1. The role of personal guarantees in debt recovery under French law
Personal guarantees occupy a central place in French debt enforcement practice. For creditors, particularly in cross-border situations involving foreign lenders or suppliers, a guarantee granted by an individual or a related company often appears to be the most direct way to mitigate insolvency risk. In theory, a personal guarantee allows the creditor to pursue a solvent third party if the principal debtor defaults. In practice, however, French law strictly regulates such guarantees, and courts scrutinise them closely.
This scrutiny is not marginal. A significant proportion of guarantees invoked in litigation are either declared void, partially unenforceable, or reduced in scope. This is particularly true when the guarantor is a natural person, a company director, or a corporate entity whose internal rules or statutory prohibitions have been disregarded. From a debt recovery perspective, this means that a guarantee that appears solid at the contractual stage may collapse when enforcement becomes necessary.
Understanding the legal nature of guarantees in French law, and the limits imposed by statute and case law, is therefore essential for any creditor seeking effective recovery.
2. Legal definition and classification of guarantees
Under French law, a personal guarantee (cautionnement) is defined as a contract by which a guarantor undertakes to perform the debtor’s obligation if the debtor fails to do so. This definition is now codified in Article 2288 of the Civil Code, as restructured by the reform of 15 September 2021, which entered into force on 1 January 2022.
French law distinguishes personal guarantees from real securities. A mortgage or a pledge affects a specific asset, whereas a personal guarantee exposes the guarantor’s entire patrimony, subject to statutory protections. This distinction is fundamental in enforcement proceedings. A creditor holding only a personal guarantee bears the risk of the guarantor’s insolvency and the legal defences available to that guarantor.
Guarantees may be granted by natural persons or legal entities. This distinction has major consequences. While individuals benefit from extensive protective rules, companies are subject to a different set of constraints, particularly those arising from corporate law and the concept of corporate interest.
3. Guarantees granted by individuals: a heavily regulated instrument
3.1 Proportionality of the commitment
One of the cornerstones of modern French guarantee law is proportionality. Article 2300 of the Civil Code provides that a guarantee granted by a natural person must not be manifestly disproportionate to the guarantor’s assets and income at the time the guarantee is granted. If such disproportion exists, the guarantee is not entirely void but is reduced to the amount that the guarantor could reasonably have undertaken.
This rule applies regardless of whether the guarantor is a company director or a private individual. French courts have repeatedly confirmed that even experienced businesspersons are entitled to invoke disproportionality. The creditor, particularly if considered a professional creditor, bears a significant risk if it fails to assess the guarantor’s financial situation adequately.
Case law shows that courts examine the guarantor’s global indebtedness, including existing guarantees, loans, and contingent liabilities. Expected future income, business prospects, or hoped-for dividends from the debtor company are generally excluded from the assessment. The Court of Cassation has consistently held that speculative future gains cannot justify a heavy guarantee commitment.
3.2 Duty to warn and creditor liability
In addition to proportionality, professional creditors owe a duty to warn guarantors. This duty applies to natural persons and concerns the risks inherent in the guaranteed transaction. Since the 2021 reform, this duty has been codified in Article 2299 of the Civil Code.
Failure to comply does not invalidate the guarantee but exposes the creditor to a reduction of its claim corresponding to the harm suffered by the guarantor. In practice, this often results in partial discharge of the guarantee obligation. French courts assess whether the guarantor was sufficiently informed of the debtor’s financial situation and the likelihood of default at the time of signature.
This duty is particularly relevant in cases involving foreign creditors unfamiliar with French standards. Reliance on generic contractual language or formal declarations of awareness is rarely sufficient.
3.3 Formal requirements and nullity risks
Guarantees granted by individuals are subject to strict formal requirements. Although the reform has simplified handwritten statements, Article 2297 of the Civil Code still requires a clear and explicit acknowledgment by the guarantor of the nature and extent of the commitment, including the maximum amount secured.
