Assignment of receivables and collective insolvency proceedings: protecting the creditor's ranking

A credit institution finances a construction-sector SME through a cash-flow credit facility secured by an assignment of its trade receivables. Six months later, the company is placed in court-supervised reorganisation (redressement judiciaire), and the court sets the date of cessation of payments (cessation des paiements) several months before the judgment opening the proceedings. The banker then discovers that its assignment falls within the suspect period (période suspecte), and that the court-appointed creditors' representative (mandataire judiciaire) is challenging its ranking. This commonplace scenario sums up the central issue for any financier: the value of an assignment of receivables is measured not on the day it is signed, but on the day the assignor defaults. This article analyses, from the standpoint of the bank and the creditor, how to secure the enforceability and the certain date of an assignment in the face of collective insolvency proceedings, and why the choice between a Dailly assignment and an assignment under the ordinary law determines whether the ranking survives.

Assignment of receivables, a financing technique exposed to insolvency risk

An assignment of receivables (cession de créance) allows the holder of a claim (the assignor) to transfer it to a third party (the assignee), most often a financier, either by way of discount (the assignee acquires the claim and pays its value immediately) or by way of security for a financing facility. In both cases, the financier is relying on an asset: the claim held by its client against the client's own debtors.

Two regimes coexist in French law. The ordinary-law assignment is governed by Articles 1321 to 1326 of the French Civil Code, in the version resulting from Order No. 2016-131 of 10 February 2016 reforming contract law, the general regime and proof of obligations, which came into force on 1 October 2016. The Dailly assignment (cession Dailly), reserved to credit institutions, finance companies and certain alternative investment funds designated by law, is governed by Articles L. 313-23 to L. 313-34 of the French Monetary and Financial Code. These two techniques pursue the same economic aim but diverge radically on formalities, proof of the date and, ultimately, resistance to collective insolvency proceedings.

The issue of assignment of receivables in collective insolvency proceedings arises because the opening of safeguard proceedings (sauvegarde), reorganisation or compulsory liquidation (Book VI of the French Commercial Code) freezes the assignor's position. From the judgment opening the proceedings, the debtor can no longer pay its prior creditors (Article L. 622-7 of the French Commercial Code), individual enforcement actions are suspended, and the organs of the proceedings, the creditors' representative or the administrator, become the guardians of equality among creditors. The assignee is then protected only if it can enforce its assignment against those organs, which have the status of third parties. What remains possible for the creditor despite this freeze is set out in our article on the stay of individual enforcement actions on the opening judgment.

Enforceability, the condition of the assignee's protection

The ordinary-law regime since the 2016 reform

Before the reform, enforceability of the assignment against third parties required service by a bailiff (huissier) on the assigned debtor or the debtor's acceptance by authentic instrument (former Article 1690 of the French Civil Code). This heavy formality often delayed the securing of the financier's position. The 2016 Order simplified the regime.

Article 1323 of the French Civil Code now provides:

As between the parties, the transfer of the claim, present or future, takes place on the date of the instrument. It is enforceable against third parties from that moment. In the event of a dispute, the burden of proving the date of the assignment lies on the assignee, who may do so by any means.

Enforceability against third parties, the creditors' representative included, is therefore acquired from the date of the assignment instrument, without any service formality. This advance is real for banks, but it shifts the fight onto another ground: proof of the date. An assignee that cannot establish the date of its assignment beyond dispute is exposed to the creditors' representative setting up against it a prior right of its own or the entry of the claim into the creditors' common pledge (gage commun).

Enforceability against the assigned debtor follows a separate rule. Under Article 1324 of the French Civil Code, the assignment is enforceable against the assigned debtor only if the debtor has been informed of it by notification or has acknowledged it. As long as the assigned debtor has not been notified, it validly discharges its debt by paying the assignor. For the financier, this notification is not a mere precaution: it prevents the assigned sums from passing through the assignor's assets, where they would be captured by the collective proceedings.

The reinforced enforceability of the Dailly assignment

The Dailly assignment rests on a single instrument, the assignment slip for business receivables (bordereau de cession de créances professionnelles), the mandatory particulars of which are listed in Article L. 313-23 of the French Monetary and Financial Code. If one of these particulars is missing, the instrument does not count as a Dailly assignment. The courts apply this formality strictly, because it is the counterpart of the simplicity of the mechanism. The particulars of the slip, the choice on notification and the defences the assigned debtor may raise are detailed in our article on the Dailly assignment.

