Conditions for Declaring Bankruptcy
Explanation
Legal texts determine the conditions for declaring the bankruptcy of a merchant (commerçant). A merchant is considered in a state of bankruptcy if they cease paying their commercial debts (dettes commerciales). They are also considered bankrupt if they continue to support their financial credit using means that clearly appear to be illicit.
Bankruptcy is declared by a judgment (jugement) issued by the court of first instance. This court must be the one in whose jurisdiction the principal commercial establishment of the merchant is located. This judgment is characterized as being provisionally enforceable (exécutoire par provision). This court has jurisdiction to hear all claims arising from bankruptcy rules.
The merchant themselves can request the declaration of their bankruptcy by submitting a declaration to the court. The law requires the merchant to submit this declaration within twenty days from the date they cease payment. If they fail to meet this deadline, they expose themselves to prosecution for the misdemeanor of simple bankruptcy (banqueroute simple). They must attach to their declaration a detailed and certified balance sheet (bilan) that matches the state of their assets and debts.
Creditors (créanciers) also have the right to request the declaration of the merchant's bankruptcy. This is usually done by submitting a summons to the court that includes a three-day notice period. This procedure aims to protect the rights of creditors when the merchant ceases payment.
In urgent cases, procedures change to protect creditors quickly. This happens if the merchant closes their stores and flees or hides a significant part of their assets. In this case, creditors can apply to the court via a petition without a summons. The court then decides the case in the council chamber (chambre du conseil).
Official legal articles
Think deeper
Why did the law impose a twenty-day deadline on the merchant to declare cessation of payment? How does this relate to creditors taking urgent procedures when the merchant flees?
Flashcards
When is a merchant considered in a state of bankruptcy under the Code of Commerce?
A merchant is bankrupt upon ceasing to pay commercial debts. They are also bankrupt when maintaining financial credit only through clearly illicit means (Article 489).
Which court has jurisdiction to declare the bankruptcy of a merchant?
The court of first instance in whose jurisdiction the principal commercial establishment is located.
What is the characteristic of the bankruptcy declaration judgment in terms of enforcement?
This judgment is provisionally enforceable.
What is the legal deadline given to the merchant to declare their cessation of payment?
Twenty days from the date of their cessation of payment.
What is the potential penalty if the merchant does not declare their cessation of payment within the legal deadline?
They are subject to prosecution for the misdemeanor of simple bankruptcy.
What must the merchant deposit with the bankruptcy declaration?
A detailed balance sheet certified to be matching the state of their assets and the debts claimed from them.
How do creditors apply to the court in urgent cases such as the merchant fleeing?
They have the right to apply by way of a petition without a summons, and the court decides the case in the council chamber.
Practice questions
Which of the following situations leads to considering the merchant in a state of bankruptcy?
A merchant is considered in a state of bankruptcy if they cease paying their commercial debts (Article 489).
What is the competent court to hear bankruptcy claims?
The court of first instance in whose jurisdiction the principal commercial establishment is located is competent to declare bankruptcy (Article 490).
What happens if several courts simultaneously rule to declare the bankruptcy of the same merchant?
If several courts simultaneously rule to declare the bankruptcy of the same merchant, a competent authority is designated (Article 490).
What is the notice period for the summons submitted by creditors to file a bankruptcy case in normal situations?
A bankruptcy case may be filed with a three-day summons submitted by one or several creditors (Article 492).
Where does the court decide the bankruptcy case if creditors submit a petition without a summons in urgent cases?
The court decides the case in the council chamber when creditors apply by petition without a summons in urgent cases (Article 492).
Case problems
A merchant owns a principal commercial establishment in Beirut. They ceased paying their commercial debts on February 1. On February 25, they decided to submit a declaration to the court to declare their bankruptcy. Did they respect the legal deadline, and what are the potential consequences of their action?
Model answer
The merchant did not respect the specified legal deadline.
The merchant must make the declaration within twenty days from the date of cessation of payment (Article 491).
Since they ceased payment on February 1 and declared on February 25, the twenty-day deadline has expired.
As a result, the merchant is subject to prosecution for the misdemeanor of simple bankruptcy.
Self-grading rubric
A merchant suddenly closed their stores and hid a significant part of their goods. The creditors learned of this and wanted to act quickly for fear of losing their rights. What procedures can they take according to the law, and how will the court handle their request?
Model answer
This situation is considered an urgent case due to the merchant closing their stores and hiding their assets.
Creditors have the right to apply to the court by way of a petition without a summons in urgent cases (Article 492).
This procedure spares them from submitting a three-day summons used in normal cases.
Upon submitting this petition, the court decides the case in the council chamber.