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Upd@te France
27 February 2012
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Schultze & Braun News

Recent publications

Germany : Good Tidings
The European Lawyer 02 2012, 31-32
Frank Tschentscher, Attorney at Law, LL.M. (Nottingham), Solicitor (England and Wales)

Trust, Parallel Debt Mechanism under N.Y. Law Are Now Recognized in French Insolvency Law
ABI Journal February 2012, 30 et seq.
Dr. Annerose Tashiro, Patrick Ehret, Frank Tschentscher – Attorneys at Law

Restructuring Forum Shopping in Germany before the Reform
TMA International News, 4/2011, 2-4
Dr. Volker Beissenhirtz, LL.M., Attorney at Law, Registered European Lawyer (London)

 
French Legal News

For the first time the discharge of residual debt which had been granted to a German citizen living in Alsace was revoked due to his pretending of being domiciled in France. Find out more about this decision of the Court of Appeal of Colmar as well as about the intensified controls of French insolvency administrators in our Newsletter Upd@te France.

We wish you an interesting read.

Patrick Ehret
Attorney at Law in Germany and France
Certified Specialist in International Law in France
D.E.A. (European Community Law)

Patrick Ehret

Patrick Ehret

Court of Appeal Colmar: Revocation of discharge of residual debt due to a non-existing domicile four years after the closing of personal bankruptcy proceedings in Alsace

Per its decision of 13.12.11 the Court of Appeal Colmar (Cour d’appel Colmar, decision of 13.12.11, File no.: 1 A 11/01869) revoked the discharge of residual debt granted to a German citizen within so-called faillite civile proceedings. To our knowledge, this is the first time that such a revocation was based on the unlawful pretending of being domiciled in France. The following facts were the basis of this decision:

Already in 2002, one creditor had sued the debtor in Germany for compensation of the restoration of real property in Spain. During proceedings in Germany in August 2004, the debtor pretended to have relocated from Germany to France. In June 2006, the debtor filed for personal bankruptcy, and proceedings (so-called faillite civile proceedings) were opened by the Tribunal de Grande Instance (Court of First Instance) in Saverne in accordance with local regulations. Per decision of 12.10.2007, proceedings were closed by the French insolvency court due to insufficient assets, and discharge of residual debt was granted at the same time. Contrary to the legal situation in the other parts of France and due to regional legal exceptions in the three former German departments, natural persons without commercial activity have the possibility to undergo French insolvency proceedings and to finish them without a probationary period obligatory in German insolvency law.

Following the closing of the personal bankruptcy proceedings, the German courts declared the legal suit as inadmissible, based on the inadmissibility of the action according to sec. L. 643-11 of the French Code of Commerce, according to which insolvency creditors do not get the right to assert their claims personally against the debtor in case of the closing of insolvency proceedings due to insufficient assets.

The creditor had then filed for the revocation of the discharge of residual debt before the French courts. With the closing of proceedings due to insufficient assets according to sec.  L. 643-11 of the French Code of Commerce, the creditors generally lose the possibility to assert their claims against the debtor. Exceptions to this regulation, however, are claims of a highly personal nature, especially claims to maintenance as well as claims in connection with a criminal conviction of the debtor. In addition, claims for damages of bondsmen are not comprised in the discharge of residual debt. Therefore, a bondsman has still the possibility to assert his claims against the insolvency debtor.

Furthermore, a creditor can assert his claim against the insolvency debtor after the closing of proceedings, if the debtor has committed an insolvency related offense (banqueroute). The sanction of neglect of duty before or during proceedings by the interdiction to be appointed as part of the management (so-called faillite personnelle) the effects of the discharge of residual debt do not apply upon application of a debtor. Secondary proceedings according to sec. 3 para. 2 EU Regulation on Insolvency Proceedings do not lead to discharge of residual debt according to French law as unlikely as further proceedings over the assets of a member of management, if the insolvency of the company goes back less than five years and proceedings were closed due to insufficient assets.

The insolvency court can deny or revoke the effects of discharge of residual debt in the French sense of erga omnes, if the accusation of abuse of rights (fraude), as e. g. the concealing of assets, proves correct during insolvency proceedings. In this case, the court decides for all creditors and grants every creditor the possibility to assert their claims against the insolvency debtor (L.643-11 sec. 4 of the French Code of Commerce).

In contrast to sec. 303 Insolvency Code, there is no time limit in French insolvency law for the assertion of these creditor rights. It is also not disadvantageous to know of such circumstances before the closing of proceedings. Besides, it can be filed for reopening the insolvency proceedings (sec. L. 643.13 of the French Code of Commerce), if it is found out that not all assets have been realized or claims in favour of the creditors were not asserted during the proceedings. However, a motion in this context is connected with an advance payment to cover the process costs.

The Court of Appeal Colmar revoked the decision and regarded the fact of abuse of rights which justifies the revocation of the discharge of residual debt as well as the reason for exclusion of  insolvency proceedings ordered after other proceedings had been opened in the past as given in the case at hand.