Article L. 313-27 of the same code sets the principle of enforceability: the assignment takes effect between the parties and becomes enforceable against third parties on the date placed on the slip when it is handed over, whatever the date on which the claims arise, fall due or become payable. Two points deserve the financier's attention. First, the date is placed by the assignee itself, that is, the credit institution, which removes the evidential difficulties of the ordinary law. Second, enforceability covers even future claims, provided they are identifiable on the slip.

A Dailly assignment may be made by way of discount or by way of security. In the second case, Article L. 313-24 of the French Monetary and Financial Code provides that, even where it is made by way of security and without a price being stipulated, the assignment of the claim transfers ownership of the assigned claim to the assignee. The claim leaves the assignor's assets. This characterisation is decisive in collective insolvency proceedings, because an asset that no longer belongs to the debtor is not destined to return to its common pledge.

The certain date, a decisive lock against the organs of the proceedings

Why the date makes the difference

The creditors' representative and the administrator act in the collective interest of the creditors; they have the status of third parties to the assignment. To enforce its assignment against them, the assignee must establish that it pre-dates the opening judgment and, more precisely, that it escapes the nullities of the suspect period. The date of the instrument is therefore not a formal detail: it is the parameter around which the creditor's ranking is decided.

Under the ordinary law, the date may be proved by any means since 2016, but this evidential freedom is a trap for the imprudent. A private instrument acquires a certain date (date certaine) against third parties, within the meaning of Article 1377 of the French Civil Code, only by registration, by the death of one of its signatories, or by being recorded in an authentic instrument. An assignment contract merely dated by the parties remains open to challenge: the representative may argue that it was backdated so as to fall before the opening of the proceedings or before the cessation of payments. A prudent financier will therefore seek a certain date, by registration or through the involvement of a public officer, whenever the assignor's solvency is fragile.

The structural advantage of the Dailly assignment

On this ground, the Dailly assignment offers a security that the ordinary law does not spontaneously provide. The date placed on the slip by the assignee institution is, by the law itself, the starting point of enforceability against third parties. The financier does not have to reconstitute a certain date after the event: it is built into the mechanism. This is one of the reasons banks favour the Dailly assignment for financing trade receivables, despite its scope being limited to business receivables and approved assignees.

This difference in the evidential regime takes on its full significance when the court puts back the date of cessation of payments. Under Article L. 631-8 of the French Commercial Code, that date may be fixed up to eighteen months before the opening judgment. Such a retroactive shift throws into the suspect period assignments made long before the assignor's apparent default. A financier holding a correctly dated Dailly slip controls the chronology; one relying on a private instrument without a certain date suffers the uncertainty.

The suspect period, a danger zone for the creditor's ranking

The logic of the nullities of the suspect period

The suspect period is the interval between the date of cessation of payments and the opening judgment. The legislature suspects the debtor in that period of having arranged its insolvency or broken equality among its creditors. Two regimes of nullity protect the creditors as a body.

Article L. 632-1 of the French Commercial Code lays down automatic nullities, which the judge must declare once the act concerned was entered into during the suspect period, without having to inquire into knowledge of the state of cessation of payments. These include in particular payments of debts not yet due, payments of debts due otherwise than by the usual means, and, a key point for the financier, any contractual security interest in rem created over the debtor's assets to secure a previously incurred debt. The regime of dation en paiement (giving property in payment), where it concerns a property asset, is presented in our article on extinguishing a debt by this means.

Article L. 632-2 of the same code provides for discretionary nullities, left to the court's assessment, for payments of debts due and for acts for consideration carried out during the suspect period, provided that the counterparty knew of the state of cessation of payments. The banker, who closely follows the client's financial position, is particularly exposed to this charge of knowledge.

The specific risk of an assignment made by way of security

The most delicate point concerns an assignment of receivables made by way of security for a facility already granted. If the assignment secures a previously incurred debt and occurs during the suspect period, it may be analysed as a security interest caught by automatic nullity. The mechanism is the same as for a mortgage taken after the event to cover an existing overdraft.

