Rescission of an extension to a mortgage granted by the insolvent company securing a preexisting debt of a company of its group

The insolvency administrator filed an insolvency reintegration action to rescind a transaction extending a mortgage the insolvent company had granted to secure a debt of a company of its same group. The original mortgage guarantee was not subject to the rescission action because it had been granted prior to the two-year period before the declaration of insolvency established under article 71 of the Insolvency Act. The commercial judge declared the mortgage extension to be rescinded. The provincial court of appeal confirmed the first-instance judgment. The company benefiting from the guarantee filed an appeal with the Supreme Court alleging that the insolvent company (non-debtor mortgagor) had received indirect benefit because it belonged to the same group as the debtor. The Supreme Court set aside the appeal.

The significance of this judgment is that the Supreme Court, based on the doctrine of its judgment of April 30, 2014 (concluding that the simultaneous or contextual guarantee granted with the concession of the credit in favor of a company of the group is for value, unless proven otherwise6), believed that this case was different because  no corresponding provision existed in favor of the mortgagor. No contextual situation or simultaneity of acts or agreements existed enabling the transaction to be classified as being for value. In this case, Supreme Court considered that, as the non-debtor mortgagor received nothing in exchange, the transaction of extending the mortgage was an act of disposal free of charge. Moreover, the guarantee was provided over preexisting obligations. It was a mortgage for the recognition of debt and extension of mortgage guarantee; it did not secure, for example, obligations of future supply. Consequently, the guarantee was to be rescinded, either because the circumstance existed of article 71.2 of the Insolvency Act,7 on being a guarantee free of charge, or because it was a question of securing preexisting obligations without the presumption of prejudice having been destroyed (art. 71.3.2 of the Insolvency Act8).