Stay of individual proceedings: what the creditor can (still) do from the opening judgment

A supplier learns, from a publication in the BODACC (French official gazette of civil and commercial announcements), that its customer has just been made the subject of an opening judgment of court-supervised reorganisation (redressement judiciaire). Two unpaid invoices remain outstanding, an attachment of debts (saisie-attribution) was under way, and a mortgage had been taken over a building belonging to the debtor. The first reaction is often to believe that everything is lost and that the claim has gone up in smoke. That is wrong. The opening of collective insolvency proceedings (procédure collective) freezes some of the creditor's rights, but leaves others intact, and certain security interests retain formidable effectiveness.

This article sets out, from the standpoint of the institutional creditor (bank, supplier, landlord, social security body), what is in fact frozen by the stay of proceedings (arrêt des poursuites) in collective insolvency proceedings and what remains possible from the opening judgment onwards. The aim is practical: to know what must be stopped immediately, what must on the contrary be set in motion without delay, and which security interests or actions to rely on to preserve one's chances of payment.

The principle of the stay of individual proceedings: basis and scope

The stay of individual proceedings is laid down by Article L.622-21 of the French Commercial Code for safeguard proceedings (sauvegarde), made applicable to court-supervised reorganisation by Article L.631-14 and to compulsory liquidation (liquidation judiciaire) by Article L.641-3. Its purpose is twofold: to freeze the pre-opening liabilities so as to organise a collective treatment, and to prevent the quickest creditors from being paid to the detriment of the others. It is the application of the principle of equality of creditors, the backbone of the law on businesses in difficulty.

In concrete terms, Article L.622-21 I prohibits or halts any legal action by creditors whose claim is not mentioned in the first paragraph of Article L.622-17, where that action seeks an order against the debtor to pay a sum of money or the termination of a contract for failure to pay a sum of money. Paragraph II adds that the opening judgment also halts or prohibits any enforcement procedure, whether against movable or immovable property, as well as any distribution procedure that had not produced an attributive effect before the judgment.

The opening judgment interrupts or prohibits any legal action by all creditors whose claim is not mentioned in I of Article L.622-17 and which seeks an order against the debtor to pay a sum of money or the termination of a contract for failure to pay a sum of money. (Article L.622-21 I of the French Commercial Code)

A decisive criterion: before or after the judgment

The dividing line is the date on which the claim arose. Claims that arose before the opening judgment (pre-opening claims) are subject to the stay of proceedings and the prohibition on payment. Claims validly arising after the judgment for the needs of the conduct of the proceedings or of the business, known as meritorious post-judgment claims (créances postérieures méritantes) within the meaning of Article L.622-17, escape this freeze and even enjoy preferential treatment. An institutional creditor must therefore, from the first hour, date its claim precisely, because its whole regime depends on this characterisation.

What is frozen from the opening judgment

The opening judgment has an immediate and brutal effect on several prerogatives of the pre-opening creditor. The reflex is to list without delay all proceedings under way in order to stop them, failing which the creditor risks having its steps annulled and, where applicable, incurring liability.

• Actions for payment of a sum of money against the debtor are interrupted, whether at first instance or on appeal. The pending proceedings are not extinguished but suspended until the claim is declared and the proceedings resumed in the manner provided by Article L.622-22.
• Actions for termination of a contract on the ground of failure to pay a sum of money are likewise prohibited. A landlord can no longer seek termination of the commercial lease for unpaid pre-opening rent.
• All enforcement measures are halted: seizure and sale of movables (saisie-vente), attachment of debts not yet attributive, real property seizure, attachment of earnings. A distribution procedure that had not produced its attributive effect before the judgment also falls.
• The running of interest is halted by Article L.622-28, except for interest on loans with a term of one year or more and on contracts with deferred payment of one year or more.
• Payment of pre-opening claims is prohibited by Article L.622-7. A creditor can no longer receive voluntary payment from the debtor in respect of a pre-opening invoice, and a debtor who paid would expose the payment to nullity.