The classic defence is to ensure that the granting of the credit and the assignment by way of security are contemporaneous. An assignment made in direct consideration for new financing, and not to consolidate an old outstanding balance, escapes characterisation as security for a prior debt. The financier must therefore take care over the chronology and the contractual documentation: the credit agreement and the assignment instrument must reflect a single, simultaneous transaction.

Article L. 632-1, I, 6° of the French Commercial Code now settles the question for the Dailly assignment: it excepts from automatic nullity the assignment of a claim provided for in Article L. 313-23 of the French Monetary and Financial Code made in performance of a framework agreement concluded before the date of cessation of payments. A slip delivered during the suspect period as security for a prior facility, outside any earlier framework agreement, remains liable to fall within automatic nullity; every slip also remains exposed to the discretionary nullity of Article L. 632-2 where the assignee knew of the cessation of payments. The date of the framework agreement, that of the slip and the purpose of the financing are therefore the main points of attention.

Assignment of future claims and the putting back of the date of cessation of payments

Financing backed by a flow of future claims, common in short-term credit, calls for additional vigilance. Where claims arise in the course of business and are transferred by successive slips, each delivery is dated separately. A putting back of the date of cessation of payments may throw the most recent slips into the suspect period while leaving the oldest intact. The financier must therefore reason slip by slip, and not globally, to assess the strength of its ranking.

Dailly or ordinary law: the comparison from the financier's standpoint

The choice between the two techniques is not a matter of preference, but of risk analysis. The Dailly assignment has three strengths for the credit institution. Its date of enforceability is fixed by the slip, which neutralises disputes over the certain date. It allows the assignment of identifiable future claims. Finally, its characterisation as a transfer of ownership, including by way of security, isolates the claim from the assignor's assets.

In return, the Dailly assignment is hemmed in by strict conditions. It is reserved to credit institutions, finance companies and alternative investment funds designated by Article L. 313-23 of the French Monetary and Financial Code; it concerns only business receivables; and an instrument lacking a mandatory particular does not count as an instrument assigning business receivables, which deprives it of the Dailly regime. A creditor that is not a financier, a supplier for example, cannot use it and must fall back on the ordinary-law assignment.

The ordinary-law assignment, open to all, offers flexibility of drafting and a universal scope. But it leaves the assignee with the burden of proving the date of its assignment. Where made by way of security, it transfers ownership of the claim since 1 January 2022 (Article 2373 of the French Civil Code), provided that the instrument designates the secured claims and the assigned claims (Article 2373-1). For an eligible financier, the Dailly assignment remains the benchmark instrument whenever the assignor's financial standing justifies maximum security.

The following list summarises the structuring points of comparison for the creditor:

• Eligibility: Dailly reserved to credit institutions, finance companies and alternative investment funds designated by law, ordinary law open to all
• Nature of the claims: Dailly limited to business receivables, ordinary law with no restriction as to nature
• Date of enforceability: Dailly on the date of the slip placed by the assignee, ordinary law on the date of the instrument subject to proof
• Effect of the assignment by way of security: transfer of ownership in both cases (Article L. 313-24 of the French Monetary and Financial Code; Article 2373 of the French Civil Code for assignments concluded since 1 January 2022)
• Sanction for non-compliance with formalities: instrument deprived of the Dailly regime if a particular is missing, ordinary law more flexible but exposed in terms of proof

Securing the assignment before default

Protecting the ranking is built before the proceedings open, not during them. Several operational reflexes reduce the financier's exposure.

First, date beyond challenge. Under an ordinary-law assignment, registration of the instrument or its execution before a public officer gives a certain date that the representative cannot challenge. Under a Dailly assignment, rigour in drafting the slip and immediate placing of the date are imperative.

Next, notify the assigned debtor. The notification provided for in Article 1324 of the French Civil Code, or the Dailly notification under Article L. 313-28 of the French Monetary and Financial Code which forbids the assigned debtor to pay the assignor, prevents the funds from returning to the assignor's assets. It is the best bulwark against the proceedings capturing the sums.

