Losses incurred due to loans or advances

The financial and commercial facilities granted by a company to a client company which is legally not affiliated are normal as long as the financial difficulties of the debtor company remain limited and that the granted advances are proportioned to the warranty, represented by a mortgage, from which the creditor company benefits.

However, when the financial situation of the client company worsens and when the debt amount becomes highly superior to the warranties granted, compromising the own existence of the creditor company, the creditor company does not meet the arm's length principle if it continues to make commercial arrangements with the company in difficulty whereas it wants to take it over.

Consequently, the provision for liabilities linked to the non-collection of receivables is not deducted (C.A.A. Lyon, April 6, 1995, no. 93-1683, 4 ch. Ste Feltin; R.J.F. 7/95, no. 825).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be brought about your specific circumstances. For additional information contact Claire Acard on 33/(1)/ or Lionel Benant on 33/ or enter text search: "ARCHIBALD ANDERSEN Profile". The members of ARCHIBALD ANDERSEN Association d'Avocats (S.G. Archibald and Arthur Andersen International) are registered with the Hauts-de-Seine Bar and the Lyon Bar.