To this freeze is added a major procedural consequence: interrupted proceedings resume only after the claim has been declared, and only to have the claims recorded and their amount fixed, never to obtain an order for payment that can be enforced against the debtor.

The obligation to declare one's claim: the compulsory step

The stay of proceedings turns the active creditor into a declaring creditor. Under Article L.622-24, the pre-opening creditor must send its declaration of claim to the creditors' representative (mandataire judiciaire) within two months of publication of the opening judgment in the BODACC (extended to four months for creditors domiciled outside metropolitan France). Since the Ordinance of 12 March 2014, the declaration is no longer subject to irreversible time bar (forclusion) in all cases, but a creditor that has not declared within the time limits and does not obtain relief from the time bar finds its claim unenforceable against the proceedings. In other words, it will take part neither in the distributions nor in the plan. The time limits to be met and the most frequent errors are listed in our article on declaring a claim in collective insolvency proceedings.

The declaration is not a mere formality. It amounts to a claim in court and interrupts limitation. An institutional creditor has every interest in including in it the principal, the interest accrued before the judgment, the attached security interests and the method of calculation, in order to secure its admission to the liabilities.

What remains possible: the creditor's table

Far from reducing the creditor to silence, the opening of the proceedings leaves a set of rights and actions in place. The following table summarises, from the standpoint of an institutional creditor, the boundary between what is neutralised and what remains exercisable.

This table brings out a little-known reality: the creditor retains powerful levers, but they most often rest on mechanisms that are not mere proceedings for payment. They are rights in rem, rights of ownership or pre-existing legal situations that by nature escape the logic of the stay of proceedings.

Set-off of connected debts

Article L.622-7 prohibits payment of pre-opening claims but expressly reserves the set-off of connected claims. Where the creditor is also a debtor of the debtor in proceedings and the two claims arise from the same contractual relationship or a single contractual whole, set-off may operate despite the opening. It is a decisive tool for a bank holding an account or for a commercial partner bound by a framework contract, because set-off is economically equivalent to payment. The claim must nonetheless have been declared and the connection established.

Meritorious post-judgment claims

A creditor that contracts with the debtor after the judgment, for the needs of the observation period or in return for a service supplied during it, escapes the stay of proceedings. These post-judgment claims referred to in Article L.622-17 must be paid on their due date and, failing that, enjoy a payment privilege in an order determined by law. A supplier that continues to deliver during the observation period, a landlord for post-judgment rent, a service provider: all are in a much more comfortable position than pre-opening creditors. Vigilance then focuses on justifying the meritorious character of the claim, a condition of its enforceability.

The security interests that escape (or survive) the stay of proceedings

The stay of proceedings neutralises the enforcement of security interests by way of enforcement measures, but does not erase them. Certain security interests retain remarkable economic effectiveness because they rest on the possession or ownership of an asset, and not on an action for payment.

Retention of title: the queen of security interests

The retention of title clause (réserve de propriété), governed by Articles L.624-16 et seq., allows an unpaid seller to claim back the goods sold for as long as they are found in kind in the debtor's estate. This is not a proceeding for payment, it is the exercise of a right of ownership. The seller recovers its goods rather than joining a queue of unsecured creditors. The claim must be made within three months of publication of the opening judgment, in accordance with Article L.624-9. For a supplier of raw materials or storable goods, the systematic inclusion of a retention of title clause in the general terms of sale is the best upstream protection against default.

The right of retention

A creditor that lawfully holds an asset of the debtor may retain it until paid in full. The right of retention, including the fictitious right of retention attached to a pledge without dispossession, withstands the collective insolvency proceedings: the retaining creditor is not subject to the discipline of the stay of proceedings in the same way as others, because it keeps physical or legal control of the asset. A garage owner, a carrier, a depositary thus have a powerful negotiating lever, the body conducting the proceedings having, if it wants to recover the asset, to pay off the retaining creditor or obtain its agreement.

