FIDUCIE AND INSOLVENCY PROCEEDINGS
The judgment of 25 March 2025: the director’s wealth drawn into the proceedings
In a judgment of 25 March 2025 (RG 24/10254 ), the Commercial Chamber of the Cour de cassation restated the harsh rule of article L.621-2 paragraph 2 of the French Commercial Code (applicable to judicial liquidation by reference in article L. 641-1 of the same code), which provides that the extension of insolvency proceedings may be based on the mere commingling of patrimonies without any fault on the part of the third party concerned (here, the director) being required.
In this case, the court-appointed administrator had brought proceedings against the director in order to extend the proceedings to him, invoking a commingling of patrimonies arising from abnormal financial dealings.
The liquidator’s objective was to be able to reach the whole of the director’s personal wealth.
The facts: an extension of the proceedings for commingling of assets
In this case, the court-appointed administrator had brought proceedings against the director in order to extend the insolvency proceedings to him, relying on a commingling of assets resulting from abnormal financial dealings.
The liquidator’s objective was to be able to reach the whole of the director’s personal wealth.
The lower courts, before being overturned by the Cour de cassation, had held that the director had committed no fault in waiving the rent owed to him in order to delay the company’s cessation of payments.
The Cour de cassation, however, points out that no fault is required under article L.621-2 of the French Commercial Code. Even where economically well-founded and justifiable, any transaction capable of constituting a commingling of assets allows the administrator to pursue the director personally and to hold him liable for payment of all of the company’s debts.
This judgment holds many lessons for the business owner who does not wish to suffer the same fate as this unfortunate and badly advised director, who will thereby lose the savings and the wealth of a lifetime.
With a fiducie (the French-law fiduciary arrangement), this risk would never have befallen him. He could admittedly still have been pursued by the court-appointed administrator, but the latter, even holding an enforceable order, could never have reached the director’s personal wealth.
How the fiducie would have protected the director
A properly constituted fiducie (the French-law fiduciary arrangement) would have enabled him to shelter the whole of his personal movable and immovable wealth so as to render it, entirely lawfully, wholly immune from seizure.
On this point, it may be added that the extension of the insolvency proceedings to the director may be European or international, by means of an application for recognition, in the country concerned, of the decision
Thus, by way of example, the director of Spanish nationality residing in Italy of a French company which holds assets in the United Kingdom, Luxembourg and China may
have his wealth seized in all those countries on the basis of a single court decision.
By contrast, the same director holding a fiducie, the French-law fiducie, in which he has previously placed his assets may not be subject to seizure anywhere, notwithstanding the extension judgment, and will be able to continue to retain them for his own use and that of his family.
It is, among other reasons, for this reason that all directors of large companies and all managers take care to put such structures in place beforehand, before accepting duties of such importance.
This recent judgment of the Cour de cassation is not new but constitutes a useful and important reminder of the settled case law on the question and of the colossal risk borne by every director or entrepreneur.
For the sake of completeness, it should also be recalled that the fiducie makes it possible to protect not only the assets and the wealth of the director but also those of the company, since assets placed in fiducie escape insolvency proceedings and any recovery plan entirely, which affords formidable negotiating weapons against creditors to reduce and/or write off all or part of the debt.
John D. Rockefeller had already understood this more than a century ago with his now famous phrase: “Own nothing, control everything”.
Such is the purpose of the fiducie (the French-law fiduciary arrangement).
Frequently asked questions about the fiducie (the French-law fiduciary arrangement) and insolvency proceedings
Does the fiducie protect assets in the event of bankruptcy?
Yes. Assets transferred into fiducie form a patrimony by allocation distinct from that of the Settlor. In principle, they fall outside the insolvency proceedings opened against the latter, save in the event of fraud or where the fiducie was constituted during the suspect period.
What is a security fiducie?
The security fiducie is a guarantee by which a debtor transfers an asset to a Fiduciaire in order to secure the debt. It is particularly effective because the creditor enjoys an exclusive right over the asset, even in the event of insolvency proceedings.
Can the fiducie be called into question by a liquidator?
It can be if it was entered into in fraud of creditors’ rights or during the suspect period preceding the cessation of payments. Outside those cases, a duly constituted fiducie is enforceable against the proceedings.
What is the difference between a security fiducie and a mortgage?
Unlike a mortgage, the security fiducie transfers ownership of the asset to the Fiduciaire, affording the creditor enhanced protection and faster recovery, without competing with other creditors over the asset held in fiducie.
When should a security fiducie be set up?
Ideally when financing is put in place, well before any difficulty arises, in order to secure a lender or to protect a strategic asset. Constituted too late, it risks being set aside on the ground of the suspect period.
The House of Harlington since
2006