In a ruling dated November 25, 2020, the criminal chamber of the Court of Cassation made a major reversal of jurisprudence regarding the transfer of criminal liability during merger-acquisition operations.
Previously, it was consistent case law in France that the acquiring company could not be held criminally responsible for acts committed by the acquired company prior to the merger, except in cases of fraud.
This reasoning stemmed from a literal application of the provisions of articles 121-1 and 6 of the Penal Code according to which "no one is responsible except for his own actions" and which make the exercise and pursuit of public action conditional upon the defendant remaining alive.
This approach makes perfect sense when it concerns natural persons, for whom the concepts of life and death resonate easily. However, it can be criticized when applied to legal entities, particularly because their disappearance can be orchestrated and does not generate the same economic consequences.
It was in this sense that the Court of Justice of the European Union ruled in a judgment dated March 5, 2015 (No. 343/13) to admit, on the basis of the European directive known as the "merger" directive of October 9, 1978, which aims to standardize the regimes applicable to mergers of public limited companies, that an acquiring company may be required to pay a fine for acts committed by the acquired company.
This position, previously rejected by French courts, has finally been endorsed by the Court of Cassation.
Indeed, the disappearance of a legal entity 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 points out, such an anthropomorphic approach does not withstand a factual and, at the very least, logical examination of the differences between the death of a natural person and the dissolution of a legal person.
Moreover, the merger-acquisition results in a universal transfer of the assets of the acquired company to the acquiring company, so that the dissolved company continues to have an economic existence, supported by the acquiring company.
This reversal of jurisprudence may therefore seem understandable in that it adopts an approach correlated with 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 ruling warrants clarification, particularly as it applies only to public limited companies , as defined by the European directive, and to simplified joint-stock companies whose legal framework is modeled on the former, unless there is an incompatibility. It remains true, however, that the range of sanctions to which the acquiring company can be subject under the merger directive is relatively limited, concerning only 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 absorbed company to an absorbing company can also be based on fraud, independently of the application of the merger directive.
Therefore, while the said directive only concerns joint-stock companies, other forms of company could have a transfer of criminal liability applied to them, when the merger-acquisition operation was intended to remove the acquired company from its criminal liability.
Moreover, the transfer of criminal responsibility analyzed from the perspective 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 sanctions of a purely pecuniary nature (fines and confiscation in particular).
