When a company finds itself in a state of cessation of payments, it may be placed in compulsory liquidation, thereby putting an end to its business activity. Several issues may arise from this, such as the fate of ongoing contracts, particularly current accounts held with banking institutions. This article examines recent case law developments regarding the closure of current accounts during compulsory liquidation and analyses their implications for the obligations of guarantors. We will discuss a recent ruling by the Court of Cassation (Cass. com, 11 September 2024, no. 23-12.695) and its practical implications for guarantors.
Summary of the Facts Underlying the Case
The company Robert Beranger had opened a current account with Banque Marze, which subsequently became Banque Populaire du Sud. On 7 February 2018, the company MV Finances stood as guarantor for all obligations of Robert Beranger towards the bank, up to 150,000 euros. Robert Beranger was placed in judicial reorganisation on 11 July 2018, then in compulsory liquidation on 10 July 2019. The bank filed a proof of claim for 48,333.54 euros in respect of the overdrawn current account balance and summoned MV Finances to pay. However, the bank could not prove that the liquidator had terminated the current account agreement. The Grenoble Court of Appeal, in a judgment of 18 January 2023, dismissed the bank’s claim, which led to an appeal to the Court of Cassation.
Legal Context of Compulsory Liquidation and the Fate of Ongoing Contracts
Compulsory liquidation is a collective insolvency proceeding reserved for companies that can no longer meet their financial obligations and for which no reorganisation is feasible. Upon the opening of compulsory liquidation, a question arises: can the company’s contracts, particularly bank current accounts, be automatically terminated by virtue of the liquidation proceedings?
In a ruling of 11 September 2024 (Cass. com, 11 September 2024, no. 23-12.695), the Court of Cassation clarified this issue relating to the termination of ongoing contracts in the event of compulsory liquidation. Pursuant to Article L. 641-11-1 of the Commercial Code, introduced by Ordinance no. 2008-1345 of 18 December 2008, it is established that no automatic termination or closure of an ongoing contract may result from the mere opening of compulsory liquidation proceedings. This provision, which came into force on 15 February 2009, transposed to compulsory liquidation the same rules arising from Article L. 622-13 of the Commercial Code, enacted for safeguard proceedings and made applicable to judicial reorganisation by Article L. 631-14 of the same code. In other words, the opening of collective insolvency proceedings does not automatically result in the termination of contracts predating those proceedings.
The Court of Cassation’s Position: A Clear Reversal of Case Law
The Court of Cassation ruling of 11 September 2024 (Cass. com, 11 September 2024, no. 23-12.695) marks a reversal from an earlier decision of 13 December 2016 (Cass. com., 13 Dec. 2016, no. 14-16.037, Published in the bulletin; see also Cass. com., 14 May 2002, no. 98-21.521, Bull. 2002 IV No. 83 p. 89). That earlier case law held that compulsory liquidation triggered the immediate enforceability of the debit balance, thereby enabling creditors to directly seek payment from the guarantor, without any decision by the liquidator. This case law had been the subject of strong criticism and academic debate, as acknowledged by the Court of Cassation itself in its decision of 11 September 2024.
The 2016 case law itself drew a distinction regarding the specific regime applicable to current accounts, as compared with earlier case law concerning rents or loan instalments falling due after the opening of compulsory liquidation, which held that acceleration of the debt due to the compulsory liquidation of the principal debtor could not apply to the guarantor, unless an express clause had stipulated so in the guarantee agreement (see notably, Cass. com., 8 March 1994, no. 92-11.854, concerning the guarantee of obligations under a finance lease).
The Court now expressly abandons the position adopted in 2016 (Cass. com, no. 14-16.037), while specifying that this approach had not been followed by subsequent case law, and clearly affirms that the opening of compulsory liquidation does not necessarily entail the closure of a current account. As long as the current account remains open, the debit balance cannot be deemed enforceable, and the guarantor cannot, consequently, be held liable for payment.
Practical Implications: Impact on Guarantors
This reversal — or rather this clarification, one might say — constitutes a significant advancement for guarantors, as it requires banks to exercise greater vigilance in managing guarantees, thereby reducing the risk of premature and unjustified automatic acceleration of claims against guarantors. During compulsory liquidation, if the company’s current account is not closed before the opening of proceedings, the bank will not be able to immediately demand payment of the balance from the guarantor without demonstrating a decision by the liquidator.
For guarantors, this development is welcome, as it prevents them from being immediately called upon for payment as long as the principal company’s current account remains open. This protection is all the more crucial for guarantors, who are often business or financial partners of the company in liquidation and could otherwise face significant financial difficulties.
Conclusion: 2024 Case Law and Enhanced Legal Certainty for Guarantors
The Court of Cassation ruling of 11 September 2024 clarifies the status of current accounts during compulsory liquidation, reaffirming that their closure is not automatic. This outcome, favourable to guarantors, strengthens their legal certainty and requires creditors to exercise greater vigilance in managing current accounts within the framework of collective insolvency proceedings.
Economic actors involved in guarantee arrangements will need to adjust their practices to this new framework.
In summary, this case law development underscores the importance of a thorough understanding of compulsory liquidation mechanisms and the rights of all stakeholders, whether they be debtors, creditors or guarantors, in order to better anticipate and manage the risks associated with guarantees.
Read the full decision: Cass. com, 11 September 2024, no. 23-12.695
