Challenging the draft distribution plan: the 15 days of the registered creditor

A registered creditor who receives the draft distribution plan has fifteen days. Once that period has passed, its rank is fixed, its amount is settled, and the only remaining route is to challenge before the enforcement judge (juge de l'exécution) a distribution that has become final, which is no longer possible. At a time when business failures remain at a high level and court-ordered sales often conclude at prices below the secured outstanding amount, the gap between the debt declared and the sum actually received is decided within those fifteen days and by the quality of the statement of account produced beforehand. This analysis covers the starting point and form of the time limit, the grounds for challenge that are genuinely effective, the ranking rules applicable since the reform of security law, the treatment of co-ownership charges and privileged legal costs, and the switch to judicial distribution.

Where the draft distribution plan falls in the chronology of a real property seizure

The procedure for distributing the price in a real property seizure (saisie immobilière) is the last phase of Book III of the Code of Civil Enforcement Procedures (code des procédures civiles d'exécution, CPCE), governed by Articles L. 331-1 et seq. and R. 331-1 et seq. It opens only once the price is available: the successful bidder must deposit the price with the Caisse des dépôts et consignations within two months of the sale becoming final, failing which the auction is re-run. In the case of a consensual sale authorised by the court, it is the deposit of the price that sets the same mechanism in motion.

The legislature established a principle of consensual distribution. Where several creditors compete, the enforcing creditor, through its lawyer, prepares a draft distribution plan within two months of the payment or deposit of the price. This draft is not a judicial act: it is a proposal for distribution, prepared by one party, which becomes enforceable against all by virtue of the silence of the others. This structure deserves to be understood for what it is. The enforcing creditor builds the ranking, includes its own costs in it, and fixes the amount allowed to each creditor, while the other creditors bear the burden of challenging it.

If the enforcing creditor fails to act within the time allowed, any creditor taking part in the distribution, like the debtor, may apply to the enforcement judge to be authorised to do so or to have judicial distribution ordered. This option is under-used. Yet it is of direct interest to a creditor of useful rank: as long as the draft has not been prepared, the funds remain on deposit and the debt continues to accrue without recovery.

Consensual distribution and judicial distribution

The distinction is not theoretical. Consensual distribution rests on a notified draft, a period of fifteen days, and tacit acceptance. Judicial distribution, governed by Articles R. 333-1 et seq. of the CPCE, requires an application to the enforcement judge, the summoning of the parties, an adversarial debate on the ranking and a judgment fixing the distribution. The move from one to the other is precisely what a challenge to the draft distribution plan triggers. A creditor who challenges does not merely obtain examination of its complaint: it moves the entire distribution into a judicial framework, with the additional delay that this entails.

The fifteen days: starting point, form and sanction

The draft is notified to the creditors taking part in the distribution and served on the debtor whose property is seized. Notification is made by an act served from lawyer to lawyer where the party is represented, and by an act of a commissaire de justice (bailiff) otherwise. The fifteen-day period runs from that notification or service, and not from the date on which the draft was prepared, nor from the date on which the creditor learned of it through another channel.

The notification must state, on pain of nullity, the time limit for challenge, the manner in which a challenge must be made, and the statement that failing a challenge the draft will be deemed accepted. These statements are the first thing to check on receipt. A notification that omits any of them is irregular and may be set aside under the regime for formal defects in Article 114 of the French Code of Civil Procedure, provided that prejudice is shown, which is easily done where the missing statement is that of the time limit. A void act does not start the period running.

The form of the challenge

The challenge is addressed to the enforcing creditor and served on the other parties to the distribution. This twofold step is essential: a challenge addressed only to the enforcing creditor, without service on the other ranked creditors whose rank is disputed, is liable to be declared inadmissible. It must state its grounds. A general challenge in the form of a reservation of rights does not usefully bring anything before anyone and does not allow the enforcing creditor to correct its draft.

In practice, an institutional creditor should attach to its challenge the documents on which it is based: an up-to-date mortgage record, a copy of the deed creating the security and of its registration form, a detailed statement of account distinguishing principal, interest accrued by period, early repayment indemnity and ancillary sums, and supporting documents for the costs claimed as privileged. A challenge that merely asserts a rank without producing the registration on which it rests will be dismissed at the judicial stage.

Silence amounts to acceptance

If there is no challenge within the time limit, the draft is deemed accepted. The enforcing creditor may then proceed to payment, receipts are issued and the registrations are cancelled. A creditor ranked for an amount lower than its actual debt, or at a lower rank than it was entitled to, no longer has any useful remedy against the distribution. It keeps its claim for the balance, which has become unsecured after the security has been extinguished by the effect of the court-ordered sale, that is, in the great majority of cases, a claim with no recovery value.