Finally, coordinate credit and security over time. To rebut the charge of security taken for a prior debt within the meaning of Article L. 632-1 of the French Commercial Code, the assignment by way of security must accompany the granting of the facility, and the documentation must reflect that simultaneity. Monitoring the client's financial position, if it reveals signs of cessation of payments, must lead to caution: an assignment made while the bank knows of imminent default is exposed to the discretionary nullity of Article L. 632-2.

Conclusion

In the face of collective insolvency proceedings, the creditor's ranking is not defended on the day of the litigation, but prepared on the day of the assignment. The 2016 reform lightened the enforceability of the ordinary-law assignment, but it shifted the risk onto proof of the date, ground on which the creditors' representative has formidable weapons when the court puts back the cessation of payments. For an eligible financier, the Dailly assignment remains superior: its date of enforceability is built into the slip, it admits future claims, and its characterisation as a transfer of ownership isolates the claim from the common pledge. This superiority is however secured only on the twofold condition of irreproachable formalities and a controlled chronology in the face of the suspect period.

The recommendation is simple and demanding. Before any financing backed by receivables, have counsel check the date of enforceability of your assignment, the notification of the assigned debtor, and the contemporaneity of the facility and the security. It is this threefold check, and not the mere signing of the contract, that will make your ranking hold on the day the assignor is placed in collective insolvency proceedings.

Frequently asked questions

Must an ordinary-law assignment of receivables still be served by a bailiff?

No. Since Order No. 2016-131 of 10 February 2016, Article 1323 of the French Civil Code makes the assignment enforceable against third parties from the date of the instrument, without service. However, enforceability against the assigned debtor still requires notification or acknowledgement, under Article 1324 of the French Civil Code. Service by a bailiff therefore remains useful in practice to prevent the debtor from paying the assignor, even though it is no longer a condition of enforceability against other third parties.

Can a Dailly assignment be annulled if it occurs during the suspect period?

Yes, the risk exists, in particular where the assignment secures a previously incurred debt. It may then fall within the automatic nullities of Article L. 632-1 of the French Commercial Code, which however except a Dailly assignment made in performance of a framework agreement concluded before the date of cessation of payments, or within the discretionary nullities of Article L. 632-2 if the bank knew of the state of cessation of payments. The defence is to place the assignments within a framework agreement concluded upstream and to ensure that the credit and the assignment by way of security are contemporaneous, so that the latter does not cover a prior outstanding balance.

What is the certain date and why is it decisive in collective insolvency proceedings?

The certain date, within the meaning of Article 1377 of the French Civil Code, is the date of a private instrument made incontestable against third parties by registration, the death of a signatory or recording in an authentic instrument. It is decisive because the creditors' representative, a third party to the assignment, may challenge a date that the assignee cannot establish. Without a certain date, an ordinary-law assignment risks being held unenforceable or being attached to the suspect period.

How far back can the court put the date of cessation of payments?

Under Article L. 631-8 of the French Commercial Code, the court may put back the date of cessation of payments up to eighteen months before the opening judgment. This retroactive shift may throw into the suspect period assignments made well before the assignor's apparent default. The financier must therefore reason in light of this possibility and not merely of the opening date.

Does a Dailly assignment by way of security really transfer ownership of the claim?

Yes. Article L. 313-24 of the French Monetary and Financial Code provides that the assignment, even if made by way of security and without a price being stipulated, transfers ownership of the assigned claim to the assignee. The claim leaves the assignor's assets from the date of the slip, which in principle protects it from the common pledge in collective insolvency proceedings, subject to the nullities of the suspect period.

Can a supplier that is not a financier use the Dailly assignment?

No. The Dailly assignment is reserved, as assignees, to credit institutions, finance companies and alternative investment funds designated by Article L. 313-23 of the French Monetary and Financial Code. A supplier or a creditor that is not a financier must use the ordinary-law assignment of receivables governed by Articles 1321 et seq. of the French Civil Code, with the requirements of proof of the date that go with it.

How can the bank's ranking be protected in practice before a client default?

Three reflexes are called for. Ensure an incontestable date of enforceability, by a dated slip under Dailly or by a certain date under the ordinary law. Notify the assigned debtor to prevent any payment to the assignor. Finally, coordinate the granting of the credit and the assignment by way of security in the same timeframe in order to rebut the charge of security taken for a prior debt. These checks must be carried out before any disbursement, and not at the time of the litigation.