Bankruptcy fraud is a criminal offence defined by Article L654-2 of the French Commercial Code. It penalises fraudulent management practices committed by a company director when the company is subject to insolvency proceedings. Confusing the two can lead to serious legal strategy mistakes.
The mental element of bankruptcy fraud: what actually triggers prosecution
The acts that constitute the offence (misappropriation of assets, fictitious accounting, fraudulent increase in liabilities) are not enough on their own to establish bankruptcy fraud. The public prosecutor must prove that the director acted knowingly—that is, that they knew their actions were worsening the company’s situation.
In practice, this is established through a body of evidence: failure to declare cessation of payments within the statutory 45-day period, personal withdrawals while creditors are no longer being paid, or the maintenance of manifestly incomplete accounts. The criminal court does not simply note an unfavourable outcome. It looks for an intent to cause harm or, at the very least, awareness that the acts were fraudulent.
A director facing restructuring or judicial liquidation proceedings can consult the Banqueroute platform to better understand the scope of this offence and the risks associated with each type of alleged act.
The distinction is crucial: poor management, however disastrous, does not constitute bankruptcy fraud if no fraudulent act is established. Conversely, the director of a small company can be prosecuted for concealing even a small portion of its assets.
Constituent acts and criminal penalties: five cases set out in the Commercial Code
Article L654-2 of the French Commercial Code provides an exhaustive list of the acts that constitute the offence. They are not interchangeable, and each corresponds to specific conduct.
- Misappropriation or concealment of all or part of the debtor’s assets: selling a company asset to a close associate for a nominal price, or transferring funds to a personal account.
- Fraudulent increase in liabilities: acknowledging fictitious debts owed to complicit third parties, or entering into ruinous commitments while knowing the company has ceased making payments.
- Keeping fictitious, incomplete or irregular accounts: failing to maintain mandatory accounting records, or deliberately falsifying accounts to conceal transactions.
- Keeping accounts that are manifestly contrary to the applicable standards: this applies to companies that produce accounts that formally exist but whose contents have been knowingly falsified.
- Failure to declare cessation of payments within 45 days, where this omission is accompanied by one of the other acts listed above.
The penalties can reach five years’ imprisonment and a fine of 75,000 euros. Additional penalties may also be imposed, including a ban on managing a company, loss of civic rights and exclusion from public procurement. The court may also declare the director personally bankrupt.
Preventive procedures to avoid being charged with bankruptcy fraud
Waiting until insolvency proceedings are opened before taking action means losing the most effective options. French law provides confidential procedures that can be used beforehand, provided action is taken before the company ceases making payments or very shortly afterwards.
Ad hoc mandate and conciliation: two different timelines
An ad hoc mandate requires that the company has not yet ceased making payments. The director asks the president of the commercial court to appoint a representative to negotiate directly with creditors. The procedure remains confidential and is not entered in the register.
Conciliation is available if the company ceased making payments less than 45 days ago. The conciliator can do more than simply reschedule debts: they can prepare a partial or full sale of the company, which can then be considered as part of any subsequent insolvency proceedings. Providers of fresh cash benefit from a priority right to repayment in the event of subsequent insolvency proceedings, making it easier to secure emergency funding.
What concretely protects the director
Declaring cessation of payments on time, keeping compliant accounts and avoiding personal withdrawals from company accounts during periods of financial strain are not merely good practices. They mark the line between poor management and a criminal offence.
The temptation to shore up cash flow by improper means—selling assets at a knock-down price or acknowledging fictitious debts—turns an economic difficulty into a criminal offence. Bankruptcy fraud is always established retrospectively, when the judicial administrator or liquidator examines the liabilities.
Bouncing back after insolvency proceedings without risking bankruptcy fraud
A director whose company has been placed into judicial liquidation, with no fraudulent act established, remains free to set up a new company. Liquidation does not automatically result in a ban on managing a company. Only a conviction for bankruptcy fraud or a personal bankruptcy order leads to such a ban.
We have observed that confusion between liquidation and a ban on managing a company holds back many entrepreneurs who could legitimately resume business. Judicial liquidation does not remove the right to start a business, provided the director has not been subject to criminal penalties.
Bouncing back also involves a thorough review of past management mistakes—not from a criminal law perspective, but from an operational one: insufficient initial capital, reliance on a single customer, or chronic invoicing delays. These factors do not constitute bankruptcy fraud, but they explain most cases of cessation of payments.
The legal distinction between poor management and a criminal offence is clear in the legislation. In practice, it becomes less clear as deadlines pile up and decisions are made under pressure. Meeting the filing deadline, keeping rigorous accounts and avoiding personal withdrawals from company accounts during periods of financial strain remain the most effective safeguards against criminal reclassification.
