Summary
1. Failure to perform a transaction
2. Failure to file a proof of claim
3. Claim dispute
4. Unfair competition: harm to a partner in a company in liquidation
5. Confidentiality obligation of the ad hoc representative
6. Obligation to appoint an ad hoc representative
7. Commercial lease
8. Guarantee: Conciliation clause
9. Disproportionate guarantee
10. Termination of business relations
11. Jurisdiction clause
12. Liability for the company's debts of a partner in a civil law partnership
1. Failure to execute a transaction
1st , 2015 (No. 14-20.917) F-PB:
A debtor and creditor entered into a settlement agreement reducing the amount owed and providing for two payment installments. Before the first payment due date agreed upon in the settlement, the debtor was placed under receivership and then into liquidation. The creditor then filed a proof of claim for the original amount and subsequently sued the liquidator to have it determined.
The Court of Appeal having declared this claim inadmissible, the creditor appealed to the Court of Cassation.
The Court of Cassation noted that, pursuant to Article L.622-13 I of the French Commercial Code, the creditor could not invoke the company's failure to perform the settlement agreement to circumvent its res judicata effect. Consequently, the Court of Cassation dismissed the appeal against the Court of Appeal's decision.
2. Failure to file a proof of claim
Com. 8 September 2015 (No. 14-15.831) F-PB:
A debtor was placed under receivership on March 10, 2009, and a reorganization plan was adopted on March 9, 2010. Pursuant to an interim order dated September 17, 2009, ordering the debtor to pay one of its creditors an advance, the debtor had a garnishment order served on the notary on April 21, 2011. On July 12, the court ordered the termination of the reorganization plan and initiated liquidation proceedings. The creditor then sued the garnishee, namely the notary, for damages for inaccurate filing, based on Article R. 211-5, paragraph 2 of the French Code of Civil Enforcement Procedures.
The garnishee appealed the lower court's decision ordering it to pay damages. In this regard, he argued that only claims arising after the commencement of insolvency proceedings, for the purposes of the proceedings or the observation period, or in consideration of a service provided to the debtor during this period, are not subject to the obligation to file a claim with the insolvency practitioner and to the prohibition on payments and enforcement measures.
The Court of Cassation overturned the appeal court's decision on the grounds that a claim not filed against the debtor's liabilities is not extinguished but unenforceable against the insolvency proceedings. Therefore, the failure to file a claim, for the recovery of which the creditor had levied an attachment order before the judgment initiating the proceedings against the debtor, does not deprive the creditor of its standing to sue the garnishee under Article R. 211-5, paragraph 2 of the Code of Civil Enforcement Procedures.
3. Dispute of claim
Com. 29 September 2015 (No. 14-13.257) F-PB:
During a challenge by a debtor in safeguard proceedings concerning the admission of a claim by the supervising judge, the court-appointed administrator was not served with a summons, unlike the creditor. Taking this omission into account, the Court of Appeal declared the claim inadmissible.
The Court of Cassation dismissed the appeal against the Court of Appeal's decision. According to the Court, pursuant to Article 553 of the Code of Civil Procedure, in cases of indivisibility with respect to several parties, an appeal against one party is admissible only if all parties are summoned to the proceedings. This indivisibility exists, in matters of liability verification, between the creditor, the debtor, and the court-appointed administrator. Consequently, when an appeal against a decision of admission by the supervising judge is made by the debtor alone, it is incumbent upon him to summon not only the creditor, but also the judicial representative, without being able to avoid doing so by invoking an alleged community of interests which would unite him with the latter.
4. Unfair competition: harm to a partner in a company in liquidation
Com. 29 September 2015 (No. 13-27.587) F-PB:
A company and its majority shareholder, believing themselves to be victims of unfair competition by a company founded by two former employees, one of whom was a former managing partner, sued the latter for damages before it was placed into liquidation.
The Court of Appeal ordered the company founded by the former employees to compensate the liquidator and the majority shareholder. The Court of Appeal held that the shareholder had demonstrated personal harm resulting from the loss of the share capital he had contributed, as well as the income he derived from the company in his capacity as a manager.
The Court of Cassation overturned this last point. According to the Court, the Court of Appeal did not provide a legal basis for its decision insofar as it did not distinguish between the loss of the partner's contributions, which is only a fraction of the collective damage suffered by all the creditors, and the future loss of remuneration that he could have received as a company director, which caused a separate personal loss to him.
5. Confidentiality obligation of the ad hoc agent
Com. 22 September 2015 (No. 14-17.377) F-PB:
The ruling clarifies two points. First, the Court specifies the scope of the ad hoc agent's confidentiality obligation. Second, the Court reiterates that a creditor called upon to negotiate within the framework of the ad hoc procedure is not obligated to accept the agent's proposals.