Security interests in rem registered before the judgment

A mortgage, a pledge of business assets (nantissement) or a pledge duly registered before the opening judgment retain their ranking and their base. The creditor can no longer enforce them by seizure during the observation period, but its ranking is crystallised and it will be paid, in its order of priority, out of the realisation price of the asset in the event of a sale or liquidation. By contrast, Article L.622-30 prohibits the registration of a new security interest after the judgment to secure a pre-opening claim. The lesson is clear: the quality of protection depends on anticipation. A security interest taken too late is an ineffective security interest. On the place of each category of creditors in the distributions, see our analysis of the order and ranking of payment in compulsory liquidation.

The security trust

The security trust (fiducie-sûreté) is one of the most robust mechanisms for the creditor, because the assets transferred into the trust estate in principle leave the creditors' common pledge. Its fate nonetheless depends on whether or not there is an agreement placing the assets at the debtor's disposal. This technical refinement calls for a case-by-case examination, but the general idea remains: ownership transferred by way of security largely escapes the logic of the stay of proceedings.

The actions that escape the stay of proceedings

Not all legal actions are caught by Article L.622-21. The text refers exhaustively to actions seeking an order to pay a sum of money or the termination of a contract for non-payment. Outside that perimeter, several actions remain admissible.

• An action for termination or rescission of a contract on a ground other than failure to pay, for example a breach by the debtor of an obligation to do something, remains possible.
• An action seeking recognition of a right or the establishment of a legal situation, provided that it does not resolve into a monetary order, escapes the freeze.
• An action for recovery or restitution of an asset, as seen, stems from ownership and not from a proceeding for payment.
• Proceedings pending on the day of the judgment are not destroyed: they are suspended, then resumed after the claim is declared, but only to have the amount of the claim fixed with a view to its admission to the liabilities, without any possibility of enforcement against the debtor.

The well-advised creditor therefore carefully distinguishes the action for payment, which is prohibited, from the action for a declaration or for restitution, which remains open. This distinction governs litigation strategy from the first days.

The position of guarantors and sureties

One of the most sensitive angles for an institutional creditor concerns the position of the persons who guaranteed the debtor's debt. The collective insolvency proceedings benefit only the principal debtor; they do not automatically release the guarantors, but they organise their regime in a nuanced way.

A corporate guarantor, a parent company acting as surety for a subsidiary for example, enjoys no particular protection: the creditor may pursue it normally, the stay of proceedings being confined to the debtor in proceedings. This is a recovery route to favour where such a guarantor exists and remains solvent.

The position of an individual guarantor is more protective. In safeguard proceedings, Article L.622-28 paragraph 2 suspends, until the judgment adopting the plan or ordering liquidation, any action against individuals who are co-obligors or who have given a personal security or charged an asset as security. These same persons also benefit from the halting of the running of interest and may rely on the provisions of the safeguard plan under Article L.626-11. In court-supervised reorganisation, the suspension during the observation period also applies, but the individual guarantor cannot invoke for his own benefit the debt reductions and time allowances of the reorganisation plan. This gradation illustrates the legislature's preference for safeguard proceedings, conceived as a preventive procedure. The remedies available to the institutional creditor when the debtor applies for safeguard proceedings are dealt with separately in our article on the opening of safeguard proceedings.

For the creditor, the operational conclusion is twofold: identify the guarantors and their nature immediately, individual or corporate, then calibrate the proceedings taking account of the suspension applicable to the former and the freedom of action retained against the latter. Declaring the claim in the debtor's liabilities also remains indispensable to preserve the later recourse.

What becomes possible again after the proceedings

The stay of proceedings is not necessarily permanent. Where compulsory liquidation is closed for insufficiency of assets, Article L.643-11 lays down the principle that creditors do not recover the individual exercise of their actions against the debtor. This principle nonetheless has exceptions, notably in cases of fraud, conviction for fraudulent bankruptcy (banqueroute), personal bankruptcy (faillite personnelle), or where the creditor benefits from certain guarantees. Resumption of proceedings, where permitted, requires authorisation from the court. A creditor should therefore not assume that closure puts a definitive end to its rights without checking whether it falls within an exception.

