Overturning of a court-ordered liquidation: the company is saved

The court overturns the judgment – ​​Episode 4/4

This story is inspired by a true case. Some details have been changed to protect the anonymity of the people involved.

On the day of the appeal hearing, the company still existed. The employees were still there, the main partner had not terminated the contract, and operations had continued. Yet, for several months, everything had hinged on a provisional decision.

The liquidation has been suspended. It has not yet been cancelled. The manager knows that her company cannot survive indefinitely with this threat hanging over it.

Two lines of defense were prepared.

The first issue concerns the circumstances under which the company was summoned to court. The summons was served at an address that was no longer its registered office. However, the change of address had been duly published several months earlier and was recorded on the company's official registration extract (Kbis).

The official report states that the company name was still visible on a mailbox and a door at the old address. It also claims that no trace of the company remained at its new location. However, the searches conducted at this new address are not specifically described. Photographs taken shortly afterward, on the contrary, show that the company was identifiable there.

In addition to this disputed notification, there was also the summons from the court clerk's office. The letter was drafted less than fifteen days before the hearing and only reached the company on the day itself. When the court examined the case, the director had been unable to prepare her defense.

This irregularity is not invoked merely to comply with a formality. It has caused real harm. Because it was unaware of the hearing, the company failed to present its accounts, cash flow, business activities, or the situation of its employees. Furthermore, it was unable to explain why the seizures cited against it were not conclusive.

The second line of defense concerns the merits of the liquidation.

Cessation of payments does not necessarily equate to the existence of an unpaid debt. It implies that the company is unable to meet its liabilities as they fall due with its available assets. However, the debt that triggered the proceedings amounted to only a few thousand euros, while the company demonstrated significantly greater cash reserves.

The two seizures, which were reported as unsuccessful, did not reveal empty accounts. One was carried out at an institution where the company held no account. The other involved details different from those of its actual bank account.

Finally, judicial liquidation requires more than just a cessation of payments: the company's recovery must be demonstrably impossible. A company in operation, employing dozens of people and holding a significant contract, could not be declared irretrievably doomed without a more thorough analysis.

At the hearing, the court therefore has two options. It can examine the financial situation and decide whether the conditions for liquidation were met. It can also find that the court was not properly seized of the matter and that the company was never given the opportunity to defend itself.

She chose the second one.

The court notes that the summons was served at the former registered office, even though the new address was listed in the company's official registration certificate (Kbis). It observes that the court-appointed administrator did not specify the searches that would have allowed him to conclude that no trace of the company remained at this new address. It also notes that the late summons prevented the company from appearing in court.

These insufficient efforts caused harm to the company. The summons is declared null and void. The resulting judgment is also null and void.

The court is therefore not saying that the company will never experience difficulties. It does not need to rule on the state of insolvency. Its decision rests on a more fundamental principle: a company cannot be liquidated without having been properly summoned and given the opportunity to present its defense.

A few months earlier, the manager had learned from a partner that her company had just been liquidated. A first lawyer had told her that everything was over. However, she had sought a second opinion.

It was necessary to appeal without delay, gather evidence in a few days, convene an urgent hearing without knowing if the case would be accepted, obtain the suspension, reassure the partner, maintain the activity and prepare the appeal until the very end.

Not all companies placed in liquidation can be saved. Not all court rulings are flawed, and not all financial situations allow for continued operation. It would be irresponsible to promise otherwise.

However, a judgment already rendered never negates the need to verify the documents, addresses, deadlines, evidence, and available appeals. In this case, this work led to the annulment of the judgment and the preservation of the business and several dozen jobs.

Everything seemed lost because a decision had already been made. Yet one door remained. It had to be found, and then it had to be accepted that it was necessary to knock on it.

Key takeaways

• Service of process on a legal entity must be effected at its duly declared registered office, subject to the rules applicable when that office is fictitious or the company actually resides elsewhere.
• A procedural irregularity is not always sufficient: the company must demonstrate the harm it caused. In this case, the absence at the hearing and the inability to produce its defense documents constituted that harm.
• The invalidity of the document initiating proceedings may lead to the invalidity of the resulting liquidation judgment.
• An effective defense must combine procedural and substantive arguments, even if the court may accept the former without examining the latter.

End of the series: Liquidated without knowing it.

This article belongs to the series "Liquidated Without Knowing It," inspired by a real case handled by ARST Avocats. Some details have been changed to protect the anonymity of the individuals involved.

Series written by Morgan Jamet, partner at the law firm Arst Avocats