Courts continue to annul guarantees for defects that may appear minor from a common-law perspective, such as ambiguity in the identification of the debtor, inconsistencies between figures and words, or improper placement of the guarantor’s signature. From an enforcement standpoint, these formal defects are absolute defences and cannot be remedied after the fact.
4. Corporate guarantees: the overlooked risk of nullity – why many guarantees are void in SARL and SA structures?
While guarantees granted by individuals are well known to be risky, creditors often underestimate the fragility of guarantees granted by companies. French corporate law imposes strict limits on a company’s ability to guarantee third-party debts.
The central concept is that of corporate interest. A company may only grant a guarantee if doing so serves its own interest and falls within its corporate purpose. Guarantees that merely benefit a director, a shareholder, or an affiliated entity without adequate consideration are highly vulnerable.
This risk is amplified by specific statutory prohibitions applicable to certain corporate forms, notably SARLs and SAs. In these cases, the guarantee is not merely contestable; it is void by operation of law.
In practice, creditors frequently rely on guarantees granted by companies belonging to the same group as the debtor, or controlled by the same shareholders. From a commercial standpoint, such guarantees appear reassuring. From a legal standpoint, they are among the most fragile instruments in French law.
This fragility stems from mandatory provisions of the French Commercial Code, which impose absolute prohibitions on certain guarantees, regardless of their economic rationale or the parties’ intentions.
5.1 Guarantees prohibited in private limited companies (SARL)
In a SARL, Article L.223-21 of the French Commercial Code strictly prohibits the company from granting guarantees for the personal obligations of certain persons.
The prohibition applies when the SARL guarantees obligations incurred by:
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its managing director(s) (gérant),
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its individual shareholders (associés personnes physiques),
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the spouses, ascendants, or descendants of those persons,
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or any interposed person acting as a proxy.
This prohibition is absolute. Any guarantee granted in violation of Article L.223-21 is null and void, without the need to demonstrate prejudice, abuse, or bad faith.
The rationale is clear. The legislature intends to prevent company assets from being diverted to secure private debts of those who control the company. This protection is structural and cannot be waived.
French courts apply this rule rigorously. Even where the guaranteed debt appears economically linked to the company’s activity, nullity will be upheld if the guarantee secures a personal obligation of a prohibited person.
It is therefore irrelevant that:
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the company indirectly benefited from the transaction,
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the shareholders approved the guarantee,
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the creditor acted in good faith.
Once the prohibition applies, the guarantee is legally non-existent.
From a debt recovery perspective, this point is critical. A creditor holding only such a guarantee will be left unsecured, often years after the contract was signed, when enforcement is attempted.
5.2 Guarantees prohibited in public limited companies (SA)
The same logic applies, with even greater strictness, in public limited companies (SA).
Under Article L.225-43 of the Commercial Code, an SA is prohibited from guaranteeing the obligations of:
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its directors (administrateurs),
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its chief executive officer (directeur général),
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deputy CEOs,
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members of the management board or supervisory board in dual structures,
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and, again, their close relatives and interposed persons.
Here again, the sanction is absolute nullity.
The prohibition extends to guarantees, avals, and any form of personal security. Courts do not inquire into corporate interest or economic justification. The mere fact that the beneficiary of the guarantee falls within the prohibited category is sufficient.
This has direct consequences in litigation. Creditors sometimes attempt to recharacterise the guarantee as a different instrument, or argue that it was granted in the company’s interest. Such arguments are systematically rejected.
The Court of Cassation has repeatedly held that these prohibitions are of public policy and must be applied strictly.
5.3 Authorisation requirements and hidden invalidity risks in SA guarantees
Even where a guarantee is not prohibited per se, SAs are subject to strict governance rules.
Under Articles L.225-35 and L.225-68 of the Commercial Code, guarantees granted by an SA must be authorised in advance by:
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the board of directors, or
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the supervisory board, depending on the governance structure.