In this case, the guarantor, sued by the creditor of a company in liquidation, challenged before the Court of Cassation the exclusion from the proceedings of a statement drawn up by the ad hoc agent, whose mission was to negotiate payment terms with the creditors. In this regard, the plaintiff argued, on the one hand, that the confidentiality obligation to which the agent is bound can be waived at the request of the beneficiary company or the guarantor without the creditor being able to object. The Court of Cassation dismissed the appeal and held that the Court of Appeal was correct in excluding from the proceedings the statement given to the guarantor of the debtor company by its ad hoc agent, in which, in disregard of the confidentiality obligation binding him under Article L. 611-15 of the French Commercial Code, he criticized the bank's conduct during the negotiations.
The Court of Cassation then addressed the appellant's argument that the creditor owes the guarantor a duty of loyalty, which requires the Court of Appeal to verify whether the creditor's conduct constituted an abuse of the right to refuse the agent's proposal.
6. Obligation to appoint an ad hoc representative
Com. 13 October 2015 (No. 14-14.327) F-PB:
A bank sued a general partnership (SNC), its partners and guarantors, and a limited liability company (SARL) for payment of various sums. Insolvency proceedings were initiated against both companies and their partners. After filing their claims, the companies and partners contested these claims and filed a counterclaim for damages against the bank for the imposition of excessive financial charges and wrongful termination of credit. This claim was taken up by the creditors' representative. On September 18, 1998, the court approved the continuation plan for the companies and partners and appointed the creditors' representative as the plan administrator, who then continued the claim for damages in that capacity. The plans were implemented in 2004, and a judgment dated March 22, 2013, placed one of the companies back into insolvency proceedings, appointing the plan administrator as the court-appointed receiver. In their submissions of October 16, 2013, the two companies, the partners, and the trustee, acting in his capacity as commissioner for the execution of the plans and representative of the creditors, reiterated the pending claim for damages and further requested payment from the bank of a sum equal to the amount of a treasury bill.
The general partnership and one of the partners challenged the Court of Appeal's decision to dismiss the claim as inadmissible. The Court of Cassation upheld the Court of Appeal's decision. Indeed, pursuant to former Article L. 621-68 (now Article L. 626-25) of the French Commercial Code and Article 90 of the Decree of December 27, 1985, proceedings in which the creditors' representative was a party and which were taken over by the commissioner for the execution of the plan must, when the latter is no longer in office, be continued by a court-appointed agent specifically designated for this purpose, even when the debtors themselves were parties to the proceedings.
7. Commercial Lease
3rd , 2015 (No. 14-18.881) FS-PB:
The owner of a commercial property leased under a renewal agreement effective January 1, 1998 , sued the tenant seeking a declaration that the termination clause had been triggered, or alternatively, for termination of the lease, and further alternatively, for validation of a notice to quit effective October 1, 2010, refusing renewal and payment of eviction compensation.
The court ordered the judicial termination of the commercial lease on April 18, 2012, and the liquidator of the tenant company, in its appeal submissions of January 23, 2013, challenged the validity of the notice to quit and requested payment of eviction compensation.
In granting these requests, the appellate court held that the action contesting the notice to quit had been interrupted, not suspended, on September 19, 2012, until the proceedings resumed on December 20, 2012, pursuant to Article 370 of the Code of Civil Procedure. According to the court, a two-year limitation period began to run again on December 20, 2012, so that on the date of the challenge by the receiver, January 23, 2013, neither the action contesting the termination notice was time-barred, nor was the claim for compensation for the same reasons.
The Court of Cassation overturned the appeal court's decision because, in so ruling, when the court order for receivership only interrupts the limitation period on proceedings already initiated, and when the time limit within which the tenant can bring an action contesting the validity of a termination notice without an offer of renewal or compensation for eviction is not suspended by the tenant's placement in receivership or liquidation, the Court of Appeal violated Article 370 of the Code of Civil Procedure and Article L. 145-60 of the Commercial Code.
8. Guarantee: Conciliation Clause
Com. October 13, 2015 (No. 14-19.734) FS-PBI:
Sued for payment of the outstanding balance, the guarantor argued that the claim was inadmissible due to failure to comply with the prior conciliation procedure stipulated in the loan agreement.
The Court of Appeal upheld this argument, finding that the obligation to implement a prior conciliation procedure constitutes an inherent exception to the debt, as this provision is irrelevant to the identity of the borrower and relates solely to the obligation to subscribe, defining the terms governing its acceptance and enforcement.
The Court of Cassation overturned the Court of Appeal's decision. According to the Court, the objection of inadmissibility based on the failure to implement a contractual clause which establishes a conciliation procedure, mandatory and prior to bringing the matter before a judge, concerns, when such a clause appears in a loan agreement, only the modalities of exercising the creditor's action against the principal debtor and not the repayment debt itself for which the guarantor is also liable, so that it does not constitute an exception inherent to the debt that the guarantor can raise.
9. Disproportion of bail
Com. 22 September 2015 (No. 14-22.913) FP-PB:
The guarantor of loans granted to two companies of which she was a director was sued to enforce her obligations after the companies went into liquidation. The guarantor then argued that her commitments were disproportionate to her income and assets.
The Court of Appeal held that the debt did not appear manifestly disproportionate to her income and assets, given the anticipated success of the financed business venture.
