Factor’s Claim Admitted to Liabilities Despite the Judicial Representative’s Challenge: The Contract Prevails – CA Besançon, 1st Civil and Commercial Chamber, 4 June 2025, No. 24/01636

Besançon Court of Appeal, 1st Civil and Commercial Chamber, June 4, 2025, Case No. RG 24/01636 (prior decision: Besançon Commercial Court, September 30, 2024, No. 2024002045)

1. The factoring agreement: how it works and the “non-recourse” principle

The receivables assignment mechanism at the heart of factoring

Factoring is a widely used financial tool in the business world. Its principle is simple: a company (called the client or adherent) assigns to a specialized financial institution (the factor) its trade receivables, i.e., the amounts owed to it by its own customers. In return, the factor immediately advances cash, without waiting for the customers to actually pay their invoices.

Legally, this transaction relies on a transfer of ownership mechanism: upon assignment, the factor becomes the holder of the receivables. It takes over from the company to ensure their collection and, in most contracts, it also assumes the risk of non-payment due to the debtors’ insolvency.

This mechanism is clearly distinguishable from traditional bank discounting: in discounting, the bank that finances a receivable retains recourse against its client if the debtor does not pay. In factoring, the opposite generally applies: the factor, having become the owner of the receivables, bears the risk itself and cannot turn against the client in the event of non-payment.

Exceptions to the principle: when recourse against the client is possible

The “non-recourse” principle is not, however, absolute. Case law and contractual practice have identified several situations in which the factor may validly take action against its client.

The first scenario is where the assigned receivable has no actual existence: if the client assigned a fictitious or not-yet-existing receivable, the factor may bring an action for recovery of undue payments to recoup the advances made. The second scenario — and this is precisely what the commented ruling reveals — is where the factoring agreement itself provides for restrictions or exceptions to the guarantee: when the assigned invoices are subject to an unresolved dispute attributable to the client, certain clauses allow the factor to take action against the latter.

It is this second exception that lies at the heart of the ruling delivered by the Besançon Court of Appeal on June 4, 2025.

2. The facts: a factor facing its client’s judicial reorganization

The proof of claim and its challenge by the judicial representative

The facts are relatively straightforward to reconstruct. On October 28, 2021, BPCE Factor SA — one of the factoring subsidiaries of the BPCE group — entered into a factoring agreement called “Facturea” with SARL BG Étanchéité, a company specializing in waterproofing work. A few months later, on July 20, 2022, the Besançon Commercial Court opened judicial reorganization proceedings against BG Étanchéité and appointed SELARL P. Associés as judicial representative.

In accordance with collective proceedings procedures, BPCE Factor filed its proof of claim on September 7, 2022, for an amount of 53,940.82 euros. This sum corresponded to the reversal of invoices that BG Étanchéité had issued to the company Aux Charpentiers de France — its own customer — and which had been assigned to the factor under the agreement. However, these invoices were disputed by Aux Charpentiers de France, which cited poor quality of the work performed by BG Étanchéité.

Faced with this situation, the factor had sent dispute notices to BG Étanchéité, as authorized and required by the agreement. But BG Étanchéité had not resolved the dispute within the 30-day period stipulated in the agreement. The factor then proceeded to reverse the invoices, meaning it demanded that its client reimburse the advances made on receivables that no longer met the contractual conditions.

In July 2023, the judicial representative challenged the claim in its entirety, with an argument that may at first glance appear reasonable: according to him, it was the factor’s responsibility — and not that of the client under judicial reorganization — to take the necessary steps to collect the invoices from Aux Charpentiers de France. In other words, the judicial representative accused BPCE Factor of not having performed its collection duties before turning against its client.

The supervisory judge’s order: a referral deemed unjustified

Hearing this challenge, the supervisory judge of the Besançon Commercial Court issued an order on September 30, 2024, in which he adopted what can only be described as a cautious position: he declared the proof of claim admissible, but found that the challenge raised was serious. Considering that the dispute exceeded his jurisdiction, he referred BPCE Factor to bring the matter before the competent court within one month, and ordered a stay of proceedings in the meantime.

For BPCE Factor, this decision was unacceptable: it required the company to initiate additional proceedings before a court of general jurisdiction when the challenge raised was, in its view, manifestly without merit in light of the contractual provisions. The company therefore filed an appeal on November 14, 2024.

3. The Court of Appeal’s ruling: the contract prevails, the challenge fails

The Court’s interpretation of the contractual provisions

The Besançon Court of Appeal began by setting out an essential premise, stated in general terms: the obligations arising from a factoring agreement are not governed by statute. In the absence of a specific statutory framework governing factoring, it is the clauses of the agreement — and only they — that define the rights and obligations of each party. This statement is important because it calls for a rigorous reading of the contractual document rather than a search for general statutory rules.