This authorisation must:
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specify the maximum amount of the guarantee,
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be limited in time (maximum one year),
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and be granted before the guarantee is executed.
Failure to comply renders the guarantee unenforceable against the company.
From an enforcement standpoint, this creates a significant evidentiary burden. The creditor must be able to prove:
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the existence of a valid board resolution,
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its scope,
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and its temporal validity.
French courts refuse to apply doctrines such as apparent authority in this context. Creditors are deemed to know the statutory limits on corporate powers and cannot rely on the mere signature of a company officer.
6. Guarantees granted by SAS: flexibility does not mean safety
The SAS is often perceived as more flexible. This is true from a contractual perspective, but misleading from an enforcement perspective.
Unlike SARLs and SAs, SAS law does not contain a general statutory prohibition on guarantees granted to directors or shareholders. However, this does not mean that such guarantees are automatically valid.
Two major constraints remain.
First, the guarantee must comply with the corporate interest of the SAS. A guarantee that exposes the company to disproportionate risk without sufficient consideration may be challenged as contrary to its interest.
Second, the guarantee must respect the internal allocation of powers defined in the articles of association. Many SAS statutes require prior approval by shareholders or a specific corporate body. A guarantee granted in breach of these rules may be unenforceable.
Case law confirms that third parties may still rely on a guarantee signed by the president of an SAS unless they knew, or could not have ignored, that the act exceeded corporate powers (Article L.227-6 of the Commercial Code). This introduces uncertainty and litigation risk, particularly where group structures are involved.
7. Guarantees and insolvency proceedings: diminished value at the enforcement stage
Even a valid guarantee may lose much of its effectiveness once insolvency proceedings are opened against the debtor.
French insolvency law provides several mechanisms that indirectly protect guarantors, particularly natural persons.
Notably:
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during safeguard and reorganisation proceedings, enforcement actions against individual guarantors are temporarily suspended,
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interest may cease to accrue in certain circumstances,
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guarantors may benefit from payment plans approved in favour of the debtor.
Moreover, guarantees granted after the opening of insolvency proceedings to secure pre-existing debts are generally null, unless a specific benefit is granted in return.
From a recovery standpoint, this means that timing is critical. Delays in enforcement can significantly erode the value of the guarantee.
8. When guarantees fail because of the creditor: loss of rights, subrogation, and procedural errors
Even where a guarantee is valid in principle, its effectiveness at the enforcement stage depends heavily on the creditor’s own conduct. French law is particularly strict when it comes to the preservation of securities and the protection of guarantors’ subrogation rights.
8.1 Loss of subrogation as a ground for discharge of the guarantor
Under Article 2314 of the French Civil Code, a guarantor is discharged, in whole or in part, when the creditor’s actions have deprived the guarantor of subrogation into the creditor’s rights.
This rule applies irrespective of the guarantor’s good or bad faith and does not require proof of intent on the part of the creditor. It is sufficient to establish that, through negligence or omission, the creditor caused the guarantor to lose a security that could have been exercised against the principal debtor.
Typical situations include:
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failure to register or renew a pledge or mortgage;
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loss of priority due to delayed registration;
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acceptance of partial payment without reserving rights against the guarantor;
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waiver of security without the guarantor’s consent.
French courts apply Article 2314 rigorously. The creditor bears the burden of proving that the lost security would not, in any event, have benefited the guarantor. This burden is often difficult to meet, particularly once insolvency proceedings are opened.
From a debt recovery perspective, this is a recurring pitfall. Guarantees are often viewed as autonomous instruments, whereas French law treats them as closely linked to the creditor’s overall security package.
8.2 Modification of the principal obligation without guarantor consent
Another frequent source of invalidation lies in the modification of the underlying obligation.
Where the creditor and the principal debtor amend the contract in a manner that increases the guarantor’s exposure, the guarantee may become unenforceable unless the guarantor has expressly consented to the modification.
