Procedure and consequences of filing for bankruptcy of an LLC
A business is said to be in difficulty when it is no longer able to settle its debts. Then in a state of insolvency, it must be brought to file for bankruptcy at the registry of the competent court. The SARL bankruptcy procedure is relatively simple: but it requires formalities from the legal representative. Consequence of the SARL bankruptcy filing, the opening of a reorganization or judicial liquidation procedure. What is an LLC filing for bankruptcy? How to file for LLC bankruptcy? What are the consequences of filing for bankruptcy with an LLC?
SARL bankruptcy and debts: Definitions
A SARL bankruptcy filing takes place when a company is in default of payment. Moreover, the expression "bankruptcy" more commonly refers to the "declaration of cessation of payment". In such a situation, a company is unable to “meet the payable liabilities with its available assets” (article L. 631-1 of the French Commercial Code).
SARL bankruptcy and debts and debts are therefore closely linked.
Indeed, current liabilities collects debts that are due. They must therefore be paid immediately.
The debt must be:
- Certain, i.e. the debt must be proven and not contested by the debtor
- Liquid, the amount of which is precisely determined (estimates or price ranges are not allowed)
- Due, that is to say that the creditor is entitled to demand payment immediately, at the end of a payment period if applicable
In addition, the available assets are all the sums immediately available, whether they are in the bank or at the cash desk, as well as the credit reserves (unused credit openings and authorized unused portion of overdraft).
How to file for LLC bankruptcy?
The SARL is a commercial company by form. It is therefore required to file for bankruptcy at the registry of the Commercial Court (TC) of the location of the company's headquarters.
The SARL bankruptcy procedure is carried out by the manager within a period of 45 days after the finding of the state of insolvency. In the event of non-compliance with this approach or this deadline, the manager is exposed to a management fault.
The manager of the LLC must submit a certain number of documents listed in Article R. 631-1 of the French Commercial Code.
The consequences of the SARL bankruptcy filing
In principle, the opening request is made by the company itself when it files for bankruptcy. Failing that, it can be carried out by one of its creditors, by the public prosecutor or on the automatic referral of the judge.
Within 15 days of the declaration of cessation of payment, the Commercial Court convenes the legal representative of the SARL. The latter can be accompanied by a chartered accountant. The judge fixes the date of the suspension of payment and decides on this occasion of the procedure to come.
The judge then pronounces the opening of one of the collective proceedings following: either judicial reorganization or judicial liquidation.
Setting the date of cessation of payment
After having collected the observations of the debtor, the judge sets the date from which the company is no longer able to settle its debts.
The date of suspension of payment is not to be confused with the date of declaration of suspension of payment. To determine this date, the judge precisely analyzes the accounting situation of the LLC.
Continuation of collective proceedings
In case of legal redress, the court appoints a receiver and a judicial representative. The first supervises, assists, and even replaces the leaders in the management of the company. The second is responsible for representing creditors. During an observation period of 6 months maximum, renewable up to 18 months, these stakeholders go to the premises of the SARL to carry out their missions.
In case of judicial liquidation, the court appoints a liquidator at the head of the concerned LLC. This one manages the continuation of activity of the company, verifies the receivables, carries out the sale of the goods, proceeds to the dismissal of the employees, and collects the sums due to the company.
At the end of the period of observation of the receivership or liquidation, the judge decides on the future of the company.
SARL and RSI bankruptcy filing
The issues between SARL and RSI bankruptcy are legitimate. Indeed, what happens to RSI debts after a bankruptcy filing of an LLC?
According to the decision of the Grenoble Court of Appeal of December 10, 2013, social contributions due to RSI are professional debts likely to be extinguished with the judicial liquidation of the company. Consequently, the majority manager is no longer bound to pay the RSI debts upon the pronouncement of judicial liquidation.
SARL bankruptcy filing and consequence for the manager
Article L. 223-1 of the Commercial Code, the liability of the partners of an SARL is limited to the amount of their contributions. Consequently, the personal property of the manager cannot be seized when the SARL is in a situation of compulsory liquidation.
However, when the manager has committed a management fault that contributed to insufficient assets, the judges can, under certain conditions, force him to settle the social liabilities of the LLC (article L. 651-2 of the Commercial Code) .
SARL bankruptcy and minority manager : By definition, the minority manager holds less than half of all the shares in the SARL. In the event of an LLC filing for bankruptcy, the minority manager is therefore also liable for social debts up to the level of his contributions.
Sarl bankruptcy and bank loan
When initiating judicial reorganization or liquidation proceedings, the creditors whose banks are no longer able to use the usual means to collect their debts. It is the cessation of individual prosecutions. During this period, only the legal representative appointed by the Commercial Court is in charge.
Debts are due in order of priority. The reimbursement of bank loans are carried out after the payment of salaries and the payment of legal costs.
