Open only to sole traders, the declaration of unseizability makes real estate that the trader has not used for business purposes unseizable from professional creditors.
The declaration of unseizability system
This declaration is open to any natural person registered in a professional register of legal publicity, i.e. any person registered in the Trade and Companies Register, the Trade Register or the Special Register of Commercial Agents, as well as any entrepreneur exercising an agricultural or self-employed professional activity. This includes traders, artisans, commercial agents, farmers and the self-employed.
Only real estate that is not allocated to the declarant's professional use can be the subject of this declaration and become exempt from seizure. In this way, entrepreneurs will be able to protect all their real estate assets for private use, regardless of whether the properties are built or unbuilt, or whether they are used for rental purposes or as their main residence.
In accordance with the provisions of article L. 526-2 of the French Commercial Code, the declaration of unseizability must be a notarial deed, failing which it is null and void. It must then be published in the mortgage office and then in the professional legal publicity register in which the declarant is registered.
This publication is essential. It must enable creditors to know whether an element of their debtor's assets can be used as security or whether it is protected from seizure.
Once published, the declaration of unseizability only has effect in relation to creditors whose claims have arisen in connection with the declarant's professional activity. Claims that are not related to the declarant's professional activity are not affected by the declaration and may give rise to proceedings against the declarant's assets.
In addition, the declaration is subject to strict formalities and can only be relied on against creditors once the publication formalities have been completed. As a result, creditors whose business claim arose before the declaration of unseizability was published will not be able to enforce it.
Weaknesses of the system
There are a number of shortcomings:
- Firstly, only property rights can be declared exempt from seizure and not shares in non-trading property companies. This means that a sole trader whose assets are grouped together in a non-trading property company cannot benefit from the provisions relating to unseizability, including for his principal residence.
- Secondly, as mentioned above, the declaration can only be relied on against professional creditors after its publication. This means that the declaration must be made at the start of the business. However, very few entrepreneurs have significant property assets at the start of their business.
As a result, the assets acquired by the entrepreneur from the proceeds of his business will not be protected, even if they are subject to a declaration at the time of acquisition, from the entrepreneur's professional creditors whose rights arose prior to the said declaration.
- Banks wishing to have real guarantees can also ask the sole trader to waive the unseizability of the property. Article L. 526-3, paragraph 4, of the Commercial Code allows the entrepreneur to adapt the system by waiving the benefit of unseizability in respect of all or part of the assets initially declared unseizable and in respect of some or all creditors. In this respect, it is to be feared that the existence of such an option could encourage the most powerful creditors, i.e. the banks or the tax authorities, to exert pressure on the entrepreneur. Apart from the fact that this partial waiver will offer a guarantee to these creditors, it will ensure that they are not in competition with other creditors.
- Finally, the main drawback of the declaration of unseizability arises whenliquidation proceedings are initiated against the sole trader: all of the latter's debts will be due and payable, including private debts. This means that the trustee will be able to sell all assets, even real estate that has been declared exempt from seizure, as long as the proceeds from the sale of these assets are used to pay off private debts only (and not business debts). It should also be remembered that income tax, social security contributions (Urssaf), insurance contributions on private property, consumer credit balances, council tax and property tax on private property are all debts that can be paid from property declared exempt from seizure.
So, while at first glance this declaration of unseizability appears effective, in practice it does not work miracles. Clearly, if someone who already owns a number of properties wants to set up on their own and run a new business as a sole trader, they should be advised to declare these assets exempt from seizure, while explaining that it may be difficult to find credit. He may be obliged to waive the benefit of unseizability for certain creditors. What's more, if his business takes off and he buys new property, he will have to go back to a notary to declare it exempt from seizure (each declaration is a new deed), in which case the exemption from seizure will be partial, as it will not be enforceable against previous creditors.