The term "insolvency" refers to the state of a French company that can no longer pay its debts. But what is the insolvency definition, and what should you do in case of insolvency?

The insolvency definition describes the situation in which a company no longer has sufficient funds to settle its maturing obligations and debts. It can no longer cover its short-term liabilities with its available assets.

Under these conditions, the legal representative goes through a formality known as a "declaration of cessation of payments" at the commercial court. From the moment payments stop, they have a maximum of 45 days to carry out this formality, which applies to companies as well as sole proprietorships, self-employed businesses and civil-law partnerships. The judge then decides to open a collective proceeding which, depending on the severity of the payment default, results in a safeguard procedure, a recovery procedure or a liquidation, leading to the complete bankruptcy of the company.

Cessation of payments and insolvency

In legal vocabulary, we speak of the cessation of payments or insolvency to describe an insolvency situation.

The declaration of cessation of payments is mandatory within 45 days after payments stop. This formality must be carried out by the company's legal representative:

  • With the commercial court for a company, a sole proprietorship or a self-employed business.
  • With the Tribunal de Grande Instance for a civil-law partnership or an economic interest group.

What to do in the case of an insolvency definition?

The company's managers have a period of 45 days between the finding of the payment default and the declaration before the commercial court.

This declaration must be made either to the clerk of the commercial court, in order to complete the insolvency definition procedure, or to the clerk of the Tribunal de Grande Instance, depending on whether it is a limited liability company or not an association-type organization.

This declaration is preceded by either:

A receivership procedure

In this case, the company's assets are examined. The company's liabilities and assets are also valued. The aim is to correct the company's situation.

After this period, the company may be declared profitable and its debts spread out. If the business is not profitable, it can either be taken over by a buyer or not taken over because no buyer is interested, and then go into liquidation.

Insolvency definition

An insolvency procedure

In the case of compulsory liquidation, the company's assets are sold and an attempt is made to settle the company's debts. The aim is to wind up the company's activity by paying off its debts.

This process can take some time and last several months or years.

The company in liquidation must submit a statement of results within 60 days after the liquidation is completed and send it to the tax authorities.