The judicial liquidation procedure is a collective procedure which makes it possible to pay the liabilities (debts) of the company by proceeding to the sale of the assets (if there are any). Ultimately, it leads to the dissolution of the company.
Judicial liquidation is therefore necessary when a company in difficulty accumulates debts with no prospect of improving its situation.
For information, there is a simplified judicial liquidation procedure for small businesses.
Definition of judicial liquidation
The judicial liquidation is a procedure ordered by:
- the commercial court if it is a commercial enterprise (trader, craftsman)
- the tribunal de grande instance in other cases.
It is pronounced against a company which is clearly in a state of suspension of payments and whose recovery is manifestly impossible.
The judicial liquidation then aims to settle the liabilities of the company. This procedure is therefore applicable to a trader, a person registered in the trade register, a farmer or a legal person governed by private law.
Contrary to the safeguard or to the receivership, the compulsory liquidation puts an end to the activity of the company.
Companies in compulsory liquidation
Judicial liquidation is applicable to any person exercising a commercial or craft activity, to any farmer, to any other natural person exercising an independent professional activity as well as to companies and associations.
It concerns debtors who find themselves in suspension of payments, ie unable to meet their current liabilities with their available assets; and whose recovery is manifestly impossible, so that recourse to judicial reorganization proceedings would be unnecessary.
Conditions for opening judicial liquidation
The competent court is:
- the commercial court if the debtor is a trader or registered in the trade register.
- the tribunal de grande instance in other cases.
The request for the opening of judicial liquidation can be initiated by:
- a request from the debtor himself no later than 45 days following the cessation of payments when no conciliation procedure has been initiated within this period (certain small entrepreneurs may on this occasion request a professional re-establishment procedure in order to 'obtain the cancellation of the company's debts);
- a summons of the debtor by one or more of its creditors;
- an automatic seizure of the court;
- seizure of the court at the request of the public prosecutor.
When it emanates from the debtor himself, the request must contain the elements provided for by thearticle R631-1 and R631-2 of the Commercial Code.
Judicial liquidation proceedings
In its opening judgment, the court appoints a liquidator. The debtor is then relieved of the administration and disposal of his property. The rights and actions of the debtor relating to his assets are then exercised by the liquidator. In particular, the latter proceeds with the redundancies provided for in application of the decision opening or pronouncing the liquidation. The dismissal procedure is then subject to specific rules due to the situation of the company.
When the debtor is a natural person and not a company, he may not exercise any commercial, craft, agricultural or independent professional activity during the entire period of judicial liquidation. However, this rule is not applicable to the individual entrepreneur debtor when his new activities involve assets other than that covered by the procedure.
The liquidation is closed on a date set by the court. If it cannot be pronounced at the end of this period, the court may extend its duration by a reasoned decision.
2.Payment of debts
The liquidator is empowered to pay creditors. It is therefore his responsibility to distribute the proceeds of sales and settle the payment order of creditors. Under the supervision of a judge-commissioner, sales of the debtor's goods may be carried out by mutual agreement or by public auction under the conditions provided for by the provisions of the Commercial Code.
3.Closure of the procedure
The procedure is closed for one of the following reasons:
- there are no more current liabilities;
- the liquidator has sufficient sums to pay off the creditors;
- the lack of assets makes it impossible to continue the operation: the closure is then carried out for insufficient assets.
At the end of its liquidation, the company no longer exists as a legal person.
4.Sale of the business
When takeover offers have been made, liquidation can also take the form of a total or partial sale of the company. This takeover must ensure the maintenance of activities likely to operate independently, all or part of the jobs attached to them, as well as the discharge of liabilities. The disposal plan is stopped by the court.
The selected offer is the one that allows under the best conditions to ensure the most lasting employment attached to the sold unit as well as the payment of creditors while offering the best performance guarantees.
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