This point calls for an internal organisational rule for lenders and institutional creditors: the draft distribution plan must never enter a standard processing channel. It requires short-deadline, documented handling, with a review of the proposed ranking and not a mere check of the amount allocated.

The grounds for challenge that are genuinely effective

Not all complaints are equal, and the distribution stage does not reopen what was definitively decided earlier.

What can no longer be discussed

Article R. 311-5 of the CPCE requires challenges to be concentrated before the orientation hearing (audience d'orientation), on pain of inadmissibility raised by the court of its own motion, unless the challenge concerns later acts. The draft distribution plan is therefore not a catch-up session. The regularity of the payment order constituting seizure (commandement de payer valant saisie), the enforcing creditor's enforceable title, the validity of the seizure itself, the amount of the enforcing creditor's claim as accepted in the orientation judgment, all of this lies outside the scope of a challenge to the draft distribution plan. A creditor who did not appear at the orientation hearing, or who did not declare its claim within two months of the summons served on it, faces forfeiture of the benefit of its security for the distribution, unless relief from forfeiture is granted where it shows that the default is not attributable to it. The sequence of these acts, from the payment order to the orientation hearing, is set out in our article on the timetable of the enforcing creditor in a real property seizure.

Rank

This is the central ground. The ranking of registered creditors proposed by the enforcing creditor results from a reading of the mortgage record that is sometimes hasty and sometimes slanted. The classic complaints concern the registration date used, the taking into account of a registration that has lapsed for want of renewal, the scope of a contractual or statutory subrogation not reflected in the ranking, the effect of a partial release, or the characterisation of a statutory security converted by the reform of security law. In a case where the price does not cover the outstanding amount, each place gained in the order is worth the entire recovery.

The amount and the interest

Article 2432 of the French Civil Code limits the benefit of mortgage rank, for a creditor registered for a principal sum bearing interest, to three years of interest only at the same rank as the principal. The surplus interest has the benefit of rank only if it has been the subject of a supplementary registration taking rank on its date. In older cases, where the payment order was published several years after acceleration of the debt, this rule produces a considerable gap between the debt declared and the debt ranked at mortgage rank. A draft that ranks all accrued interest without distinction at the rank of the principal can be challenged. Conversely, a creditor who suffers this limitation must check that the balance of interest is indeed taken up as an unsecured claim against any surplus.

The following must also be checked: the base of the security where the seizure covers only certain lots, the allocation of payments made since the declaration of the claim, which as a rule is allocated to interest before principal, and the position of contractual penalties and indemnities, whose coverage by the registration depends on the terms of the registration form.

Ranking: a practical reading of the order of creditors

Legal costs and enforcement costs

Legal costs have the benefit of a general privilege that is also exercised over real property, in the order set by Articles 2376 and 2377 of the French Civil Code in the wording resulting from Ordinance No. 2021-1192 of 15 September 2021. They must still be correctly characterised. Only costs incurred in the common interest of the creditors, for the realisation of the property and the distribution of the price, fall within this privilege. A creditor's personal costs, incurred to defend its own claim alone, do not fall within it and remain unsecured.

These privileged legal costs must be distinguished from the enforcement costs taxed by the judge, which as a rule are borne by the successful bidder in addition to the sale price. This distinction has a direct consequence for the sum to be distributed: a draft that deducts from the price costs that should have been charged to the successful bidder unduly reduces what is due to the ranked creditors. The "costs" line of a draft distribution plan therefore deserves an item-by-item examination, and not acceptance as a matter of course.

Contractual mortgages and special statutory mortgages

The Ordinance of 15 September 2021, which entered into force on 1 January 2022, abolished the special real property privileges and converted them into special statutory mortgages, now listed in Article 2402 of the French Civil Code. The change is structural: these securities no longer take effect retroactively to the date of the act that gave rise to them, but take rank on the date of their registration, like any mortgage. Securities created before the entry into force of the text remain governed by the earlier law, which, in cases involving old outstanding amounts, requires a reading under two regimes.

For the lender, the operational consequence is twofold. First, a statutory mortgage registered late no longer takes priority over an earlier contractual registration. Second, a draft distribution plan that ranked such a security according to the old logic of the retroactive privilege makes an error of law that justifies a challenge.

