Newsletter No. 24 – Business Law – August 2015
Summary
LEGISLATIVE AND REGULATORY NEWS
Telephone canvassing:
Decree of May 19, 2015;
Simplification of business operations:
Decree of May 18, 2015;
Simplification of business reporting obligations:
Order of June 18, 2015;
Employee representatives
: Decree of June 3, 2015
JURISPRUDENCE
COMPANIES IN DIFFICULTY
Extension of proceedings;
Characterization of abnormal financial relationships
; Declaration of claim;
Calculation of interest
; Contestation of claim
; Role of the judge
; Admission of a claim;
Procedures for appeal
; Employee compensation action;
Admissibility of the action
; Liquidation and Paulian action;
Determination of the competent judge
; Action for insufficient assets;
Determination of the scope of the action;
Removal of the liquidator;
Applicable procedure;
Safeguard and surety
CONTRACTS
Significant imbalance.
Characteristic elements:
Guarantee.
Handwritten statements.
Formalities: mention of the duration of the commitment.
Assessment of the disproportion.
Commercial agent contract.
Validity of the trial period stipulated in a commercial contract.
Business assets.
The sale of the business assets is not subject to the rules relating to door-to-door sales as set out in the Consumer Code.
COMPANIES
Company Director
Effect of Resignation
Commitment Undertaken by the Manager
Condition for Nullity of the Commitment
Legislative and regulatory news
Telemarketing
The Hamon Law extended consumers' right to opt out of telemarketing calls from all businesses, not just those participating in the Pacitel scheme. Failure to comply can result in a fine of €15,000 for individuals and €75,000 for legal entities. The decree of May 19, 2015 , implementing these provisions of the Hamon Law, specifies the operating procedures for this opt-out list.
The decree notably sets out the registration procedures, the list's content, and the registration period.
It also establishes the conditions for businesses to access the list. Furthermore, businesses that regularly engage in telemarketing are required to update their prospecting files and remove the contact information of consumers registered on the opt-out list.
The decree defines the role and powers of the body responsible for managing the telephone marketing opt-out list and also specifies the procedures for state oversight, through a government commissioner.
This decree will enter into force on the first day of the fourth month following the month in which the body responsible for the opt-out list is appointed.
Simplification of business life
The decree of May 18, 2015 , issued for the application of the ordinance of July 31, 2014 relating to company law, is structured around three axes. It first targets limited liability companies, then public limited companies and finally, securities.
Simplification of formalities in general partnerships and limited liability companies
The decree specifies that in the absence of publication of the amended articles of association in the RCS, the transferor or the transfer may, after formal notice to the manager and by providing proof of referral to the president of the court, file the deed of transfer of shares in the RCS.
The 2014 ordinance introduced the possibility of extending the deadline for holding the ordinary general meeting beyond six months by court order (Article L.223-26 of the French Commercial Code). The decree clarifies this provision and stipulates that the manager may now request the president of the commercial court to extend the six-month deadline for convening the general meeting, starting from the end of the financial year.
The decree also sets out the conditions for convening shareholders and for electronically communicating documents in limited liability companies.
Provisions relating to public limited companies
According to the 2014 ordinance, prior authorization for signing a regulated agreement must be justified and demonstrate the agreement's benefit to the company by specifying the attached financial terms (Article L.225-38 of the French Commercial Code). The decree supplements this provision and specifies that the chairman of the board of directors must provide the auditors with a statement, for each authorized agreement and commitment, justifying its benefit to the company, as determined by the board of directors (Article R. 225-30, paragraph 1 of the French Commercial Code).
Provisions relating to securities
Following on from the ordinance, the decree aims to harmonize the treatment of securities with European standards. In particular, it sets the period for the staggered closing of trading and subscription periods for preferential subscription rights on negotiable shares at two business days. It should be noted that this provision will enter into force on October 1, 2016. Furthermore, the text establishes the procedures for the sale and distribution of proceeds from this sale of fractional rights. The methods for identifying bondholders are harmonized with those for shareholders. Finally, the decree adapts the advertising requirements specific to the repurchase of preferred shares.
1 Decree No. 2015-556 of 19 May 2015 relating to the telephone solicitation opt-out list
2 Decree No. 2015-545 of 18 May 2015 issued for the implementation of Ordinance No. 2014-863 of 31 July 2014 relating to company law, issued pursuant to Article 3 of Law No. 2014-1 of 2 January 2014 authorizing the Government to simplify and secure business operations
Simplification of reporting obligations for companies
The order of June 18, 2015 3 was taken on the basis of Law No. 2014-1545 of December 20, 2014 relating to the simplification of business life which authorized the government to take measures to simplify reporting obligations in tax matters.
This text removes the reference to the special tax reduction and credit declaration from the Tax Procedures Code, which now refers to a single declaration (Art. L. 172 G of the Tax Procedures Code).
The filing deadlines for certain annual tax returns for professionals are being harmonized. The deadline for filing these returns is set at the second day following May 1st for tax credits and reductions calculated for fiscal years ending on or after December 31, 2015. This applies to returns submitted for:
- Income tax: traders and industrialists, agricultural operators placed under an actual tax regime and persons engaged in a non-commercial activity;
- Corporate tax: if the financial year ends on December 31 or if no financial year ends during a year, the declaration of profit or loss must be filed no later than the second working day following May 1;
- the tax on advertising broadcast by radio and television;
- business property taxes.