The Court then methodically examined the provisions of the “Facturea” agreement binding the two companies.

The combination of these clauses is particularly illuminating. Article 3.2 plays the most decisive role: the factor’s guarantee — i.e., its assumption of the non-payment risk — is strictly limited to cases of debtor insolvency. When the non-payment results from another cause — in this case, a dispute over the quality of the work, i.e., a commercial dispute — the guarantee does not apply. And in that case, pursuant to Article 2.9, the disputed receivable unresolved within 30 days loses its liquid character and must be reversed by the client.

The absence of a serious challenge and the direct admission of the claim

Based on this contractual analysis, the Court drew a clear conclusion: BG Étanchéité was contractually obligated to indemnify BPCE Factor for the amount of the invoices in question. It could not reproach the factor for not having previously attempted to collect them, because such an obligation of prior recourse simply did not exist under the terms of the agreement. The challenge raised by the judicial representative was therefore devoid of any serious basis.

This characterization is decisive from a procedural standpoint. Article L. 624-2 of the French Commercial Code provides that the supervisory judge may rule on the admission or rejection of a claim himself, but only in the absence of a serious challenge. Where a serious challenge exists, he must refer the parties to the competent court. In the absence of a serious challenge — as held by the Court of Appeal — he does not have the power to make such a referral: he must rule on the matter.

The Court of Appeal therefore reversed the supervisory judge’s order on all contested points and, ruling anew, directly admitted BPCE Factor’s claim to the liabilities of BG Étanchéité for the sum of 53,940.82 euros. The Court noted in this regard that the amount of the disputed invoices was not itself contested — only the principle of the factor’s recourse was. Since there was no uncertainty regarding the figure, admission could be granted without further delay.

On costs and expenses, the Court adopted a balanced approach: the appeal costs were treated as preferential expenses of the collective proceedings, but BPCE Factor’s claim under Article 700 of the French Code of Civil Procedure — which allows a party to seek reimbursement of its attorney’s fees — was rejected.

4. Practical lessons from this ruling

Beyond the specific case at hand, this ruling offers several useful lessons for practitioners and businesses involved in factoring agreements.

The first lesson is the paramount importance of contractual drafting. Since factoring is not governed by a specific statutory regime, each clause of the agreement becomes potentially decisive in the event of a dispute. The Court of Appeal states this unequivocally: it is to the agreement, and to it alone, that one must refer to determine the scope of each party’s obligations. Articles 2.1, 2.9, 2.15, and 3.2 of the “Facturea” agreement form a coherent framework here that allows the factor to turn against its client when disputed receivables are not resolved within the prescribed time limits.

The second lesson concerns the particular position of the judicial representative in collective proceedings. When a company is under judicial reorganization, its judicial representative is responsible for verifying declared claims and may challenge them. But such a challenge must be based on serious and well-founded arguments. Here, the argument based on the factor’s failure to take prior collection steps was not well-founded, because the agreement imposed no such prior obligation before exercising recourse against the client.

The third lesson is procedural: it concerns the boundary between what falls within the supervisory judge’s jurisdiction and what exceeds it. The supervisory judge sometimes tends, out of caution, to declare himself lacking jurisdiction as soon as a challenge is raised. The Court of Appeal reminds him that this caution has its limits: when the challenge is manifestly without merit — particularly because it is contradicted by clear contractual provisions — it is his responsibility to rule directly, without unnecessarily prolonging the proceedings to the detriment of the creditor.

Finally, for factors themselves, this ruling confirms that it is essential to scrupulously follow the contractual procedures for issuing dispute notices and observing time limits. BPCE Factor was able to prevail notably because it had properly sent the dispute notices required by the agreement and BG Étanchéité had not resolved the disputes within the contractual 30-day period. Without this procedural rigor, the outcome could have been different.

Conclusion

The Besançon Court of Appeal’s ruling of June 4, 2025 is a concrete and instructive illustration of the principle that the contract is the law of the parties — even when one of them is subject to collective proceedings. In the face of an attempt to escape a contractual debt by invoking the factor’s failure to pursue collection, the Court responds clearly: the clauses of the agreement do not provide for any such prior obligation, and the client who failed to resolve disputes within the contractual time limits has only itself to blame. The supervisory judge, who had imprudently characterized the challenge as serious, is corrected by the Court of Appeal, which directly admits the claim to the liabilities. For businesses that use factoring — whether they are clients or factors — this reminder should encourage careful reading of every clause of their agreement, particularly those that define the scope of the guarantee and the reciprocal obligations in the event of disputed receivables.

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