Buying a distressed business: opportunity or trap

Quick answer. Buying a distressed business in France usually goes through a court-ordered sale plan (article L642-1 of the Commercial Code): you acquire selected assets, not the prior liabilities, and the employment contracts taken over are transferred under article L1224-1. The offer filed with the court is firm and irrevocable. The danger lies in the exact scope and the security interests transferred.

A distressed business can be a genuine opportunity: an order book, a trained team, know-how and clients, at a price disconnected from the value of a healthy asset. It can also become a trap if you take on more burdens than expected, or if profitability never returns. The difference is not luck: it lies in the quality of the diagnosis before committing, and in the legal framework chosen.

At Hayot Expertise, a firm registered with the Ordre des experts-comptables of Île-de-France, we support buyers on this type of transaction. This article explains what you actually acquire, what you do not, and the tax and employment points to scope before submitting an offer.

Everything starts with a distinction that changes the whole picture: are you buying a target in insolvency proceedings (safeguard, receivership, liquidation) or a healthy target outside any proceedings? The rules on transferring debts differ.

• Outside insolvency proceedings: you buy a business goodwill or the shares of a company that is not before the court. Liabilities follow, and the buyer's tax solidarity may apply (article 1684 of the French Tax Code).
• Within insolvency proceedings: the sale is ordered by the court. This is the sale plan of article L642-1 of the Commercial Code. You acquire assets, in principle without the prior liabilities.

This guide focuses on the second route. For a healthy target, see instead buying a business goodwill, and for a symbolic-price purchase, buying a company for one symbolic euro.

Where recovery of the business is not possible or not sufficient, the court may order the total or partial sale of the business. The objective set by article L642-1 of the Commercial Code is threefold: maintain activities capable of autonomous operation, preserve all or part of the related jobs, and clear the liabilities.

The sale takes place within receivership or judicial liquidation, what practitioners call a sale before the court. The process is structured and fast.

1. The court finds that a sale is feasible and sets a deadline for filing takeover offers (article L642-2).
2. You build your offer: assets, rights and contracts included, business and financing forecasts, employment level and outlook, guarantees provided.
3. You file the offer within the deadline. Caution: once filed, it is firm and may not be withdrawn or amended unfavourably.
4. The court reviews the offers and approves the sale plan in favour of the selected buyer.
5. The sale is finalised and operations continue under your management.

Our reading. The firm and irrevocable nature of the offer is what buyers most underestimate. You commit to a price and a scope before having time for a full audit, within a constrained timetable. All the protective work must therefore be done upstream, quickly and well, from the information available through the court-appointed administrator.

The core principle is the most reassuring: in a sale plan, the buyer acquires assets (property, rights, contracts) and does not take on the prior liabilities of the debtor. Prior claims, including tax and social security claims, are in principle not transferred. This is the opposite of a share purchase, where you inherit the company's past.

But there is a decisive exception, often overlooked.

The underestimated risk: security over the financed asset#

The burden of the special real-estate and movable security interests guaranteeing the repayment of a loan granted to finance the encumbered asset is transferred to the buyer (article L642-12, paragraph 4 of the Commercial Code). In concrete terms: if a machine, a vehicle or premises were bought on credit with security over that asset, and you take over the asset, you also take on the obligation to pay the remaining loan attached.

This is what can turn a good deal into a bad surprise. Before pricing your offer, you must identify precisely which assets are encumbered and for what outstanding amount. A accounting diagnosis of the target on the scope acquired is essential here.

The contrast to know: goodwill tax solidarity (outside the plan)#

To measure the advantage of the sale plan, compare it with a goodwill purchase outside proceedings. Article 1684 of the French Tax Code then makes the buyer jointly liable with the seller for the payment of income or corporate tax on profits and the share of local business tax due for the year of the sale and the previous year. This solidarity is capped at the price of the goodwill.

The solidarity period runs for 90 days from the seller's filing of the results declaration; it is reduced to 30 days where the seller is up to date with its filing and payment obligations on the last day of the month preceding the sale. Escrowing the price clears this risk. In a court-ordered sale plan, this mechanism does not apply: prior tax liabilities are in principle not transferred. This is a real advantage, but it must be secured case by case with a framing of the tax risks of the transaction.

The employment contracts of employees assigned to the transferred activity are automatically transferred to the buyer under article L1224-1 of the French Labour Code. You therefore take on the contracts, the seniority and the related obligations, for the scope acquired.

The sale plan may provide for redundancies for the jobs not taken over; the ruling approving the plan states the number of redundancies authorised. Salary claims and termination indemnities are guaranteed by the AGS (the body managing the wage-claims guarantee scheme), within statutory limits: salary arrears, paid leave, notice, severance, subject to ceilings. The applicable AGS ceiling for 2026 is indexed to the social security ceiling and must be verified at the time of the transaction.

2026 points to watch. Post-acquisition social costs are rarely well estimated. A transferred team arrives with its seniority, any collective agreements and, sometimes, a tense social climate caused by the proceedings. Budget for any terminations, but also for the investment needed to re-engage those you keep. This is often where the success of the turnaround is decided.

Assessing a healthy business and a distressed one do not follow the same logic. On a fragile target, the question is not "what is the past worth" but "what will the turnaround cost, and is it achievable". Before taking over a target, learn to spot the warning signs that distinguish a temporary difficulty from a structural decline.

In practice, a tight acquisition audit, run alongside building the offer, must answer three questions: what will I pay, what will I then have to finance, and does the operating plan hold up. A management tool such as Pennylane then helps track cash closely in the first months, the riskiest period.

A common case#

Recently, an SME director asked us to take over, through a sale plan, the activity of a competitor in receivership. The offer was attractive: a modest price and a promising order book. Analysis of the scope revealed that a core fleet of equipment was encumbered by a loan to be taken over under article L642-12, and that the start-up working capital need doubled the real cost of the transaction. This did not mean walking away: it meant adjusting the offer amount and the financing plan so that the takeover stayed viable.

Buying through a dedicated company (often a holding company) or in your own name does not have the same consequences for liability, taxation and financing. The choice of acquiring structure is decided together with the financing plan and the wealth project. If you hesitate between structuring the acquisition through a company or in your own name, decide before filing the offer: changing structure afterwards is rarely neutral.

If the target includes real estate, two parameters deserve attention. On an individual's real-estate capital gain (property held directly or through a non-trading property company taxed on income), social levies amount to 17.2% in 2026. And an acquisition through shares of such a company triggers registration duties of 5% (article 726, I, 2° of the French Tax Code). These elements weigh on the architecture of the transaction and must be anticipated.

What the tax authorities look at. The price retained, the consistency between the price paid and the value of the assets acquired, and the tax treatment of the items transferred. A well-documented transaction, with a reasoned valuation of the scope and a written framing, reduces the risk of later discussion. Our accounts presentation engagement, conducted under professional standard NP 2300 and concluded by an attestation, contributes to this traceability.