Cour de cassation, com, 29 January 2025, no. 23-20.836

The paulian action can be implemented when an easily seizable asset is replaced by a sum of money that is easier to conceal. This decision is a reminder that the paulian action is not conditional on proof of the debtor’s apparent insolvency.

Background and facts

The dispute was between Mr [O], a chartered accountant, the company LBR, Mr [N] and the liquidator of the company La Brasserie.

This chartered accountant had kept the accounts for La Brasserie before being dismissed in 2016. Having failed to receive payment for his services, he brought an action to recover his fees and obtained a judgment in his favour on 6 February 2019.

Prior to this judgment, on 15 June 2018, La Brasserie sold its business to LBR, a company set up for the purpose of the takeover and owned by Mr and Mrs [N]. Shortly afterwards, La Brasserie was placed in compulsory liquidation.

Mr [O] considered that the effect of this assignment was to make it more difficult to enforce his claim by replacing a seizable asset with cash that was easier to conceal, and he brought an action in bankruptcy to have the assignment declared unenforceable against him.

The paulian action

This action is an interesting tool for a creditor. It is a legal mechanism enabling a creditor to challenge certain acts performed by his debtor when they are carried out in fraud of his rights. The paulian action was named as such since it was supposed to exist already under roman law.

It is now defined in France in article 1341-2 of the Civil Code:

‘A creditor may also act in his own name to have acts performed by his debtor in fraud of his rights declared unenforceable against him, provided that he establishes, in the case of an act for valuable consideration, that the third party contracting with him was aware of the fraud’.

This action is, of course, subject to a number of conditions:

• The transactions must make it more difficult or impossible to recover the debt.

• The creditor must have suffered prejudice either by reducing his right of general pledge or by making it more difficult to exercise his rights.

• Intentional fraud must be demonstrated, i.e. the debtor must have been aware of the prejudice caused to the creditor at the time of the deed.

The Court of Appeal required proof of insolvency

In a ruling dated 6 July 2023, the Douai Court of Appeal dismissed the action for damages on the grounds that Mr [O] had not proved the apparent insolvency of La Brasserie at the time of the transfer. According to the court, this condition was necessary to characterise fraud on creditors’ rights.

The Court of Cassation censured this position,

For the Commercial Chamber:

• The action paulienne does not require proof of the debtor’s apparent insolvency, particularly when the transfer of an easily seizable asset is replaced by a sum of money that is easier to conceal.
• The creditor’s loss is characterised when an asset enabling him to recover his debt is replaced by a value that is more difficult to apprehend, which is precisely the case here.

The Court of Cassation ruled that ‘ the creditor has the right to bring an action paulienne when the assignment, although granted at the normal price, has the effect of removing an asset from his proceedings by replacing it with funds that are easier to conceal. As the creditor’s loss is thus characterised, the success of the action paulienne is not then subject to proof of the debtor’s impoverishment ‘.

The Court of Appeal could not therefore require insolvency to be proven in order to admit the action paulienne.

Consequences of this decision

The Cour de cassation clarifies the conditions for exercising the action paulienne.

The substitution of a sum of money for a business may be sufficient to constitute fraud, without it being necessary to prove the debtor’s manifest insolvency.

This position by the Cour de cassation strengthens this tool available to creditors.

With collection proceedings sometimes lengthy, there is a great risk that a creditor will see his debtor become impoverished or sell off certain assets during the proceedings.

The solution adopted by the Cour de cassation gives creditors greater certainty, as they will be able to have certain transactions that reduced their chances of being paid declared unenforceable.

In order to prevent such a situation, it should be remembered that a creditor may also ask at the start of proceedings to be authorised to take a conservatory measure or protective measure to try to block an asset for the duration of recovery proceedings. If the creditor fails to do so, or if the judge refuses to grant a protective measure, he may be left with this paulian action to seek protection from an indelicate debtor.

This case law is part of an ongoing effort to combat the misappropriation of assets to the detriment of creditors.

By Olivier Vibert, Paris lawyer, Kbestan

www.kbestan.fr