Co-ownership charges claims

The co-ownership association (syndicat des copropriétaires) is, in many seizures of lots, the most active creditor after the lender. Its claim for charges, based on Articles 10 and 14-1 of Law No. 65-557 of 10 July 1965, has the benefit of the security provided for in Article 19-1 of that Law, today a special statutory mortgage subject to the ordinary rules of registration. In other words, an association that has not registered appears as an unsecured creditor and, in a case where the price does not cover the first mortgage rank, receives nothing. The registration and rank of this security are detailed in our article on the special statutory mortgage of the co-ownership association.

Two points of friction recur systematically in challenges to the draft distribution plan. The first concerns the period covered: charges after the transfer of ownership fall on the successful bidder and have no place in the distribution of the price. The second concerns the temptation to recharacterise charges, in particular calls for funds for works, as costs of preserving the building falling within the privilege for legal costs, on the ground that they benefited all the creditors. The courts assess strictly the useful and common nature of the expenditure, and this recharacterisation is likely to succeed only for expenditure closely linked to the physical preservation of the seized property.

For the institutional landlord or the association in the position of creditor, the reading must be reversed: effective recovery from the sale price depends on a registration made in good time and on a declaration of claim made within the time allowed by the summons, well before the question of a challenge arises.

Unsecured creditors and the balance

Registered creditors or those holding security are paid in the order of their ranks. Unsecured creditors who have properly declared their claim are paid only from the surplus, and pro rata (au marc l'euro). Any balance goes to the debtor whose property was seized, subject to seizures or oppositions made in the hands of the depositary. In practice, in cases of over-financed or depreciated buildings, the price is absorbed before the mortgage ranks are even exhausted, which explains the virulence of challenges to the ranking of the first ranks.

Application to the enforcement judge and the cost of time

A challenge made within the time limit does not automatically bring the matter before the judge. It first opens a phase in which rectification is possible: the enforcing creditor may amend its draft and obtain the agreement of the parties. Failing agreement, the matter is brought before the enforcement judge and the distribution continues in the judicial form of Articles R. 333-1 et seq. of the CPCE. The judge's jurisdiction is exclusive: no other court may hear the ranking of the price of a building sold on seizure.

The judgment ruling on the challenges and fixing the distribution may be appealed within fifteen days of its notification, in accordance with Article R. 311-7 of the CPCE, before the court of appeal ruling under the fixed-date procedure (procédure à jour fixe). This period also runs, and it is common for a creditor who gained fifteen days at the draft stage to lose the benefit of its position for want of appealing within the same period.

Time has a cost. For the whole duration of the challenge, the funds remain on deposit. The remuneration on sums on deposit bears no relation to the contractual rate of the secured claim, and the claim continues to bear interest which, for the most part, will not be ranked at mortgage rank because of the three-year limitation. The trade-off is therefore economic as much as legal: a challenge concerning a few basis points of wrongly allocated costs does not justify delaying by several months a distribution involving a significant principal sum. A challenge concerning the order of the first two ranks, by contrast, is almost always justified.

Preparing for the distribution before notification, not after

A challenge to the draft distribution plan is a matter of verification, not of construction. What is won in fifteen days was prepared much earlier. Four steps determine effective recovery.

• Check, as soon as the payment order constituting seizure is published, that the creditor's registration is valid and, failing that, renew it before it lapses.
• Declare the claim within two months of the summons, with a statement of account distinguishing principal, interest by annual period, ancillary sums and costs, and update that declaration until the sale.
• Appear at the orientation hearing and raise at that stage all challenges relating to the procedure, which will be inadmissible afterwards.
• Document the justification for the privileged nature of the costs claimed, distinguishing what was incurred in the common interest from what relates to the defence of an individual position.

A creditor who has completed these four steps receives the draft distribution plan with the documents needed to challenge it within a few days. A creditor who has neglected them discovers on receipt that it has neither the time nor the supporting documents to usefully contest the ranking of the registered creditors.

The case of collective proceedings against the debtor

The opening of collective proceedings before the sale alters the framework. The stay of individual actions under Article L. 622-21 of the French Commercial Code paralyses the seizure, subject to exceptions relating in particular to continuation of the procedure authorised by the supervising judge (juge-commissaire) in judicial liquidation. Realisation of the building then falls to the liquidator, and distribution of the price follows the order provided for in Article L. 643-8 of the French Commercial Code, which brings in the super-privilege for wages, subsequent legal costs, the conciliation privilege of Article L. 611-11 and the privileged post-commencement claims of Article L. 622-17. On the rank of the provider of new money, see our analysis of the conciliation privilege under Article L. 611-11 of the French Commercial Code.

