings presuppose that the reorganisation of the business is possible. The court, seised by the summons, opens an observation period intended to draw up an economic assessment and to prepare a possible plan. Conversely, where reorganisation is manifestly impossible, the court directly orders compulsory liquidation on the basis of Article L. 640-1 of the French Commercial Code.

The creditor does not control this choice: it requests the opening of a procedure, but it is for the court to assess the solution suited to the situation. In practice, the summons seeks the opening of reorganisation proceedings, and it is for the court to switch to liquidation if it finds that there is no prospect of reorganisation. The petitioning creditor must take this uncertainty into account: it sets in motion a mechanism whose outcome is partly beyond its control.

Summons to reorganisation proceedings or conventional recovery: choosing the right lever

The tools of individual recovery

Faced with an unpaid debt, the creditor first has the conventional routes available. The payment order procedure makes it possible to obtain an enforceable title quickly for an undisputed contractual claim. Interim payment proceedings (référé-provision) provide a provisional award where the obligation is not seriously open to challenge. Once the title has been obtained, enforcement measures take over: attachment of bank accounts (saisie-attribution), seizure and sale of movable assets (saisie-vente) and attachment of earnings.

These tools share one limit: they presuppose that the debtor has the means to pay. Against a drained debtor, the enforceable title has only theoretical value. The seizure comes back empty, and the creditor has incurred costs for no result.

What a summons to reorganisation proceedings brings, and what it costs

A creditor's summons to reorganisation proceedings changes the logic. It does not seek immediate payment, but to bring about a collective treatment of the debtor's situation. Its value to the creditor lies in several effects.

First, a considerable psychological and economic pressure effect. The opening of collective proceedings has heavy consequences for the manager: partial loss of control of the business, divestment of powers in the event of liquidation, and exposure to personal sanctions. Faced with a summons, a solvent debtor that was feigning insolvency sometimes suddenly finds the funds to pay, in order to avoid the hearing.

Next, a transparency effect. The procedure brings to light the debtor's real situation, under the supervision of a creditors' representative and a supervising judge (juge-commissaire). Suspect transactions granted to other creditors may be called into question.

But this lever has a cost for the petitioning creditor itself. From the opening of the proceedings, it loses its autonomy in recovery. The principle of the stay of individual proceedings, laid down by Article L. 622-21 of the French Commercial Code and applicable to reorganisation, prohibits any action for payment and any enforcement measure against the debtor. The creditor falls under collective discipline: it will have to file its claim and wait for distributions, which are often partial and late. It therefore obtains no preferential treatment for having set the procedure in motion. This point is fundamental: summoning a debtor to reorganisation proceedings is not a way of getting paid, it is opening a procedure whose results will be shared with all the other creditors.

The risk of misuse of procedure

A creditor cannot use a summons to reorganisation proceedings as a pure means of pressure to force a solvent debtor to pay. Case law holds that collective proceedings are not a means of recovery, and that their misuse for that sole purpose may constitute a fault giving rise to the creditor's liability. A debtor that is not genuinely in cessation of payments and that is subjected to an abusive summons may claim damages.

In practice, the dividing line is simple. If the creditor has serious evidence of genuine cessation of payments, the summons is legitimate, even if it incidentally exerts pressure. If the creditor knows that the debtor is solvent and uses the threat only to force payment, it exposes itself to liability. Hence the importance of building a probative file before acting.

The summons procedure step by step

The competent court

Jurisdiction depends on the nature of the debtor. The commercial court (tribunal de commerce) has jurisdiction where the debtor is a trader, a commercial company or a craftsman. The judicial court (tribunal judiciaire) has jurisdiction over other debtors, notably the liberal professions, farmers and private-law legal entities that are not traders. Territorial jurisdiction is tied to the place of the registered office of the legal entity or the address of the debtor's business.

The content of the summons

A creditor's summons to reorganisation proceedings is an act served by a bailiff (huissier de justice, now commissaire de justice). It must meet the general requirements for documents initiating proceedings and demonstrate, specifically, that the conditions for opening are met. It sets out three demonstrations:

• the claimant's status as a creditor, established by documents proving the existence, amount and due date of the claim
• the debtor's cessation of payments, supported by the body of evidence described above
• the absence of conciliation proceedings under way, which would render the summons inadmissible

The summons specifies the court seised and the date of the hearing, and calls on the debtor to appear. It is served on the debtor within a sufficient period to respect the rights of the defence.

