Simplified Liquidation of an Insolvent Company

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The simplified process of liquidation of an insolvent enterprise applies to individual companies without real estate.

There are two types of “liquidation judiciaire simplifiée” (or simplified legal liquidation) in France. The eligible enterprises fall into either category according to their average revenues and the number of employees they have. These two types of simplified liquidation are known as compulsory and facultative.

Compulsory liquidation

When the judge designated for the liquidation process chooses this status for a company that is unable to continue to pay its creditors, the enterprise cannot revoke the decision.

This kind of liquidation is thought to make the process easier and faster for the smallest companies. Nevertheless, it doesn’t apply to every individual company without any real estate. Additionally, they must:

  • Have an average yearly revenue equal or under 300,000 €. This average is obtained from the last three business years before the pronunciation of the liquidation.
  • For the last six months, not having had more than one employee.

If an individual company that has become insolvent matches these criteria, then the designated judge will automatically decree the compulsory liquidation for the company.

In this case, the process cannot last more than six months from its opening to the end of the process. Exceptionally, as in the facultative liquidation, it can be prolonged for a maximum of three months providing that this increase is motivated.

Facultative liquidation

Unlike the process of compulsory liquidation, in this case the individual company is the one requesting the process of simplified liquidation after having been declared insolvent. Again, if the request is accepted, it cannot be revoked afterwards.

There are a series of characteristics that the enterprise must fulfil to be eligible for a facultative simplified liquidation:

  • Its yearly revenues are in between 300,000 € and 750,000 €. These digits are obtained from the average revenues of the three business years prior to the opening of the liquidation.
  • In the last six months, the company has had five or less employees.

With regards to this process, its maximum duration cannot exceed one year, with a three months period of extension if there are solid reasons to prolong it.

Characteristics of the “liquidation judiciaire simplifiée”

A company that is involved in a process of simplified legal liquidation, whether it’s compulsory or facultative, will normally have to follow some steps, which are common to both categories as they depend more on the passive and the belongings of the company rather than their classification.

First of all, the debts of the company are examined by the designed judge. Unlike the classic process of “liquidation judiciaire”, this isn’t an exhaustive examination of their totality. Only those debts concerning salaries of the employees and the ones that can be regulated with the available actives of the company according to a rank of privilege of the creditors are taken into account.

Depending on the actives belonging to the company, the judge will appoint a liquidator. However, if necessary, in order to estimate the value of such actives, a notary, auctioneer, bailiff or a commodity sworn broker may also be appointed. Such a second technician, who is rarely appointed, regardless of their participation in the redaction of the inventory or not, will also receive a fee.

Secondly, the actives listed in the inventory are sold. For the first four months, the sales are conducted by means of agreement (“gré à gré” in French) between the seller and the buyers. After said four month period, if any actives remain, a public auction begins.

Should the auction be conducted, the judge cannot decide which actives are included in it in a compulsory simplified liquidation. For the facultative way, the judge will normally provide a list of the actives that can be sold in it.

Lastly, an estimate of the status of the debts that had been verified in the first phase is elaborated by the liquidator. The liquidator is then in charge of the deposit of the verified debts status, together with a distribution plan for each of the verified creditors, in the registry of the Commercial Court which, in turn, will publish the plan in the BODACC.

Nevertheless, in case of impossibility of regulation of the set of debts, the sums are paid to the privileged creditors in priority. For this matter, it’s enough to make a deposit in the registry, which will give a notice by certified letter signed by the liquidator to the creditors. In this case, it won’t be announced in the BODACC.

End of the process

The creditors have one month after the publication of the distribution plan in the BODACC or the reception of the certified letter, depending on their case, to present their claims to the judge if they don’t agree with the decisions made by the liquidator.

The judge will then resolve the claims and accept or decline them in a period of 10 days, after which the distribution plan becomes definitive and no further petitions are allowed. It’s at this point that the liquidator proceeds to the payment of the debts, thus ending the process.

If the maximum duration for each category of simplified legal liquidation is exceeded, the process automatically becomes a classic “liquidation judiciaire” and the steps and consequences are then the same as in such process.