This applies in particular to:
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extensions of maturity;
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increases in credit limits;
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conversion of short-term debt into long-term obligations;
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changes affecting interest or penalty clauses.
French courts distinguish between mere extensions, which may be tolerated in limited circumstances, and substantive alterations that aggravate the guarantor’s risk. In the latter case, the guarantee cannot be enforced beyond the original scope.
For foreign creditors accustomed to more flexible approaches, this strictness often comes as a surprise.
8.3 Guarantees and proportionality: individual guarantors
When the guarantor is a natural person, French law imposes an additional filter: proportionality.
Article 2300 of the Civil Code allows the guarantor to invoke the manifest disproportionality of the guarantee in relation to their assets and income at the time of commitment. If disproportionality is established, the guarantee is unenforceable, except to the extent that the guarantor’s financial situation has improved by the time enforcement is sought.
This defence is frequently raised in litigation and is examined concretely by the courts. Financial statements, tax returns, and banking records are scrutinised in detail.
From a recovery standpoint, guarantees granted by individuals must therefore be assessed dynamically, not only at signing but also at enforcement.
9. Enforcement reality: guarantees confronted with French insolvency proceedings
9.1 Automatic stays and indirect protection of guarantors
Once insolvency proceedings are opened against the principal debtor, enforcement strategies change fundamentally.
While corporate guarantors are not automatically protected by the stay of proceedings, individual guarantors often benefit indirectly, particularly in safeguard and reorganisation proceedings. Payment schedules approved for the debtor may suspend or limit enforcement actions against guarantors.
Moreover, interest may cease to accrue, and contractual penalty clauses may be neutralised.
This temporal effect is critical. Creditors who delay enforcement frequently find that guarantees which appeared solid on paper have lost much of their practical value.
9.2 Nullity of late securities and suspect-period risks
Guarantees granted during the so-called suspect period preceding insolvency may be challenged and annulled if they secure pre-existing debts.
French insolvency law treats such guarantees as suspect transactions unless a new and equivalent consideration is demonstrated. In practice, this is difficult to establish.
As a result, guarantees negotiated late, often under commercial pressure, are among the first to fall when proceedings are opened.
10. Auditing guarantees before litigation: a methodological necessity
For any serious recovery action in France, guarantees must be audited before litigation is initiated.
This audit should address, in sequence:
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the corporate capacity of the guarantor (SARL, SA, SAS);
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statutory prohibitions or authorisation requirements;
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internal governance compliance;
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preservation of subrogation rights;
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proportionality and personal defences;
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insolvency-related risks.
Skipping this step exposes the creditor to strategic blind spots. Litigation based on a defective guarantee often strengthens the debtor’s position rather than weakening it.
For foreign creditors, this audit is particularly important, as assumptions based on common-law concepts of guarantees frequently do not translate into French law.
11. Strategic implications for foreign creditors litigating in France
Foreign creditors often approach French enforcement with a strong documentary file but insufficient anticipation of French mandatory rules.
Several recurring patterns can be observed:
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reliance on group guarantees prohibited by French corporate law;
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underestimation of the effect of insolvency proceedings on enforcement timing;
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overconfidence in board approvals that do not meet French formal requirements;
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delayed action leading to loss of securities or dilution of guarantees.
An effective French litigation strategy therefore requires early legal intervention, not merely at the enforcement stage but at the first signs of default.
12. Conclusion: guarantees as part of a recovery architecture, not a standalone solution
Under French law, guarantees are not self-sufficient instruments. Their effectiveness depends on corporate form, statutory prohibitions, procedural discipline, and timing.
For creditors operating internationally, this means that guarantees must be integrated into a broader recovery architecture, combining contractual foresight, early litigation leverage, and insolvency awareness.
This is precisely where a lawyer-led debt recovery approach in France becomes decisive. Guarantees that are analysed, preserved, and enforced within the constraints of French law can remain powerful tools. Those that are treated as mere formalities frequently collapse when tested before French courts.