Sec. L. 643-11 sec. 4 of the French Code of Commerce provides, that the effects of discharge of residual debt can be denied or revoked if the accusation of abuse of rights can be proven. In this particular case, the Court of Appeal regarded the debtor as guilty of concealing a contribution claim of the debtor acting as trustee against his mother acting as trustee as well as of pretending to be domiciled in Alsace. Until then, the Court of Appeal Colmar had denied jurisdiction in a number of cases in the past years with reference to the non-existence of the alleged domicile of the petitioner. However, by its recent decision, the discharge of residual debt was for the first time pronounced on the basis of the pretending of having a domicile in France. 

Furthermore, the Court of Appeal Colmar regarded the reason for exclusion of insolvency proceedings ordered after other proceedings had been opened initially as given. Sec. L. 643-11 para. 3 of the French Code of Commerce provides that insolvency creditors can further enforce their claims after the closing of proceedings as far as before the opening of personal bankruptcy proceedings over the assets of the debtor or a legal person respectively which he represented as a member of  management, insolvency proceedings had been opened and closed due to insufficient assets. In the case at hand, the debtor had filed for the opening of insolvency proceedings over the assets of a German limited liability company (“GmbH”) in Germany for which he worked as general manager before filing for the opening of personal bankruptcy proceedings in Alsace. Due to insufficient assets, the Court of Appeal Colmar regarded these circumstances as reason for exclusion for a discharge of residual debt of the general manager and petitioner in personal bankruptcy proceedings.

Against this background, all insolvency creditors were authorized to further assert their claims against the debtor as long as the claims’ limitation period has not been exceeded.

If a debtor moves to the neighbouring country France, especially when moving to the frontier region Alsace-Moselle, a creditor should always be aware of the danger of the debtor trying to profit from the French discharge of residual debt.

After the courts in Alsace have always proceeded rather restrictively with regard to filings for the opening of personal bankruptcy proceedings of German citizen who have allegedly relocated to the Alsace in recent years, the current jurisprudence now allows to remove in retrospect the effect of the closing of proceedings on the basis of the regulations of sec. L. 643-11 of the French Code of Commerce which are not subject to any limitation period.

It is therefore worth the trouble for creditors who were confronted with the discharge of residual debt from Alsatian personal bankruptcy proceedings to scrutinize, if it can be proven that the debtor has only pretended to have relocated to the Alsace or if it constitutes that insolvency proceedings were ordered after other proceedings had been opened in the past.

Patrick Ehret, Attorney at Law in Germany and France, Certified Specialist in International Law in France, D.E.A. (European Community Law)

Monitoring of French insolvency administrators intensified

Since January 1, 2012 French insolvency administrators are subject to a more thorough monitoring (Administrateurs judiciaries and Mandataires judiciaries). With regulation No. 2011-1908 of December 20, 2011 coming into effect, they will be obliged in the future to inform the Conseil National des Administrateurs Judiciaires et Mandataires judiciaries (French National Council of insolvency administrators, abbreviation in the following CNAJMJ) of their financial situation at the end of a business year.

We wish you an interesting read.

Ellen Delzant
Attorney at Law in Germany and France

Ellen Delzant

Ellen Delzant

In France, the professional activity as insolvency administrator is divided into two different branches. The Administrateur judiciaire continuously administrates companies in bankruptcy, e. g. during proceedings of Redressement judiciaire (insolvency proceedings) or Sauvegarde proceedings. The Mandataire judiciaire acts as the creditors’ representative in aforementioned proceedings and as administrator in liquidation proceedings (liquidation judiciaire). According to French understanding, they are freelancers and independent branches of judicature. They are subject to their own professional code valid for both branches and are represented by the CNAJAMJ. CNAJAMJ does not only organize exams and grant licenses on the one hand, but is also supposed to represent the collective interests of both branches, and on the other hand must control the professionals (in total only about 450 persons).

French insolvency administrators were already subject of strict control regulations with regard to bookkeeping in each insolvency case as well as the bookkeeping of the respective insolvency administrator office which are both yearly under scrutiny by an auditor.

Additionally, each insolvency administrator’s office is monitored by a delegation of the CNAJMJ - consisting of two insolvency administrators and one auditor - every three years. Such a control can be ordered any time by the chairman of the CNAJMJ, the Minister of Justice, the public’s attorney or other persons mentioned in law. However, these control mechanisms were regarded as insufficient. Within the scope of the regulation of March 28, 2011 an intensification was envisaged to the effect that all insolvency administrators will be obliged in the future to inform the CNAJMJ of their financial situation once a year within six months after the end of a business year, regarding the modernization of certain judicial and protected professions (Loi de modernisation des professions judiciaries ou juridiques et certaines professions réglementées).

However, for its realization this legal provision needed a regulation, defining the details which now entered into force on January 1, 2012. According to that regulation, insolvency administrators who prepare balance sheets must yearly submit their trade accounts, profit and loss statement as well as the attachment to the trade accounts to the CNAJMJ. Insolvency administrators who merely compile an income/surplus account must submit this account along with other information listed in the regulation as e. g. the financial situation at the beginning and at the end of a business year, cost for human resources, cost for rent, earnings before tax etc. Furthermore, the regulation provides that the information regarding the financial situation of the insolvency administrators must be forwarded by the CNAJMJ to a central contact point within the public attorney’s office entrusted by the French Ministry of Justice.

In the future, these measures are supposed to avoid irregularities and cases of misuse which were not discovered in the past.

Ellen Delzant, Attorney at Law in Germany and France

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