Lease management in insolvency proceedings

The opening of the procedure

Managing prior receivables

What the landlord must declare:

• The claims corresponding to rents and related charges that were due and not paid prior to the commencement of proceedings;

Under what conditions?

• by the creditor or by any employee or agent of his choice;
• in writing to the judicial representative or the judicial liquidator;
• within two months of the publication of the judgment opening the proceedings in the BODACC.

The consequences of an undeclared debt:

During the insolvency proceedings:

• Unenforceability of the undeclared claim in the liabilities, so that the lessor is not admitted in the distributions and dividends of the collective procedure;
• The landlord loses the privilege conferred upon him by ArticleL.622-16 of the Commercial Code.

During the execution of the plan:

• Unenforceability which continues after the execution of a recovery or safeguard plan, so that if the plan is fully executed, the lessor will no longer be able to exercise his rights against the company.

The continuation of the procedure

The fate of the current lease

What is a current contract?

• in execution phase
• not terminated by a final and binding decision rendered prior to the opening judgment.

The principle: the continuation of the current lease

• The contracting party must fulfill its obligations despite the debtor's failure to perform commitments prior to the commencement judgment.
• Failure to fulfill these commitments only entitles creditors to a declaration of liabilities.
• An option is available to the administrator or liquidator which can be exercised spontaneously or after a formal notice from the creditor: to impose the continuation of a contract or to notify the termination of a contract deemed unnecessary.

Termination of the current contract

This could be a termination:

• Friendly
• Judicial

This termination is said to be "automatic":

• If the performance of the next service due under the successive performance contract is impossible
• Following the liquidator's voluntary exercise of the option when the benefit due is a sum of money

Post-event management

Debts that can be paid to the landlord

• Upon their expiry, the claims relating to the execution of the lease arising after the date of the judgment opening the proceedings;
• The landlord has a privilege: these claims are paid before all other claims (whether or not accompanied by privileges or securities) with the exception of those benefiting from the super privilege of wages, the privilege of legal costs or the privilege of conciliation.

The creditor has an obligation to make his privilege known to the judicial representative or the liquidator (liquidation) within one year from the end of the observation period, under penalty of losing the benefit of it.

What to do if payment is not received?

All recovery actions may be initiated or carried out for the payment of subsequent debts, namely:

• Sending a formal notice
• The delivery of a simple command
• The issuance of a payment order invoking the termination clause
• Actions for payment or for recognition of the acquisition of the termination clause

The only limitation is that the termination of the lease agreement can only be pursued under certain conditions

The judicial termination of the current lease

The main principles:

• The landlord cannot pursue the termination of the lease for non-payment of sums due prior to the commencement of the proceedings;

However, the landlord has the option to:

• To pursue the termination of the lease for non-payment of sums due after the commencement of the proceedings
• To pursue the termination of the lease for non-performance of obligations other than payment prior to the commencement of the proceedings

Applicable rules:

• Referral to the supervising judge or the summary proceedings court is only possible after a period of three months from the opening of the procedure.
• The starting point for this period is either the date of the judgment opening the judicial liquidation when it is pronounced immediately, or the date of the judgment opening the safeguard or receivership proceedings in the event of conversion of the procedure into judicial liquidation
• According to a recent decision by the Court of Cassation, it appears that the referral to the supervising judge does not have to be preceded by the service on the debtor of a payment order referring to the termination clause inserted in the lease agreement.