Declaration of debts by French debtors- creditor vigilance is still required!
Three years ago, the Commercial Code amended the procedure for declaring debts in France with the aim of simplifying the management of insolvency proceedings.
Before this reform, the only way for creditors (excluding employees) to declare their debts was to send their proof of debt to the receiver within 2 months (or 4 months for those living outside France) from the publication of the judgment opening the safeguard procedure, adminstration or liquidation – or be debarred.
In its new form, the Commercial Code still requires the creditor to declare its debts within the same timeframe as previously. In this regard, there are no changes – the novelty is elsewhere.
Aim: to make the life of creditors easier
The first major change states that the creditor can “ratify the declaration made in his name until the judge rules on the admission of the debt”. In other words, the proof of debt can be made by a person without authority and it will be enough for the creditor to validate it retrospectively.
This arrangement makes it easier for creditors (especially large groups or banks) who face a short time limit to make the declaration – sometimes incompatible with managing a business – and it allows them to retrospectively validate a declaration made by a person not having their authority at the outset. The decline in litigation over declarations of debt is evidence of the new procedure working well.
The other change concerns the ability of the debtor to declare the debts on behalf of its creditors. The Commercial Code requires the debtor to give the receiver a list of its creditors within eight days of the judgment opening the proceedings. Until now, this list enabled the receiver to write to the listed creditors to invite them to declare their debts. In addition to this list, any debt brought to the knowledge of the receiver before the expiry of the time limit counts as a declaration of the debt.
From now on, the debtor is presumed to have acted on behalf of the creditor and having declared its debt.
So, out with the exercise of declaring debts? Not so sure!
Numerous commentators are pleased with this amendment of the Commercial Code. Nevertheless, in practice, numerous obstacles have quickly been highlighted, including: incomplete information, incorrect amounts, lack of reference to benefits or interests and often a non-exhaustive list drawn up in a difficult context.
There is a lack of effective sanction to encourage the debtor to be accurate. The Commercial Code requires the demonstration of bad faith on the part of the debtor, often difficult to prove, to ban him from managing a future business. It is quite rare that the debtor, even when acting in good faith, gives totally accurate information relating to the creditors of its business.
Once the list of debts is received, the receiver writes to the creditors to let them know that the debtor has declared a sum on their behalf, so that they can verify the amount and potentially correct it within the legal timeframes (adding any supporting evidence). In the absence of accurate information provided by the debtor or if it is erroneous, the debt is not considered as declared and the receiver simply asks the creditor to declare its debt. This declaration will prevail over that of the debtor.
If the debtor has not mentioned the existence of certain creditors, the receiver will not be able to write to them. Therefore, it is up to the creditor to make itself known and to spontaneously declare its debts (or to get the debarment lifted if it is out of time). The creditor must remain attentive and must not solely rely on the good faith of the debtor, even if this new way of declaring debts, on its behalf, makes its life easier in certain cases.
The declaration made by the debtor does not affect the procedure of verifying debts and disputes are always possible if the receiver wants to object. In the case of dispute, the creditor must prove the validity of the debt declared, either by himself or on its behalf by the debtor (within a period of 30 days after the receipt of the registered letter sent by the receiver) and in the case of ongoing disagreement, an appointment before the bankruptcy judge will be organised.
Finally, and to complete the declaration process by the debtor, the regime for lifting the debarment has been modified. In effect, not only does the creditor always benefit from the procedure of lifting debarment, but the reference to “wilful” or “fraudulent” forgetfulness by the debtor has been removed. For the judges to lift the debarment, it is now sufficient that the debtor has been negligent in communicating the name of its creditors to the receiver.
It is undeniable that the system put in place three years ago represents a significant advance for creditors. There is now a “security net” for the creditor, who must remain careful to control the declaration made on its behalf and to declare if there is any doubt; vigilance therefore is still required!