## Facts

- On October 1, 2004, several investors formed SARL Black Clover to operate a pub.
- In December 2004, Black Clover entered into a commercial lease with SCI Roussy (Roussy) for premises intended to house the pub, at a monthly rent of €3,100 excluding tax.
- The lease provided that, at the end of the lease, Black Clover would leave to Roussy—without compensation—any works of fitting-out, improvement, modification, or repair, unless Black Clover restored the premises to their original condition at its exclusive expense.
- From October 1, 2004, Black Clover undertook a complete renovation/build-out of the building at its own expense, spending about €358,365.
- During the same period, Black Clover accumulated rent arrears totaling €47,201.56.
- Roussy did not promptly enforce its landlord remedies; it waited for over a year before implementing the lease’s automatic termination clause for nonpayment, doing so in February 2006, when the work was near completion.
- There were personal/corporate links between the entities: one shareholder of Black Clover also held a senior management role at Roussy.
- On September 20, 2006, Black Clover was placed into immediate judicial liquidation, and a liquidator (Roussel, ès qualités) was appointed.
- The liquidator sought to extend the liquidation proceedings (and liability for Black Clover’s debts) to Roussy, alleging confusion of estates shown by abnormal financial flows between the companies, tied to the renovation spending, the rent arrears tolerated by Roussy, and the lease clause allowing Roussy to keep the improvements without paying.
- On January 22, 2008, the trial court rejected the request to extend the liquidation to Roussy.
- On March 19, 2009, the Court of Appeal of Nîmes reversed, found abnormal financial flows characterizing confusion of estates, and extended the liquidation to Roussy.
- Roussy appealed to the Cour de cassation (Commercial Chamber).

## Issues

1. Whether the Court of Appeal could lawfully find “abnormal financial flows” and “confusion of estates” between Black Clover and its landlord, Roussy, based on the tenant’s heavy, unrecovered renovation spending, the landlord’s prolonged tolerance of rent arrears, the timing of termination, and the links between the companies.
2. Whether extension of judicial liquidation on the basis of abnormal financial flows requires proof of a deliberate, repeated intent to impoverish one entity for the benefit of the other.

## Decision

- The Cour de cassation rejected Roussy’s appeal.
- It upheld the Court of Appeal’s ruling extending Black Clover’s judicial liquidation to Roussy on the basis of abnormal financial flows amounting to confusion of estates.
- It declined to require proof of a deliberate plan to impoverish Black Clover as a condition for characterizing abnormal financial flows.

## Legal Principles

- A judicial liquidation may be extended to another legal person when confusion of estates is established, including through abnormal financial flows between the entities.
- Abnormal financial flows may be inferred from the overall pattern of dealings between related entities, including arrangements that transfer significant value from the debtor to the other entity in a manner the court views as abnormal in context.
- A court may characterize financial flows as abnormal without requiring proof of a deliberate, repeated intent to impoverish one entity for the other’s benefit.
- On cassation review, where the appellate court has identified concrete facts supporting confusion of estates and abnormal financial flows, the Cour de cassation will not substitute a different factual assessment.

## Conclusion

The Cour de cassation affirmed extension of Black Clover’s judicial liquidation to SCI Roussy, holding that the appellate court could treat the tenant’s substantial, largely unrecoverable renovation expenditures, the landlord’s long tolerance of rent arrears and late termination timed to capture improvements without payment, and inter-company links as abnormal financial flows evidencing confusion of estates.


Sté Roussy v. Roussel ès Qual, 26 May 2010, F-D No. 09-66.615 (2010)