Where, while enforcement proceedings are under way, the debtor undertakes in writing to discharge his debt in specified instalments, this is termed an undertaking to pay. That declaration, given within the framework of the Enforcement and Bankruptcy Act No. 2004, produces binding consequences for the debtor; and where the undertaking is not complied with, the question of the offence of breaching an undertaking to pay arises.
The matter is regulated in Article 340 of the Enforcement and Bankruptcy Act No. 2004. Where certain conditions come together, it is possible for coercive imprisonment (imprisonment of up to three months) to be applied to the debtor. Not every breach of an undertaking constitutes an offence, however; the undertaking must be legally valid, the breach must rest upon the debtor’s fault, and the complaint procedure must be conducted in due form.
In this briefing note we address the legal nature of the undertaking, the circumstances in which the offence of breach arises, the scope of the sanction and the regime governing complaints, how imprisonment may be avoided and the errors most often repeated in practice, in the light of the legislation and of settled judicial practice.
The Legal Nature of the Undertaking to Pay
Conceptual Framework
An undertaking to pay is the debtor’s assumption, before the enforcement office or in writing in accordance with the procedure prescribed by the statute, of an obligation to pay the debt that is the subject of the enforcement proceedings within the framework of a specified timetable and instalment plan. By its nature it is not a transaction that extinguishes the debt; it is a binding declaration which regulates the terms on which the debt is to be performed and which produces effects for the purposes of enforcement law.
Its Function in Enforcement Law
This institution allows the debt to be restructured consensually within the compulsory enforcement process. While it gives the creditor the possibility of collecting the debt in instalments, it affords the debtor de facto protection in the form of the postponement of attachment and sale. The continuation of that protection is, however, conditional upon compliance with the undertaking.
The Binding Force of the Undertaking
An undertaking to pay given in due form binds the debtor in law. Where the instalments are not paid in full and on time, the offence of breaching an undertaking to pay may arise under Article 340 of the Enforcement and Bankruptcy Act No. 2004 and coercive imprisonment may be ordered against the debtor. For the undertaking to be regarded as valid, on the other hand, the conditions of form and of intent required by the statute must be satisfied in full.
The Requirements of a Valid Undertaking to Pay
Before there can be any question of an offence of breach, there must first be an undertaking that stands in law. The breach of an undertaking that is defective in point of form or content does not constitute an offence. For validity, the following conditions must be satisfied together.
It must have been given within an enforcement file that is in force. The undertaking must without exception be given within pending proceedings. Declarations of payment made outside the file or in the form of a private agreement are not undertakings within the meaning of Art. 340 of the Enforcement and Bankruptcy Act No. 2004; nor does their breach constitute an offence.
It must rest upon the debtor’s free will. The validity of the undertaking depends upon the debtor having made the declaration without being subject to pressure, threat or coercion. An undertaking given where the will is vitiated is invalid and no penalty may be applied on the ground of its breach.
The payment plan must have been clearly determined. The dates of payment, the amounts of the instalments and the plan as a whole must be set out in the undertaking with a clarity that leaves no room for doubt. Plans that are indeterminate, vague or open to interpretation are not regarded as valid undertakings.
The amount of the debt must be determinate. The total of the debt covered by the undertaking must be clearly set out, together with its ancillary items. If the amount is not certain or is not capable of being calculated, there can be no question of a valid undertaking.
It must have been recorded in a minute and signed. The undertaking must be recorded in a minute before the enforcement directorate and signed by the debtor. Declarations that are unsigned, not drawn up in due form or lacking the conditions of form are not accepted as legally valid undertakings.
The Offence of Breaching an Undertaking to Pay (Enforcement and Bankruptcy Act, Art. 340)
Article 340 of the Enforcement and Bankruptcy Act No. 2004 provides that the offence of breaching an undertaking to pay arises where, notwithstanding an undertaking duly given within enforcement proceedings, the debt is not paid in the manner agreed. This offence has the character of a sanction peculiar to enforcement law and directed at securing collection of the debt.
The Legal Nature of the Offence
Breach of an undertaking to pay is not an offence of criminal law in the classical sense; it is a special provision introducing a sanction of disciplinary/coercive imprisonment peculiar to enforcement law. The aim is not to punish the debtor but to secure performance of what the undertaking requires. For that reason the imprisonment ordered cannot be converted into a judicial fine and is not entered on the record.
The Elements of the Offence
For the offence to arise, the following elements must be present together:
- The creditor lodging a complaint within time,
- The existence of a duly given and valid undertaking to pay,
- The breach stemming from the debtor’s fault, that is to say the absence of a justified excuse,
- The instalment or debt set out in the undertaking not being paid on time.
Where one of these elements is missing, the offence of breach does not arise.
The Moments at Which the Breach Occurs
The debtor failing to pay the instalment at all, or paying it in part, notwithstanding the arrival of the date agreed in the undertaking, gives rise to the breach. By contrast, where the failure to pay rests upon force majeure or a justified excuse (serious illness, unforeseeable compelling events and the like), the offence may not arise. The assessment of fault and of the excuse is made separately in each file.