This ruling was overturned by the Court of Cassation. In its decision, the Court clarified that the proportionality of the commitment cannot be assessed based on the expected income from the guaranteed venture.
10. Termination of business relations
- Com. 15 September 2015 (No. 14-17.964) FS-PB:
A company operating a beverage trading business leased it out under a management agreement before selling the business to the manager on March 30, 2006. The buyer then informed the company that had been providing beverage supply transport for the business for several years, on April 14, 2006, of its decision to use its own transport services. This decision took effect the following August. Claiming to have had a relationship with the seller, the transport company sued the buyer for damages for the abrupt termination of an established business relationship.
The Court of Cassation upheld the appeal court's decision dismissing the claim. Indeed, while the sale of the business transferred ownership of the assets of the business, it did not automatically substitute the buyer for the seller in the contractual and commercial relationships that the seller maintained with the plaintiff company. The Court of Appeal also held that, although the assignee had contacted the plaintiff during the lease-management period and then after acquiring the business, these facts alone were insufficient to conclude that the company intended to continue the initial business relationship between the assignor and the plaintiff. Consequently, the notice period did not need to be determined based on this relationship.
- Com. October 6, 2015 (No. 14-19.499) FS-PB:
Two companies belonging to the same group established business relationships with the same supplier, one in June 2004 and the other in September of the same year. These same two companies subsequently terminated their business relationships under identical circumstances, namely, without notice and for similar reasons, during the same year. The supplier then sued them for damages based on Article L.442-6 I 5° of the French Commercial Code.
The Court of Appeal held that the supplier should have received one year's notice from the companies. The court based its reasoning on two elements. Firstly, it considered that the consequences of these terminations for the supplier were necessarily amplified because they were cumulative. To determine the length of the notice period, it was therefore necessary to take into account the total turnover generated by the companies, given that they maintained a business relationship with the supplier over the same period, for identical products, and with similar quantitative requirements. The court further specifies that, given the significant increase in turnover during 2007 and 2008, reaching 10.20% in 2007 and 9.75% in 2008, the supplier consequently had to compensate for the loss of two clients with whom it had substantial business during the same period.
The Court of Cassation overturns the appeal court's decision, finding that, although the companies belonged to the same group and had the same business activity, they were independent entities that had maintained separate relationships with the supplier and had not acted in concert.
11. Jurisdiction Clause
1st , 2015 (No. 14-16.898) FS-PBI:
A French company was granted the status of authorized reseller for products of a brand marketed by an Irish company under a contract dated October 10, 2002, which contained a jurisdiction clause in favor of the Irish courts. Alleging anti-competitive practices and acts of unfair competition committed by its contracting party from 2009 onwards, the French company sued the Irish company for damages in a French commercial court. The Irish company then raised an objection to jurisdiction, arguing that the case should be heard in favor of the Irish courts, which was upheld by the Court of Appeal.
The French company's court-appointed administrator argued before the Court of Cassation that the choice-of-court clause, which required the French company to bring proceedings before the Irish courts, while the Irish company had the option of bringing proceedings before another court, was potestative in nature.
The Court of Cassation noted that the choice-of-court clause required the French company to bring proceedings before the Irish courts, while its contracting party retained the option of bringing proceedings before another jurisdiction. Since the clause identified the courts that might have jurisdiction over a dispute between the parties arising from the performance or interpretation of the contract, it met the requirement of predictability that choice-of-court clauses must satisfy. Consequently, the Court dismissed the appeal against this decision.
12. Liability for the company debts of a partner in a civil society
Com. 13 October 2015 (No. 11-20.746) F-PB:
The real estate company (SCI), created by the plaintiff with a co-partner for the purpose of carrying out real estate transactions, took out a loan of 620,400 francs (94,579.37 euros) in December 1989. As the SCI ceased making regular payments on this loan starting in November 1991, the lender notified the SCI of the acceleration of the loan on June 27, 1997, and then served a writ of execution for the seizure of the property. This procedure was ultimately dismissed on March 17, 1999. Finally, as the SCI was placed in judicial liquidation on February 9, 2006, the lender filed its claim and then sued the plaintiff for payment in her capacity as a partner in the SCI.
The Court of Appeal, on the one hand, rejected the objection of inadmissibility based on the statute of limitations raised by the partner, ordered the partner to pay the lender a certain sum in his capacity as partner, and refused to hold the lender liable.
The Court of Cassation upheld the lower court's decision. To this end, it first noted that the lender's claim had been irrevocably admitted on June 28, 2010, as a liability in the bankruptcy proceedings of the SCI (real estate company). The claim was thus definitively established in its existence and amount with respect to the partners, who, being jointly and severally liable to third parties for the company's debts in proportion to their share of the capital, could not invoke the potential statute of limitations on the claim. The Court then specifies that the harm suffered by the partner, which results not from a tortious fault on the part of the lender, but directly from the failure of the SCI to repay the loan and its corresponding obligation to bear the social losses in its capacity as a partner, does not have a personal character that would justify an action for liability on her part against the lender.
