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Cessation of payments: when should it be declared?

Published on August 08, 2022 by Pierre Belhache - 3 mins reading time
VSE/SME Procedures Companies Case law

As soon as a company is deemed to be in a state of suspension of payments, it must file a declaration with the Commercial Court or the Court of First Instance. When is the best time to do this?

Which companies are concerned?

Companies that find themselves in a situation of cessation of payments are those whose cash flow is no longer sufficient to settle their debts. They are then required to file a declaration with the competent court within 45 days. Merchants, trading companies and craftsmen must apply to the Commercial Court, while other players must apply to the Judicial Court.

The declaration of cessation of payments can concern companies, sole traders and micro-entrepreneurs. In the case of a company, it is up to the director or co-manager to make the declaration. In the case of a sole proprietorship, it is up to the entrepreneur to make the declaration.

 

However, this procedure does not apply to individuals with excessive debt, natural persons domiciled in Alsace and Moselle, credit institutions or persons involved in collective proceedings already opened against a company.

When is the right time to declare bankruptcy?

Although the law requires companies to declare themselves in a state of cessation of payments within 45 days, turnaround professionals advise them to do so as soon as possible. Indeed, a manager who files this declaration late, even though he or she was aware of this state of affairs a long time before, may be subject to a ban on managing, administering or controlling the company, as the Cour de cassation reminded us in a ruling dated January 12, 2022.

In this case, a manager had declared the cessation of payments of his company on March 23, 2016, whereas the court had set the date of the receivership proceedings at October 6, 2014. To justify his actions, the manager stated that he had not been aware of his company's cessation of payments within 45 days of that date. The judges disagreed, noting that in 2015, he was no longer able to pay the employer's share of social security contributions or VAT. What's more, the manager was also unable to pay wages four months before the receivership proceedings were initiated. All these factors led the Court to believe that, until March 23, 2016, the manager had deliberately failed to declare the cessation of payments within the allotted timeframe. As a result, he was sentenced to a management ban.

Companies that can no longer pay their debts with their available assets have every interest in declaring cessation of payments as soon as possible. Executives who wait too long may incur personal liability, putting their company at economic risk.