How to Liquidate an Insolvent Company?

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A company that is no longer able to pay its creditors and employees is subject to a legal process of liquidation.

The process is called in France “liquidation judiciaire” and it takes place when the company enters in a state of “cessation des paiements”.

It can affect every type of company or independent worker, as the liquidation of a solvent company. However, there is a simplified process that lasts for a maximum of 1 year for individual enterprises without real estate and a revenue of less than 300,000 €, although in some cases, it can also apply to individual companies with a revenue between 300,000 and  750,000 €.

WHO REQUESTS IT?

The process can be requested either by the company itself, a creditor who has remarked the insufficiency of funds or, in most cases, a designated judge.

If the company requests it, it has to be done no more than 45 days after entering in a state of insolvency. After the director of the company provides all the accounts, proving that the company no longer can continue paying, a designated judge decides if a process of “liquidation judiciaire” can be conducted or not.

Also, a creditor that is in a situation where he is not receiving their payments can request the liquidation of the company as it is possibly a sign of lack of solvency.

A judge can also declare the liquidation process if the insolvency state is remarkable, or he detects that the company is no longer carrying out its economic activity (in which case its considering as abandoning the activity and could have legal consequences), or the director fails to resume or cease the activity after the end of a “mise en sommeil”.

Besides special cases, once the liquidation process for an insolvent company has started, no economic activity is allowed. In any case, for such cases, the maximum authorised duration is only 3 months, renewable one time.

WHO’S INVOLVED?

There are three main roles involved in such liquidation process; namely a designated judge, a liquidator, and, if any, a person to make sure that the rights of the employees are respected (receiving salaries and their corresponding primes, etc.).

The role of the judge is to supervise the whole liquidation process, from its opening to the final resolution, making sure that all the parties act according to the law, as well as designating the liquidator.

The liquidator assumes the management of the company during the whole process. His role, as in the liquidation process of a solvent company, is the most important because:

  • He’s in charge of collecting the debts that any third party has contracted with the company before the process was open.
  • He has to calculate the debts of the company with its creditors, employees, and the expenses derived from the legal process of liquidation, as the company has to respond for all of those.
  • In order to pay the debts, he has to calculate the passive and sell all the actives of the company (real estate, material, etc.) to obtain all the funds available. However, if it’s not enough, he’s entitled to pursue the personal patrimony of the director of the company. It’s actually the last resort, and the director is granted some time to leave its main residence in case of ownership, because it will be used to pay for the debt.

It’s indeed the duty of the director to provide all the accountancy information, as well as all the belongings of the company, to the liquidator so that he can carry out the process. Failing or refusing to do so could derive in a count on fraud.

Should the company have any employee, a person making sure that the employment insurance, compulsory for any enterprise, has to be designed to ensure that they receive all their corresponding salaries and allowances before terminating their contracts. This has to be done 15 days after the breach or, in case that the judge allows to continue with the activity, 15 days after the final date. The payments to the employees are ensured by the “assurance de garantie des salaires” or AGS.

CONSEQUENCES

The enterprise that is in a process of liquidation cannot be prosecuted individually. In other words, all the legal ways to claim a debt from the company are blocked because a legal process is already open and it’s the duty of the liquidator to take care of the payments.

After the process has started, the company stops receiving any interest for its activity. If any interest is to be received, it’s directly invested in the payment of the debts.

For the people to whom the company owes money, the debt has to be claimed within a maximum of two months after the court publishes in the BODACC the opening of the liquidation process and, in case of having its legal domicile out of France, a maximum of four months.

END OF THE PROCEDURE

The process of liquidation can be concluded in three different ways:

  • The company has enough money to pay all its debts.
  • No more passives can be demanded from the company.
  • In case of insufficiency of actives. This is the most common reason to end a “liquidation judiciaire”, and it takes place when the enterprise doesn’t have enough money to pay its debts. The consequences of having insufficient actives are two:
  1. On the one hand, the creditors cannot demand additional individual engagements to the company unless it’s involved in a case of fraud.
  2. On the other hand, if any personal patrimony or personal sum of money had been declared as security deposit for the enterprise, or if any other person had been named as guarantor, their personal belongings can be legally pursued in order to pay for the debt.

Additionally, it’s important to know that the enterprise can be sold or transferred to another entrepreneur that wants to retake its activity, or in an attempt to keep the employments.

If there’s any possibility to reactivate the activity, or achieving solvency before liquidating the company, a conciliation process can be demanded. These are “redressement” or “sauvegarde d’emploi”, depending on the aim. It’s, however, up to the judge to decide their viability and thus allowing the company to adhere to either one.