The hearing and the powers of the court

At the hearing, the debtor may dispute the cessation of payments. Its most effective defence is to show that its available assets cover its due liabilities, for example by producing sufficient cash, a confirmed credit line or moratoria granted by its main creditors. It may also dispute the claimant's claim in an attempt to deny it standing to act.

The court has a wide power of assessment. It may open reorganisation proceedings, directly order compulsory liquidation, or dismiss the application if it considers that cessation of payments has not been established. The judgment opening the proceedings appoints the organs of the procedure: a supervising judge, a court-appointed administrator (administrateur judiciaire) where applicable, and a creditors' representative.

After the opening judgment: the position of the petitioning creditor

The stay of individual proceedings

From the opening judgment, the petitioning creditor, like all the others, is subject to the stay of individual proceedings. Actions for payment are suspended, interest ceases to run on most claims, and no seizure may be continued or commenced. The creditor that brought about the procedure is not exempt from this rule.

Filing the claim, a vital formality

The creditor must file its claim with the creditors' representative. Article L. 622-24 of the French Commercial Code, applicable to reorganisation, sets a period of two months from publication of the opening judgment in the BODACC (French official gazette of civil and commercial announcements). After that period, a claim that has not been filed becomes in principle unenforceable against the proceedings, and the creditor loses any chance of taking part in distributions. This is a frequent mistake with heavy consequences: having set the procedure in motion in no way dispenses the creditor from filing its claim within the time limit.

The creditors' representative (mandataire judiciaire)

The figure of the representative of creditors in reorganisation proceedings is now called the mandataire judiciaire. Since the Business Safeguard Act of 2005 (loi de sauvegarde des entreprises), the historic title of representative of creditors (représentant des créanciers) has been replaced, but the function remains: the mandataire judiciaire acts in the collective interest of the creditors. It draws up the list of claims filed, verifies them, proposes their admission or rejection to the supervising judge, and makes the distributions. It is the creditor's sole point of contact throughout the procedure. All correspondence relating to the claim goes through it.

Practical case

A construction company acts as a subcontractor for a property development company. Several progress payment applications for works, approved and invoiced, remain unpaid. Reminders and then the formal notice go unanswered. On consulting the registry of the commercial court, the subcontractor discovers registrations of the URSSAF's and the Treasury's preferential claims against the developer, as well as a recent registration of a pledge. It also learns that another supplier started an attachment of bank accounts that came back unsuccessful. The position of subcontractors and purchasers when a developer defaults is detailed in our article on the property developer in reorganisation proceedings.

Conventional recovery appears to lead nowhere: a payment order would result in an enforceable title that is unusable against cash resources that have already run dry. The subcontractor then assembles the elements of a body of evidence: its own invoices and its unsuccessful formal notice, the statement of registrations of preferential claims obtained from the registry, and the record of its fellow supplier's unsuccessful seizure. These elements show the developer's inability to meet its due liabilities out of its available assets.

It has a summons to reorganisation proceedings served. On receipt of the document, two scenarios emerge. Either the developer, in fact having resources that it refused to mobilise, pays the invoice to avoid the hearing, and the creditor withdraws. Or the developer is genuinely in cessation of payments, the court opens the proceedings, and the subcontractor files its claim with the creditors' representative within the two-month period. In both cases, the summons will have moved forward a situation that was totally blocked.

Model summons to reorganisation proceedings

This model summons to reorganisation proceedings sets out the framework of the expected particulars. It must be adapted to each case and served by a commissaire de justice.

SUMMONS FOR THE OPENING OF REORGANISATION PROCEEDINGS

IN THE YEAR [...], on [...], At the request of [full identity of the creditor, legal form, registered office, trade and companies register number, legal representative], Having as its lawyer Maître [...],

I, the undersigned commissaire de justice, have summoned: [full identity of the debtor, legal form, registered office, trade and companies register number],

To appear on [date] before the Commercial Court of [city], for the purpose of having reorganisation proceedings opened against it.

I. On the claimant's status as a creditor Statement of the origin of the claim (contract, order, invoices), of its amount, of its certain, liquidated and due nature, and of the recovery steps taken (formal notice of [date] without effect). Documents relied upon.

