Declaration of claim and presumption (safeguard procedure)
On 8 February 2023, the French Cour de cassation (commercial chamber; F-B, n°21-19.330) had the opportunity to reiterate that the knowledge of the claim by the judicial representative (mandataire judiciaire) creates a presumption of such declaration of claim by the creditor, but only within the limit of the content of the information provided for to the judicial representative by the debtor (see previous decision of the commercial chamber dated 5 September 2018 – 17-18.516; P+B+I).
Under French law, a creditor has to declare his claim within a 2-month period otherwise his claim is barred by effluxion of time (forclusion). It has to be stressed that forclusion has not the same legal meaning as prescription and is more stringent. This is due to the fact that the commercial activity of the debtor has to be protected.
In the event of safeguard procedure, the receiver (administrateur) has to contemplate the possibility to restructure and to turn around the company. In this perspective, article L622-6 alinea 2 of the French commercial Code states that “The debtor gives to the receiver and to the judicial representative, for the purposes of the exercise of their mandate, the list of his creditors, of the amount of his debts and material ongoing contracts.”
This gives the receiver the possibility to assess the strengths and weaknesses of the company, receiving amongst others, a list of the creditors edited by the company itself. In this perspective, the receiver is informed of the creditors of the company without the declaration of claim of the creditors. According to the French Cour de cassation, such information creates a presumption of a declaration of claim effectuated by the creditor and only within the limit of the content of the information provided for to the receiver by the debtor.
As a result, a difference between the information provided for by the debtor and a separate declaration of claim by the creditor may arise, especially regarding the amount of the claim, the debtor seeking to minimize such amount. In such a context, if a creditor does not declare his claim, he should nevertheless be in the position to rely on the information provided for by the debtor, at least. In addition, if the creditor also declares his claim, such later declaration shall prevail (see on this question F. Pérochon, with M. Laroche, F. Reille, T. Favario and A. Donnette, Entreprises en difficulté LGDJ, 11 ed. 2022, n°2763 et seq., p. 1113).
One should be puzzled to observe that from primary antagonist positions (creditor against debtor) a party (the debtor) can act on behalf of the other (the creditor) to secure a claim against himself. This why this new legal scheme has been named a revolution (see F. Pérochon, op. cit.).
Up to date 8 February 2023.
Corporate law (SAS), coup d’accordéon (increase in share capital) and temporary measure
On 04 January 2023, the French Cour de cassation (financial, commercial and economic chamber (F-B)) stated that the reduction to zero of the share capital can only legally be made on the condition that a subsequent increase in share capital amounting to, at least, the minimum legal or contractual share capital.
Applying articles L.210-2 and L.224-2 of the French commercial Code, the French supreme Court draws the lines of what is named the coup d’accordéon (accordion effect), a metaphor referring to the two cumulative operations leading to an in fine increase in share capital after a reduction of it to zero. Initially used to save the company (see Usinor case dated 17 May 1994, 91-21.364 – B, cited in inter alia Traité de droit des affaires G. Ripert, R. Roblot by M. Germain, V. Magnier Les sociétés commerciales, LGDJ, T2, 23 ed 2022, n°1019 p.718 et seq. and in a nutshell Droit commercial et des affaires, D. Legeais, Sirey, 29 ed 2023, n°601 p.333), this cumulative operation is now more widely associated with a change in the partners allowing new partners to join the company in the event of significant loss (by law total equity (capitaux propres) valuated less than 50% of the share capital, to avoid the dissolution of the company).
As to this specific case, the legal practitioner will take into account that the cancellation of the whole operation was initiated by a shareholder in référé (summary judgment) before the commercial Tribunal, with an ephemera success, such Tribunal decided with innovation to retain the decrease of the share capital to zero but to temporary suspend the increase.
Fortunately, the French Cour de cassation maintains the mechanism composed of the two operations, evidencing the indivisible feature of the coup d’accordéon in a positive way (the two operations cannot be separated), when, in other contexts, the cancellation of one operation cancels a subsequent operation (group of contracts).
It should however be observed that article L.224-2 states that the sanction of dissolution is not automatic as any interested party has to ask for the dissolution of the company before the commercial judge (and as a regularization is possible before the judge states on the dissolution case). This possibility of regularization may be the reason leading the initial commercial judge to have decided to temporarily suspend the subsequent increase of the share capital.
It remains to be seen if and how this legal corporate scheme of coup d’accordéon may be alternatively contractually replicated with the new threshold of 1 euro of the share capital applicable to selected companies only. The operation would consist in the reduction to 1 euro of the share capital and in a subsequent increase of the said share capital to refund the company (see comments of S. Sylvestre Dalloz Actualités, Le quotidien du droit dated 21 February 2023). This would apply to SARL and SAS for example, but the question remains to determine if the same indivisible feature would follow.
The thought may be fed by the fact that such an indivisible feature is necessary to refund the company and to therefore protect its creditors. In this perspective, it is hard to imagine how a reduction of the share capital to 1 euro would not be followed by a subsequent increase (the contrary would lead to a bankruptcy, or at least to a material weakening of the company). However, since this operation would not fall within the article L.224-2 legal scheme, a suspension of one of the two operations (the subsequent increase for example) may be contemplated as a temporary measure on a case-by-case basis, as the function of the commercial judge is to be pragmatic and as this temporary measure only aims at putting the process on hold, without cancelling the whole process. In addition, preventing a commercial judge from ruling a temporary measure in any events would lead to bind such judge without any legal exceptions, such situation leading to an illegality.
A temporary measure of suspension may be contemplated for example in the event of necessity of regularization or ratification of the contractual replicated scheme.
It would be for the parties to challenge such temporary measure and for the judge to decide, as decided by the supreme Court with this decision dated 04 January 2023, to bind the two operations and to follow the current case law based on the article L224-2 (or not).
