The judicial liquidation of a French company does not automatically make its director liable. Article L. 651-2 of the Commercial Code requires three cumulative elements: a shortfall of assets, a management fault, and a causal link between the two. Since the Act of 9 December 2016, mere negligence in management is expressly excluded. The action is time barred three years after the judgment ordering liquidation. Alongside this financial claim sit, on separate grounds, personal bankruptcy, disqualification from managing for up to fifteen years, and the criminal offence of banqueroute.
A director learns, eighteen months after the liquidation of his company, that the liquidator is suing him for 340,000 euros as a contribution to the shortfall of assets. He thought the matter closed. He kept trading for eight months hoping for a contract that never came, he filed for insolvency late, and his accounts for the last year are incomplete. Each of those three elements carries a different weight before the court, and the defence is built on that difference, not on a general protestation of good faith.
The three conditions of article L. 651-2
The text provides that where the judicial liquidation of a legal person reveals a shortfall of assets, the court may, in the event of a management fault having contributed to that shortfall, decide that the amount of the shortfall will be borne, in whole or in part, by all the de jure or de facto directors, or by some of them, who contributed to the fault. Where there are several directors, the court may, by reasoned decision, declare them jointly and severally liable.
Three points matter. The liability reaches de facto directors as well as de jure ones, which exposes the shareholder who was in practice running the company without being appointed, the spouse who signed, the parent company that decided. It is discretionary and adjustable: the court may put all or only part of the shortfall on the director, which opens a real space for argument on quantum. And it requires the fault to have contributed to the shortfall: a real fault with no effect on the liabilities does not found a judgment.
Mere negligence is excluded, and that is the first line of defence
The third paragraph of article L. 651-2 states that in the event of mere negligence by the de jure or de facto director in managing the legal person, his liability for the shortfall of assets cannot be engaged. That exclusion, introduced by the Act of 9 December 2016, changed the balance of this litigation. It protects the director who made errors of judgment, management blunders or administrative delays without any deliberate dimension.
The boundary lies in whether the breach was characterised and repeated. An isolated delay in filing the accounts is negligence; a total absence of accounting over two financial years is not. An unfortunate commercial decision in a market that turned is negligence; continuing a structurally loss making activity when insolvency was established and known is not. The whole defence consists in moving the liquidator complaints from the second register to the first, complaint by complaint.
The management faults that come up most often
Four complaints dominate these claims. Continuing a loss making business in the personal interest of the director or to postpone the day of reckoning, where insolvency was established, comes first. Next comes the absence or serious irregularity of the accounts, which deprives the court of any means of assessing management and rebounds mechanically on the director. Then commingling of assets, unjustified drawings, remuneration maintained at a level incompatible with the situation. Finally, failure to file for insolvency within the forty five day period imposed by article L. 631-4 of the Commercial Code, where no conciliation was applied for within that period.
That last complaint deserves careful reading. Exceeding the forty five day period is not, on its own, a management fault justifying a judgment: it must still be shown to have contributed to worsening the shortfall of assets, and quantifying that worsening is often the weak point of the liquidator case. The same delay, by contrast, directly founds disqualification from managing, on a separate basis examined below.
Who can sue, and with what investigative powers
Article L. 651-3 of the Commercial Code reserves the right to sue to the liquidator and the public prosecutor. In the collective interest of the creditors, a majority of the creditors appointed as supervisors may also apply to the court where the liquidator has not brought the action, after a formal demand has gone unanswered. An individual creditor therefore cannot sue on this basis for his own account, which is a constant source of misunderstanding.
The investigative powers are considerable. Article L. 651-4 allows the president of the court, of his own motion or on the application of those entitled, to instruct the supervising judge or a member of the court to obtain, notwithstanding any legislative provision to the contrary, disclosure of any document or information on the personal assets of the directors, from public administrations and bodies, social security bodies, payment institutions and banks. The same text authorises any useful protective measure over the directors assets. In practice, personal wealth can be mapped and frozen before judgment.
Where the money goes, and why the director gets none of it back
Sums paid by directors enter the debtor estate and are distributed rateably among all the creditors. The last paragraph of article L. 651-2 states that directors may not share in distributions up to the amount they have been ordered to pay. A director who had given a guarantee or made advances on current account therefore recovers nothing on what he pays.
Article L. 651-3 adds that the costs and irrecoverable expenses the director has been ordered to pay are met in priority out of the sums paid to make good the liabilities. These mechanisms explain why negotiating quantum, and not only arguing about principle, is the real financial issue in the case.
Personal sanctions: bankruptcy and disqualification
Article L. 653-5 of the Commercial Code lists the acts that may justify personal bankruptcy: carrying on a business or holding a management office despite a legal prohibition; having, in order to avoid or delay the opening of proceedings, made purchases for resale below market price or used ruinous means of raising funds; having subscribed on behalf of others, without consideration, commitments too large in view of the situation; having paid a creditor after insolvency and in full knowledge of it, to the prejudice of the others; having obstructed the proper conduct of the proceedings by deliberately failing to cooperate; having caused accounting records to disappear or having kept no accounts.