The Effect of Part Payment
Part payment of the instalment undertaken is as a rule regarded as a breach, since the debt must be paid in the manner agreed and in full. Nevertheless, in the practice of the Court of Cassation, extremely small and insignificant shortfalls that demonstrate the debtor’s intention to pay are in some cases kept outside the scope of breach. The general position, even so, is that part payment of an instalment constitutes a breach.
The Requirements for Ordering Coercive Imprisonment
An order for coercive imprisonment against the debtor depends upon the conditions laid down in the statute being satisfied together. In the absence of any one of them, the offence of breach does not arise.
The existence of a valid undertaking. The fundamental basis of the sanction is an undertaking to pay given in due form. Undertakings given outside the enforcement file, failing to meet the conditions of form, in which the amount of the debt or the payment plan remains indeterminate, or which do not rest upon the debtor’s free will, are not valid. The breach of an invalid undertaking does not constitute an offence.
Payment not having been made within time. The instalment not being paid at all, or being paid in part, notwithstanding the passing of the date fixed in the undertaking gives rise to the breach. The debt must be paid on the day agreed and in full; where payment is made in full and within time, there can be no question of a breach.
The presence of fault. For the offence to arise, the breach must rest upon the debtor’s fault. Where the debtor has been unable to pay for reasons arising outside his own fault and not foreseeable in advance, the offence may not arise. It is therefore important that the events which removed his ability to pay be demonstrated by concrete evidence.
The absence of force majeure or a justified excuse. Where the failure to pay rests upon force majeure such as serious illness, a natural disaster, a sudden and compelling economic collapse or unexpected detention, or upon a valid excuse, there can be no question of a breach. The excuse must, however, be genuine, serious and capable of being proved by documents; abstract or unprovable reasons do not remove liability.
The Sanction for Breach
Pursuant to Article 340 of the Enforcement and Bankruptcy Act No. 2004, coercive imprisonment may be applied to a debtor who breaches an undertaking given in due form. The aim of the sanction is not punishment but securing performance of what the undertaking requires.
Coercive Imprisonment of Up to Three Months
Upon the creditor lodging a complaint within time, coercive imprisonment of up to 3 months may be ordered against the debtor. The order is given by the Enforcement Criminal Court. Where the debt covered by the undertaking is paid in full or the creditor withdraws his complaint, the imprisonment comes to an end immediately. The total period of imprisonment that may be imposed for the same breach of undertaking cannot exceed three months.
If the debtor pays his debt while the sanction is being executed, he is released. By contrast, the expiry of the period of imprisonment without the debt being paid does not extinguish the debt; the creditor may continue the proceedings.
The Nature of the Imprisonment
The imprisonment ordered for breach is not a classical sanction of criminal law but is in the nature of disciplinary/coercive imprisonment. The result aimed at is not the punishment of the debtor but payment of the debt.
Because of that character;
- The provisions on conditional release do not operate,
- The sentence of imprisonment cannot be suspended,
- Probation and alternative sanctions are not applied.
Once the debt is paid the imprisonment comes to an end of itself.
Can It Be Converted into a Judicial Fine?
Coercive imprisonment cannot be converted into a judicial fine, nor can it be transformed into alternative sanctions. The debtor’s way out of imprisonment lies in one of the following three possibilities occurring:
- The creditor withdrawing his complaint,
- Payment of the debt in full,
- A finding that the undertaking is invalid.
Does It Appear on the Criminal Record?
Since coercive imprisonment ordered for breach is not regarded as a conviction in the sense of criminal law, it is not entered on the criminal record and does not create a previous conviction. The sanction is merely in the nature of a disciplinary measure peculiar to enforcement law.
The Complaint Procedure
Breach of an undertaking to pay is not an offence investigated of the authorities’ own motion. For coercive imprisonment to be ordered against the debtor, a complaint by the creditor is mandatory. The time limit for the complaint and its procedure are foremost among the elements that directly determine the outcome.
Who Holds the Right to Complain
The right to complain belongs as a rule to the creditor of the undertaking. Where the instalment undertaken is not paid within time, the creditor in the proceedings may apply to the Enforcement Criminal Court and seek coercive imprisonment against the debtor.
Where the claim is assigned, the right to complain passes to the new creditor. Where there is more than one creditor, only the creditor who is a party to the undertaking may exercise this right.
The Complaint Period: Three Months and One Year
The complaint is subject to preclusive periods. Accordingly, the creditor must make his application;
- within 3 months of the date on which he learned of the breach,
- and in any event within 1 year of the date on which the breach occurred
Where these periods are missed, the right to complain lapses and no order for imprisonment may be made against the debtor. Calculating the periods correctly is of decisive importance in practice.
The Court with Subject-Matter Jurisdiction
The complaint is directed to the Enforcement Criminal Court of the place where the enforcement file in which the undertaking was given is located. Since territorial jurisdiction is not a matter of public order, it becomes settled unless it is challenged.