For the mortgage creditor, the difference is substantial: its nominal rank on the mortgage record no longer alone determines its recovery, because claims unrelated to it come in between. The opening of collective proceedings during the distribution must therefore be actively monitored, and not only at the time the draft is received. This is one of the rare cases where a well-informed creditor has an interest in speeding up the distribution rather than challenging it.

Conclusion

The fifteen-day period opened to the registered creditor by notification of the draft distribution plan is not a period for reflection, it is a time bar (forclusion) that definitively fixes a rank and an amount. Practice shows that most recovery losses in real property seizures do not come from the inadequacy of the sale price, which is known in advance, but from two avoidable failings: a declaration of claim that is imprecise as to the breakdown of principal, interest and ancillary sums, and tacit acceptance of an erroneous ranking for want of handling the draft within the time limit.

The position we put forward is simple. The draft distribution plan must be audited as an adverse act, because it is one: it is drafted by the lawyer of a party in competition with the others. An institutional creditor should define internally an alert procedure on receipt, with a review period of five working days, covering first the proposed ranking and the costs line, and only then the amount allocated to it. Before any tacit acceptance, have a lawyer other than the enforcing creditor's check the consistency between the mortgage record, the registration form and the rank adopted, as well as the application of the three-year limitation on interest in Article 2432 of the French Civil Code. It is at this stage, and not afterwards, that effective recovery is decided.

Frequently asked questions

What is the starting point of the fifteen-day period for challenging a draft distribution plan? The period runs from notification of the draft to the creditor, by an act served from lawyer to lawyer where it is represented, or from service on the debtor by an act of a commissaire de justice. Neither the date on which the draft was prepared nor any informal knowledge the creditor may have had of it starts the period running. The notification must state the time limit, the manner of challenge and the sanction for silence; a notification lacking these statements is liable to nullity and, if set aside, does not start the period running.

What happens if no creditor challenges within the fifteen days? The draft is deemed accepted by all the parties. The enforcing creditor then pays the ranked creditors, receipts are issued and the mortgage registrations are cancelled, the court-ordered sale having in any event cleared the building of security. A creditor ranked for an insufficient amount keeps its claim for the balance, but as an unsecured claim and without security, which greatly reduces its recovery value.

Can a creditor challenge the enforcing creditor's claim at the distribution stage? No, save for a narrow exception. Article R. 311-5 of the Code of Civil Enforcement Procedures requires challenges to be concentrated before the orientation hearing, on pain of inadmissibility raised by the court of its own motion, and the amount of the enforcing creditor's claim is as a rule fixed by the orientation judgment. Only challenges concerning later acts or facts remain admissible at the distribution stage, which essentially means the proposed ranking, the costs charged against the price and payments made since.

How is the co-ownership association ranked since the reform of security law? Since the entry into force, on 1 January 2022, of Ordinance No. 2021-1192 of 15 September 2021, special real property privileges have been converted into special statutory mortgages listed in Article 2402 of the French Civil Code. The association's security provided for in Article 19-1 of Law No. 65-557 of 10 July 1965 therefore takes rank on the date of its registration, with no retroactive effect to the date on which the charges fell due. Securities created under the earlier law remain governed by the old rules, which requires an analysis by date in cases involving long-standing arrears.

Is all the interest on the mortgage claim ranked at the rank of the principal? No. Article 2432 of the French Civil Code limits to three years of interest the benefit of the rank of the main registration, the surplus taking rank only on the date of a supplementary registration. In cases where several years separate acceleration of the debt from the sale, the gap between the debt declared and the debt ranked at mortgage rank may be considerable. A draft distribution plan that ranks all accrued interest at the rank of the principal can be challenged on that basis.

What costs may legitimately be deducted from the price before the registered creditors? Only legal costs incurred in the common interest of the creditors, for the realisation of the property and the distribution of the price, have the benefit of the general privilege of Articles 2376 and 2377 of the French Civil Code. Enforcement costs taxed by the judge are, as a rule, borne by the successful bidder in addition to the sale price. Costs incurred by a creditor to defend its own position alone remain unsecured and are not to be deducted from the sum to be distributed.

What remedy is there after the enforcement judge's judgment on the distribution? The judgment may be appealed within fifteen days of its notification, in accordance with Article R. 311-7 of the Code of Civil Enforcement Procedures, before the court of appeal seised under the fixed-date procedure. This second fifteen-day period is as strict as the first. It requires that the decision to appeal, and the preparation of the application for authorisation, be settled as soon as the judgment is delivered and not on its notification.