Court of Cassation, Criminal Division, 25.Nov.2020, n°18-86.955 FS PBI, Iron Mountain France Company
By a judgment dated November 25, 2020, the Criminal Division of the Court of Cassation made a major reversal of case law on the subject of the transfer of criminal liability during merger-absorption operations.
It was previously settled case law in France that the acquiring company could not be held criminally liable for acts committed by the acquired company prior to the merger operation, except in cases of fraud.
This reasoning proceeded from a literal application of the provisions of articles 121-1 and 6 of the Penal Code under the terms of which "no one is liable except for his own act" and which subordinate the exercise and pursuit of public action to the keeping the defendant alive.
This approach makes perfect sense when it concerns natural persons, to whom the notions of life and death resonate easily. However, it can be criticized when transposed to legal persons, in particular because their disappearance can be organized and does not have the same economic consequences.
It is moreover in this sense that the Court of Justice of the European Union had pronounced in a judgment dated March 5, 2015 (n°343/13) to admit, on the basis of the European directive known as "merger" of October 9, 1978, which aims to standardize the rules applicable to mergers of public limited companies, that an acquiring company may be required to pay a fine for acts committed by the absorbed company.
This position, hitherto rejected by the French courts, has finally been accepted by the Court of Cassation.
Indeed, the disappearance of a legal person is in reality only slightly similar to that of a natural person, especially when it occurs during a merger operation.
As the Court of Cassation reminds us, such an anthropomorphic approach does not stand up to a factual and, to say the least, logical examination of the differences between the death of a natural person and the dissolution of a legal person.
Moreover, the merger-absorption leads to a universal transmission of the assets of the absorbed to the absorbing, so that the dissolved company continues to have an economic existence, carried by the absorbing company.
This reversal of case law may therefore seem understandable in that it retains an approach correlated to economic reality and puts an end to a doctrine based on an analogy between the death of a natural person and the dissolution of a legal person.
Nevertheless, the scope of this judgment deserves to be clarified, in particular in that it only applies to public limited companies , covered by the European directive, and to simplified joint-stock companies whose regime is modeled on the former, except incompatibility. The fact remains that the range of penalties to which the acquiring company may be sentenced, on the basis of the merger directive, is relatively limited, only involving fines and confiscation.
Finally, in accordance with the principle of foreseeability of article 7 of the European Convention on Human Rights , this case law will only be applicable to mergers that took place after November 25, 2020.
The Court recalls that the transfer of criminal liability from an acquired company to an acquiring company can also take place on the basis of fraud, independently of the application of the merger directive.
Therefore, while the said directive only concerns joint-stock companies, other corporate forms could be subject to a transfer of criminal liability, when the purpose of the merger-absorption operation was to shield the acquired company from its criminal liability .
Moreover, the transfer of criminal liability analyzed under the prism of fraud is much more complete than that resulting from the merger directive insofar as it concerns any sanction applicable to a legal person, without limitation to only financial sanctions (fines and confiscation in particular).