The matters that must be expressly set out in the pleading are the following:
- The date and content of the undertaking,
- The number of the enforcement file,
- The request for imprisonment,
- The instalment that is the subject of the breach and the date of the breach.
Hearing and Proceedings
Proceedings before the Enforcement Criminal Court are conducted in a manner close to the simplified procedure. The court examines, in turn, whether the undertaking is valid, whether the breach occurred, and whether the debtor has an acceptable excuse.
The matters the debtor may raise by way of defence and the evidence he may submit fall under the following headings: the invalidity of the undertaking, the fact that payment was made, and the existence of force majeure or of a justified excuse.
If the court reaches the conclusion that the conditions of breach are made out, it orders coercive imprisonment of up to 3 months; otherwise it dismisses the complaint. An order of imprisonment that has been made is not executed where the debt is paid or the creditor withdraws his complaint, and, if execution has begun, it is brought to an end immediately.
In What Circumstances Does the Sanction Fall Away?
Since coercive imprisonment does not pursue a punitive aim, in certain situations it falls away or its execution comes to an end.
Payment of the debt. If the debtor pays in full the debt covered by the undertaking, coercive imprisonment is not applied; if execution has begun, it comes to an end at once. Part payment as a rule does not remove the imprisonment; payment must be in full. The fact that the imprisonment has been executed does not, for its part, extinguish the debt; where the period expires without the debt being paid, the creditor may continue the proceedings.
Renewal of the undertaking. Where the parties agree upon a new payment plan and a valid new undertaking is given, the creditor may in practice withdraw his complaint, or the process may proceed in accordance with the new plan. The mere giving of a new undertaking does not, however, remove the imprisonment of itself; the creditor’s withdrawal is required.
Withdrawal of the complaint. Since in this offence the complaint is a condition for prosecution, the creditor withdrawing his complaint removes the order of imprisonment; if execution has begun, it brings it to an end immediately. Withdrawal is possible at every stage of the proceedings and during execution. For details on the matter, our note entitled The Right to Complain and Withdrawal of a Complaint may be consulted.
Expiry of the period. The right to complain lapses if it is not exercised within 3 months of the breach coming to be known and in any event within 1 year of the date of the breach. Once these periods expire, no order for imprisonment may be made against the debtor. In addition, the periods governing the execution of an order of coercive imprisonment already made may affect the enforceability of the sanction. Once the complaint period has passed, it is not possible for a fresh order of imprisonment to be made on the ground of the same breach.
Errors Frequently Made in Practice
In decisions on coercive imprisonment the factor that determines the outcome is most often not the argument on the merits but defects of procedure and form. The errors most frequently encountered are gathered below.
Reliance on an invalid undertaking. Undertakings that do not meet the conditions of form, in which the amount of the debt or the payment plan is not clear, that do not rest upon the debtor’s free will, or that were taken outside the enforcement file, are not regarded as valid and their breach does not constitute an offence. Even so, in many applications the validity of the undertaking is not sufficiently scrutinised.
Missing the complaint period. The application must be made within 3 months of the breach coming to be known and in any event within 1 year of the date of the breach. Allowing the periods to pass extinguishes the right to complain and precludes an order of imprisonment. Miscalculating the periods is one of the most widespread errors in practice.
Failure to document the excuse. The failure to pay resting upon force majeure or a justified excuse may remove the breach; but this must be demonstrated by concrete and written evidence. Abstract allegations of excuse unsupported by documents are for the most part not accepted.
Irregular drawing up of the minute of undertaking. The undertaking not being taken before the enforcement directorate, the minute not being signed, the payment plan not being written out clearly, or the amount of the debt not being shown precisely, may render the undertaking invalid. Minutes drawn up irregularly are an important basis of defence preventing the offence of breach from arising.
Independent Legal’s Assessment
Although the undertaking to pay may look to the debtor like an instrument that temporarily eases the pressure of attachment, it means that a serious risk is assumed in return. In practice a significant proportion of files are decided without the merits being reached, on the review of the undertaking’s validity or on the calculation of the complaint period. For that reason the moment at which the minute of undertaking is signed is at least as decisive as the moment at which the breach occurs.
On the creditor’s side, the loss most frequently encountered is the three-month period running from knowledge being overlooked. For both parties it is as well to review the following headings at the outset of the process:
- Verifying whether the undertaking was taken within a pending enforcement file and before the enforcement directorate
- Setting out clearly in the minute the total debt and the instalment amounts, together with their ancillary items
- Determining the date of the breach and entering the three-month and one-year periods separately in the calendar
- Where a defence of excuse is to be relied upon, gathering the supporting documents before the hearing
- Setting out in full in the complaint pleading the file number, the date of the undertaking and the instalment that is the subject of the breach
- Where payment is to be made, assessing in advance the difference in outcome between payment in full and part payment
Independent Legal provides advisory services and conducts litigation in relation to the drawing up of undertakings to pay in enforcement files, the preparation of defences directed at the validity of an undertaking, and complaint proceedings conducted before the Enforcement Criminal Court.