Liability for asset shortfall
The liquidator's action against a de jure or de facto director whose mismanagement contributed to the liquidation shortfall, the textbook French Side A claim.
Liability for asset shortfall is the action brought against a de jure or de facto director whose mismanagement contributed to the liquidation shortfall. It rests on Article L. 651-2 of the French Commercial Code, which covers the case where the judicial liquidation of a legal entity reveals an asset shortfall. The court may then charge all or part of that shortfall to the de jure or de facto directors whose mismanagement contributed to it. Practitioners still call it the action en comblement de passif, its old name. The liquidator brings it, so can the public prosecutor, and so can a majority of the controlling creditors if the liquidator does nothing after formal notice. It is time-barred three years after the judgment opening the liquidation. The Sapin 2 law of December 9, 2016 added a sentence that changed how these cases run: in a case of mere negligence in management, the director can no longer be held liable. The fight now turns on the line between negligence and characterized fault, and a late filing of insolvency is no longer held against the director as a matter of course. Amounts paid go into the debtor's estate and are shared among all creditors. For D&O (directors and officers) cover, it is the Side A claim par excellence: the liquidated company indemnifies nobody, and the director has only the policy. It often lands after cancellation or expiry, hence the weight of the extended reporting period and of run-off. The underwriter reads the policyholder's financial condition as closely as its governance.
Textbook case: an industrial SME (small or medium-sized enterprise) goes into judicial liquidation with 6 million euros of liabilities against 1.5 million of assets. In this example, the liquidator sues the chairman and a shareholder who signed purchase orders without any mandate, alleging two years of continued loss-making trading. The company can advance nothing: both men's defense costs go through Side A, and the shareholder is covered only if the definition of insured reaches the de facto director.
asset shortfall liability, shortfall action, French wrongful trading, liability for insufficiency of assets
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