Article L. 653-8 allows the court to order, instead of personal bankruptcy, a prohibition on directing, managing, administering or controlling any undertaking or legal person, or some of them. The same text expressly covers a person who knowingly failed to apply for the opening of rescue or liquidation proceedings within forty five days of insolvency, without also having applied for conciliation. Article L. 653-11 caps the duration of these measures at fifteen years, allows provisional enforcement, and provides for relief: the judgment closing the proceedings because the liabilities have been discharged restores the director to all his rights, and he may apply to be relieved if he has made a sufficient contribution to paying the liabilities or, for disqualification, if he offers the necessary guarantees.
Banqueroute and tax liability
On the criminal side, article L. 654-2 of the Commercial Code punishes banqueroute in five situations: purchases for resale below market price or ruinous means used to delay the proceedings, misappropriation or concealment of all or part of the assets, fraudulent increase of the liabilities, fictitious accounts or the disappearance of accounting records or the absence of any accounts, and manifestly incomplete or irregular accounts. Article L. 654-3 punishes it with five years imprisonment and a fine of 75,000 euros.
A third front, often ignored until proceedings are served, is tax. Article L. 267 of the Book of Tax Procedures allows the public accountant to have the director declared jointly and severally liable for the taxes and penalties owed by the company, where he is responsible for fraudulent manoeuvres or for serious and repeated failures to comply with tax obligations that made recovery impossible. The application is made to the president of the judicial court of the place of the registered office, and the text expressly covers any person exercising de jure or de facto effective management. That action is autonomous and follows its own timetable.
Building the defence, and when
The defence is prepared before proceedings are served, from the moment the insolvency proceedings open. The documents that save a case are those dated from the critical period: minutes of management bodies showing that the situation was being monitored, correspondence with the accountant, updated forecasts, financing or recapitalisation steps taken, applications for an ad hoc mandate or conciliation, an actual reduction in the director remuneration, personal advances on current account. Reconstituting this material two years later is very difficult; gathering it while the business is wobbling is simple.
On the merits, four lines combine: contesting de facto director status where it is alleged, bringing each complaint back within the mere negligence the text excludes, breaking the causal link between the fault found and the portion of the shortfall claimed, and arguing quantum by recalling that the court may put only part of the shortfall on the director. Finally, the three year limitation running from the liquidation judgment has to be checked, and it extinguishes a fair number of actions brought late.
What the firm does
Upstream, the work concerns the period when everything is decided: establishing the date of insolvency, choosing between an ad hoc mandate, conciliation, safeguard proceedings and a filing, and recording decisions so that they can be proved later. That is the moment when the director personal exposure is either built or neutralised.
In defence, the firm analyses the liquidator report complaint by complaint, deploys the documents from the critical period, argues the date of insolvency adopted, disputes the quantification of the shortfall attributed, and handles in parallel the fronts that almost always accompany the financial claim: personal sanctions, prosecution for banqueroute, the tax action under article L. 267 of the Book of Tax Procedures and calls on personal guarantees.
Is your company in difficulty, or has a liquidator sued you to make good the shortfall of assets? The time limit and the documents from the critical period decide the case. The firm acts in Paris and throughout France.
Frequently asked questions
Does a director automatically pay the debts of a liquidated company?
No. Article L. 651-2 of the Commercial Code requires a shortfall of assets, a management fault and a causal link between the two. Any order is discretionary and adjustable: the court may put all or only part of the shortfall on the director.
Can mere negligence be sanctioned?
No. The third paragraph of article L. 651-2 of the Commercial Code expressly excludes liability for a shortfall of assets in the event of mere negligence by a de jure or de facto director. That exclusion, from the Act of 9 December 2016, is the first line of defence: the task is to bring each complaint back from the register of characterised breach to that of negligence.
What is the time limit for suing a director?
Three years from the judgment ordering judicial liquidation, under the last paragraph of article L. 651-2 of the Commercial Code. The action may be brought only by the liquidator or the public prosecutor or, in the collective interest of the creditors and after an unsuccessful formal demand, by a majority of the creditors appointed as supervisors.
What does a director risk for filing for insolvency late?
The period is forty five days, under article L. 631-4 of the Commercial Code, unless conciliation is applied for within it. Exceeding it directly founds the disqualification from managing provided by article L. 653-8 where the omission is knowing. For a financial order, it must also be shown that the delay contributed to worsening the shortfall of assets.
How long does a disqualification from managing last?
Fifteen years at most, under article L. 653-11 of the Commercial Code, which also allows provisional enforcement. The measure ends automatically at the term fixed. The person concerned may apply to be relieved of it if he has made a sufficient contribution to paying the liabilities or, for disqualification, if he shows the guarantees demonstrating his capacity to manage.
Article written by Herve Guyader, member of the Paris Bar, doctor of law. This content is general information and does not replace legal advice.