Conclusion

The stay of individual proceedings is not the death of the creditor, but a change of playing field. The purely defensive reflex, consisting of enduring the freeze and waiting for a hypothetical distribution, is the worst calculation. The institutional creditor that comes out well is the one that has anticipated, through security interests registered in time and retention of title clauses inserted in its general terms, and that reacts quickly, by declaring its claim, identifying its guarantors and mobilising set-off, retention or recovery.

The real divide is not between protected creditors and unprotected creditors, but between creditors who plan ahead and creditors who are passive. A security interest taken after the judgment is useless; a recovery claim not made within three months is lost; a claim not declared within two months becomes unenforceable. From publication of the opening judgment in the BODACC, there is action to take without delay: list all security interests, all assets held and all guarantors, then instruct counsel to prepare a complete declaration of claim and the timetable of the actions that do escape the stay of proceedings.

Frequently asked questions

Does the stay of proceedings also apply in compulsory liquidation?

Yes. The stay of individual proceedings provided for by Article L.622-21 of the French Commercial Code in safeguard proceedings is extended to compulsory liquidation by Article L.641-3, as to reorganisation by Article L.631-14. Pre-opening creditors can therefore neither pursue payment nor implement enforcement measures against the debtor in liquidation. They must declare their claim and await the distributions made by the liquidator in the order of privileges.

Can I still proceed against the surety after the opening judgment?

It depends on the nature of the surety. A corporate surety may be pursued normally, because the stay of proceedings protects only the debtor in proceedings. An individual surety, on the other hand, benefits from a suspension of proceedings until the judgment adopting the plan or ordering liquidation, under Article L.622-28 paragraph 2, and may rely on the safeguard plan. Declaring the claim in the debtor's liabilities remains necessary to preserve the recourse.

Within what time must a claim be declared in the collective insolvency proceedings?

The time limit is two months from publication of the opening judgment in the BODACC, in accordance with Article L.622-24 of the French Commercial Code. This period is extended to four months for creditors whose domicile or registered office is outside metropolitan France. Failing a declaration within the time limits, and unless relief from the time bar is granted by the supervisory judge (juge-commissaire), the claim becomes unenforceable against the proceedings, which deprives the creditor of any distribution and of any dividend under the plan.

Does a retention of title clause withstand collective insolvency proceedings?

Yes, it is one of the most effective protections. An unpaid seller may claim back the goods sold subject to retention of title for as long as they are found in kind in the debtor's estate, on the basis of Articles L.624-16 et seq. of the French Commercial Code. It is the exercise of a right of ownership, not a proceeding for payment, which explains why it escapes the stay of proceedings. The claim must nonetheless be made within three months of publication of the judgment, failing which the right is lost.

Is set-off still possible despite the prohibition on payments?

Yes, where the reciprocal claims are connected. Article L.622-7 prohibits payment of pre-opening claims but expressly reserves the set-off of connected debts, that is, those arising from the same contractual relationship or a single contractual whole. This set-off is economically equivalent to payment and is a major lever for a bank or a commercial partner. The claim must nonetheless have been declared and the connection must be capable of being shown.

Are proceedings pending on the day of the judgment definitively lost?

No, they are suspended, not extinguished. Pending proceedings for payment are interrupted by the opening judgment, then resumed after the claim is declared under the conditions of Article L.622-22. Resumption nonetheless aims only to have the claim recorded and its amount fixed with a view to admission to the liabilities, not to obtain an order enforceable against the debtor. The creditor therefore retains the benefit of the proceedings, but for the purpose of fixing the claim and not of enforcement.

Can a mortgage be taken after the opening judgment?

No, to secure a pre-opening claim. Article L.622-30 of the French Commercial Code prohibits the registration of new security interests, mortgages, pledges or pledges of business assets after the opening judgment where they secure claims that arose before it. Only security interests duly registered before the judgment retain their ranking and effectiveness. This rule underlines the importance of anticipating the taking of security well before any default by the debtor.