Up to date 21 February 2023
Coronavirus (Covid-19), French continuing plans and economy
On 13 March 2020, French Ministry of Justice issued a press release just after the announcements of the President of the French Republic. The aim, due to the emergency, is to protect citizens who are the most vulnerable and to curb the epidemic. Chancery has now prepared continuing plans to allow Justice to face core obligations of the Nation.
According to a CNB (Conseil National des Barreaux) release dated 15 March 2020, the continuing plans will be triggered as from 16 March 2020 by the Ministry of Justice to avoid propagation of Covid-19. Tribunals and courts will be closed, except for cases relating to core litigations.
Core litigations are limited to (i) criminal tribunals and courts including (a) pre-trial custody (détention provisoire) and probation (contrôle judiciaire), (b) immediate criminal summary trials (comparution immédiate), (c) appearance before the liberty and custody judge (juge des libertés et de la détention), (d) appearance before the enforcement judge (juge de l’application des peines) including appeals, these latest in the events of emergency only, (e) permanence of public prosecutor’s office (permanence du parquet), (f) hearings relating to investigation chamber for custody (audience de la chambre d’instruction pour la détention) and (ii) civil tribunals and courts including (a) children’s courts and permanence in the events of emergency only (audiences du tribunal pour enfants et du juge pour enfants et permanence du tribunal pour enfants) - including educational assistance (assistance educative), (b) summary judgments (including relating to family matters), but based on emergency only, (c) civil liberties and custody judge hearings (juge des libertés et de la détention civil).
Due to the risks of contamination, instructions are, to the extent possible, to cancel criminal court sessions related to crimes (cour d’assises). It is also allowed to postpone hearings (taking into account reasonable time extension and pre-trial custody timeframe).
Legal public facilities (services d’accueil du public) will be closed as well as justice centers and legal access points. Even if justice civil servants will not be allowed to receive public, they will be reachable by phone to address emergency situations.
As far as Paris is concerned, the first President of the court of appeal of Paris issued an ordinance dated 16 March 2020 (N°105/2020) named ordonnance de roulement modificative (amending rotation ordinance), on the basis of, inter alia, the decision of the Ministry of justice dated 15 March 2020 triggering continuing plans, article L1142-7 of the French Code de la Défense and emergency. Such article not only states that (i) the Ministry of Justice ensures in all circumstances the continuity of the legal criminal services as well as enforcement of criminal sanctions, but also (ii) he participates in fighting against elements adversely affecting fundamental interests of the Nation (this including preservation of the population in and outside France, according to article 410-1 of the French Code pénal).
Aside to the public authorities, the legal profession, as a whole, may support the economy : it can be suggested that business lawyers may wish to consider advising their clients to enter into settlement agreements (within the meaning of article 2044 of the French Civil Code) to solve pending litigations and to unlock commercial situations created by the current sanitary crisis.
This would give the economy a possibility to maintain a flow of activity.
Up to date 16 March 2020.
Business secrecy under French Law
Law dated N° 2018-670 dated 30 July 2018 related to protection of business secrecy implements European directive 2016/943 dated 8 June 2016 on the protection of undisclosed know-how and business information (trade secrets) against their unlawful acquisition, use and disclosure. Protected information is defined by Article 1 of the law (L.151-1 of the French commercial Code) with the following criteria. In a nutshell, protected information (i) is not, in itself, or in the configuration of accurate addition of its elements, generally known or easily accessible by persons familiar of that kind of information due to their activity sectors; (ii) has a commercial value either effective or potential due to its secret feature; and (iii) is subject to reasonable protection measures by its legitime holder, given the circumstances, in order to keep its secret feature. Conditions of application of this new regulation are to be determined by a specific decree. In the meantime, given that the deadline to implement the European directive has expired, French law should be construed in the light of such a directive (and EU law).
Up to date 30 July 2018
Company law - Exclusion of Partners (SEL – Société d’Exercice Libéral)
The current situation of partners of limited liability companies carrying on a civil professional purpose (SEL – Société d’Exercice Libéral) is protected by law and the constitutive documents (statutes and internal regulation). This is due to the fact that they have to be protected as they are running the business activity. This is particularly the case in the event of exclusion of partners, when a decision is made to exclude a partner from the company.
In this respect, Article R.4381-16 of the French public health Code states that a partner practicing within the company can be excluded when (i) he is prohibited from practicing or providing care to covered parties for a period equal to three months or (ii) the said partner contravenes operating rules of the company.
Article R.4381-16 of the French public health Code gives guarantees as to the exclusion decision: no exclusion decision can be taken if the partner was not legally convened and if he has not been in the position to plead his case on specific facts for which he was charged.
However, as to the voting process, Article R.4381-16 of the French public health Code states that the decision of the partners to exclude a partner is taken on the reinforced majority calculated excluding not only the vote of (i) the partners having been sanctioned for the same facts or related facts but also (i) the concerned partner (unanimity of other partners practicing within the company and entitled to vote having as well to be obtained).
The fact that the concerned partner does not take part to the vote is not in line with the ratio decidendi of the Cour de cassation (i.e. com. 9 July 2013) and the challenged provision is deemed not to have been written. Such a provision may as well be considered in breach of the ECHR (European Convention on Human Rights), in this particular case of Article 6 (right of a fair trial) or of Article 13 (right of an effective remedy).
The business activity is also protected in the event of temporary prohibition from practicing or providing care to covered parties (Article R.4381-16). In this perspective, provided that the partner is not excluded, the person concerned keeps his partners’ rights and duties, to the exclusion of the remuneration linked to his professional activity (Article R.4381-17).
This protection is crucial to ensure management stability, legal safety and thus, to foster business activity.
Up to date 21 June 2018
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