II. On the debtor's cessation of payments Reminder of Article L. 631-1 of the French Commercial Code. Statement of the body of evidence: the petitioner's unpaid invoices, statement of registrations of the Treasury's and the URSSAF's preferential claims, unpaid cheques or bills, unsuccessful seizures by third parties. Demonstration of the impossibility of meeting due liabilities out of available assets.

III. On the absence of conciliation proceedings under way Attestation that no conciliation proceedings have been opened in respect of the debtor, a condition of admissibility under Article L. 631-5.

ON THESE GROUNDS Open reorganisation proceedings in respect of [debtor]; appoint the organs of the procedure; order the debtor to pay the costs.

All rights reserved. Schedule of documents disclosed annexed.

Conclusion

Summoning one's debtor to reorganisation proceedings is not a mere variant of debt recovery: it is a change of logic. The creditor gives up getting paid alone in order to bring about a collective treatment, taking on the burden of proving cessation of payments and accepting to share the fate of the other creditors. Well used, this lever unblocks situations in which the payment order and seizure are bound to fail, and puts on a recalcitrant but solvent debtor a pressure that nothing else produces. Badly used, against a debtor that is not genuinely in cessation of payments, it exposes the creditor to a liability claim for misuse of procedure.

The strategic rule can be stated in one sentence: never issue a summons without a serious body of evidence of cessation of payments, and always file your claim within two months of publication in the BODACC. Before starting the action, have your counsel prepare a precise statement of registrations of preferential claims at the registry and a clear-sighted assessment of the debtor's real solvency: it is this prior assessment that distinguishes a controlled lever from a blow in the air.

Frequently asked questions

Can a creditor really request the reorganisation proceedings of its debtor itself? Yes. Article L. 631-5 of the French Commercial Code allows a creditor to summon its debtor to reorganisation proceedings, whatever the nature of its claim. The only limit is the existence of conciliation proceedings under way, which renders the summons inadmissible. The creditor must demonstrate its status as a creditor and the debtor's cessation of payments.

What proof of cessation of payments must the creditor provide? The creditor must establish that the debtor can no longer meet its due liabilities out of its available assets, within the meaning of Article L. 631-1 of the French Commercial Code. As it has no access to the debtor's accounts, it builds a body of evidence: its own unpaid claim, the statement of registrations of the Treasury's and the URSSAF's preferential claims obtained from the registry, unpaid cheques or bills, and unsuccessful seizures brought by third parties. The burden of proof lies on it.

Is summoning a debtor to reorganisation proceedings more effective than a payment order? It depends on the debtor's solvency. Against a debtor that has the means to pay but refuses, the payment order followed by a seizure remains the direct route. Against a drained debtor, those tools lead to an unusable title, whereas a summons to reorganisation proceedings brings about a collective treatment and puts real pressure on the manager. The summons does not, however, produce any immediate payment or preferential treatment.

Is the creditor that sets the procedure in motion paid first? No. Having brought about the opening confers no particular rank. From the opening judgment, the creditor is subject to the stay of individual proceedings provided for in Article L. 622-21 of the French Commercial Code and must file its claim like all the others. It takes part in distributions according to its rank, with no advantage linked to its initiative.

What is the time limit for filing a claim after the opening judgment? The time limit is two months from publication of the opening judgment in the BODACC, pursuant to Article L. 622-24 of the French Commercial Code. After that period, a claim that has not been filed becomes in principle unenforceable against the proceedings. The creditor then loses its participation in distributions, even if it is the origin of the summons.

Who is the representative of creditors in reorganisation proceedings? Since the Business Safeguard Act of 2005, the representative of creditors in reorganisation proceedings is called the mandataire judiciaire. Appointed by the opening judgment, it acts in the collective interest of the creditors: it receives the claims filed, verifies them, proposes their admission or rejection to the supervising judge and makes the distributions. It is the creditor's sole point of contact throughout the procedure.

Can a summons to reorganisation proceedings be abusive? Yes. Collective proceedings are not a means of recovery. A creditor that summons a solvent debtor for the sole purpose of forcing it to pay diverts the procedure from its purpose and incurs liability. A debtor that is not genuinely in cessation of payments may then claim damages. Hence the need to have serious evidence of cessation of payments before acting.