Effects of Bankruptcy
Explanation
The law imposes significant consequences on a merchant upon their bankruptcy. These consequences sometimes begin even before the official declaration of bankruptcy. If it becomes apparent to any court, whether civil, commercial, or criminal, that a merchant is in a state of apparent bankruptcy during a trial, it has the right to apply the fundamental bankruptcy provisions.
The most prominent financial consequence of bankruptcy is the dispossession [dessaisissement] of the bankrupt. Once the judgment declaring bankruptcy is issued, the merchant inevitably loses the right to manage all their assets. This management is immediately transferred to the bankruptcy receivers [syndics de faillite]. This prohibition includes even the assets that the merchant may acquire during the bankruptcy period.
As a result, the merchant is prohibited from selling any of their assets. They are also prohibited from making any payment or collection, except for a good faith payment of a commercial paper. On the judicial level, the bankrupt does not have the right to file lawsuits or contract independently, but their role is limited to intervening in lawsuits managed by the bankruptcy receivers. However, the law allows them to carry out precautionary measures [actes conservatoires] to protect their rights.
In addition to the financial consequences, the bankrupt merchant loses their political rights. They are prohibited from voting or running for office in political or professional councils. They are also prohibited from holding any public office or public mission.
Finally, the law requires the publication of the bankruptcy to ensure the knowledge of third parties. The names of bankrupt merchants are listed in a schedule posted in courts and stock exchanges. An exception is made for a merchant who died before the declaration of their bankruptcy, whereas the name of a merchant who dies after bankruptcy is struck off six months after the date of their death.
Official legal articles
Think deeper
Why do you think the law allowed the bankrupt merchant to carry out precautionary measures to protect their rights, even though it stripped them of the right to manage their assets and prohibited them from independent litigation?
Flashcards
When does a court have the right to apply the fundamental bankruptcy provisions without a judgment declaring bankruptcy being issued?
If it incidentally becomes apparent to the court during a civil, commercial, or criminal trial that the merchant is in a state of apparent bankruptcy.
Where are the names of merchants declared bankrupt listed?
In a schedule posted on the door of every court and in the main hall of all stock exchanges.
When is the name of a bankrupt merchant struck off the schedule in the event of their death?
Their name is not listed if they were deceased at the time their bankruptcy was declared, and it is struck off six months after their death in all other cases.
What is the direct consequence of the bankruptcy judgment on the management of the merchant's assets?
It inevitably results, from the day of its issuance, in the bankrupt surrendering the management of all their assets to the bankruptcy receivers, even those acquired during the bankruptcy period.
What is the only exception where the bankrupt is allowed to make a payment?
If the payment is made in good faith for a commercial paper.
How can the bankrupt participate in lawsuits related to their assets?
They cannot litigate except in the capacity of an intervening party in lawsuits pursued by the bankruptcy receivers.
What are the actions that the bankrupt has the right to carry out alone despite their bankruptcy?
They can carry out all precautionary measures to protect their rights.
Practice questions
A case is brought before a criminal court, and it incidentally becomes apparent to the judge that the defendant merchant is in a state of apparent bankruptcy, and their bankruptcy has not yet been declared. What does the court have the right to do?
The law allows the court, whether civil, commercial, or criminal, to apply the fundamental bankruptcy provisions if it incidentally becomes apparent that the merchant is in a state of apparent bankruptcy (Article 498).
A merchant died, and after their death, a judgment declaring their bankruptcy was issued. Is their name listed in the schedule of bankrupts?
The law explicitly states that the merchant's name is not listed in the schedule of bankrupts if they were deceased at the time their bankruptcy was declared (Article 499).
Which of the following rights does the merchant lose once their bankruptcy is declared?
The bankrupt's political rights are forfeited upon the declaration of bankruptcy, prohibiting them from being a voter, an elected official, or performing a public office or mission (Article 500).
A merchant was declared bankrupt, and during the bankruptcy period, they inherited a real estate property. Who assumes the management of this property?
The bankrupt automatically surrenders the management of all their assets to the bankruptcy receivers, including assets they may acquire during the bankruptcy period (Article 501).
A bankrupt merchant paid the value of a commercial paper to a creditor in good faith. What is the legal status of this payment?
The law prohibits the bankrupt from making any payment or collection, except when the payment is made in good faith for a commercial paper (Article 501).
A bankrupt merchant wanted to interrupt the statute of limitations on a debt owed to them by a third party to preserve their right. Do they have the right to do so?
The law allows the bankrupt to carry out all precautionary measures to protect their rights, despite surrendering the management of their assets to the receivers (Article 501).
Case problems
Salem is a merchant who was declared bankrupt on March 1. On March 15, a creditor filed a lawsuit against him claiming a debt. Salem wanted to appoint a lawyer to defend himself independently. He also wanted to sell his private car to pay off debts. Does Salem have the right to carry out these actions?
Model answer
Salem does not have the right to carry out either of these mentioned actions.
The bankruptcy judgment inevitably results in surrendering the management of his assets to receivers (Article 501).
The bankrupt is prohibited from selling any assets, so he cannot sell his private car.
The bankrupt cannot litigate before the judiciary except as an intervening party alongside the receivers.