The simplification also extends to the reporting requirements for the tax on precious metals, jewelry, works of art, collectibles, and antiques (Article 150VM of the French General Tax Code (CGI)) and for taxes levied to fund the agricultural workers' compensation fund (Article 1622 of the CGI). In practice, these declarations will have to be made using different forms. For example, for the tax on precious metals, VAT-registered professionals will be able to submit their declaration on the annex to their monthly or quarterly revenue declaration for VAT calculation. These new provisions will apply to declarations filed from February 1, 2016.
As of January 1, 2016, the declaration for withholding tax on salaries, wages, pensions, annuities, income, and gains paid to individuals not tax residents of France must be filed no later than the 15th of the month following the calendar quarter in which the payment was made (Article 1671 A of the French General Tax Code). Similarly, for fiscal years ending on or after December 31, 2015, the declaration for withholding tax on income from shares and similar income, the beneficiaries of which do not have their actual residence or registered office in France, and on interest and income from bonds, must be filed no later than the fifteenth day of the fourth month following the close of the fiscal year (Article 1673 bis of the French General Tax Code).
Distributions of dividends from investments made by a company within a tax group to another company within the same group are included in the list of income exempt from the reporting requirement for distributions paid on or after January 1, 2015 (Article 242 ter of the French General Tax Code).
Finally, the value of negative goodwill arising from a merger no longer needs to be included in the monitoring reports attached to the income statements for fiscal years ending on or after June 20, 2015 (Article 54 septies I of the French General Tax Code).
3 Ordinance No. 2015-682 of 18 June 2015 relating to the simplification of employers' social declarations
Employees on boards of directors
The 2013 Employment Security Act mandated the appointment of employee representatives to the boards of directors of certain companies. This primarily concerns public limited companies with a board of directors or a management board and supervisory board. These companies must then employ at least 5,000 employees after two consecutive financial years if their registered office is in France. For companies headquartered abroad, this obligation applies as soon as the company employs at least 10,000 employees.
When the board of directors has fewer than 12 members, it must include at least one employee representative. For larger boards, at least two employee representatives must be elected or appointed.
On June 3, 2015, a decree was issued to implement these provisions, specifying the time allotted to these representatives to carry out their duties and the training arrangements.
These directors thus have a training period which cannot be less than twenty hours per year and a preparation period which cannot be less than fifteen hours nor more than half of the legal monthly working time per meeting of the board of directors or committee.
Case law
Companies in difficulty
Extension of procedure – Characterization of abnormal financial relationships
Com. June 16, 2015 (No. 14-10.187) F-PB:
The liquidator of a limited liability company (SARL) sued a real estate company (SCI) seeking to extend the SARL's liquidation proceedings to the SCI. The liquidator's request was granted by the Court of Appeal, and the SCI appealed to the Court of Cassation.
The Court of Cassation dismissed the appeal. According to the Court, in order to establish abnormal financial relationships constituting a commingling of assets, the lower courts are not required to determine whether these relationships increased the liabilities of the debtor subject to the insolvency proceedings whose extension is sought, to the detriment of its creditors.
Statement of claim – interest calculation
Com. May 5, 2015 (n°14-13.213) FD:
Article R. 622-23 of the French Commercial Code requires that the method for calculating interest accrued at a fixed rate be indicated only when its amount cannot be calculated on the date the claim is filed. Therefore, neither the claim itself, which includes the already calculated amount of accrued interest, nor the order of admission issued by the supervising judge, needs to specify the method for calculating the interest.
The judge's role in matters of disputed claims
Com. June 2, 2015 (No. 14-10.391) F-PB:
A bank appealed to the Court of Cassation against the rejection of its claim, arguing that it was insufficiently substantiated because the bank statement only showed a debit entry.
According to the Court of Cassation, when the debtor or liquidator contests the claim by citing the absence or insufficiency of supporting documentation, it is the creditor's responsibility to submit any additional documents, if necessary, without the Court of Appeal being required to request them to do so.
Appeal against the admission of a claim
Com. May 19, 2015 (n°14-14.395) F-PB:
A bank's claim was contested by the court-appointed administrator before being accepted by the supervising judge. The debtor then appealed the decision, seeking to have the interest clause in the loan agreement annulled. This request was subsequently dismissed as inadmissible because it had not been submitted to the supervising judge.
4 Decree No. 2015-606 of 3 June 2015 relating to the time required for directors or members of the supervisory board elected or appointed by employees to carry out their mandate and the arrangements for their training within the company
According to the Court of Cassation, a debtor in receivership proceedings may appeal the decision of the supervising judge regarding a disputed claim, regardless of the nature of the dispute. The appeal court's decision is therefore overturned.
Employee compensation action
Com. June 2, 2015 (No. 13-24.714) FS-PBRI:
Employees laid off during a restructuring plan voluntarily intervened in proceedings initiated by the company's restructuring committee against a bank, seeking to have the bank held liable for granting ruinous loans.
The lower court dismissed the employees' voluntary intervention for damages resulting from job loss, ruling that the alleged damages were inherent to the insolvency proceedings, of which they were a direct consequence, and that they were suffered indiscriminately and collectively by all creditors. The Court
of Cassation overturned the lower court's decision, finding that the action for damages claimed by the laid-off employees was unrelated to the protection and reconstitution of the creditors' common security and did not fall within the exclusive purview of the restructuring committee.
Liquidation and Paulian action – determination of the competent judge
Com. June 16, 2015 (14-13.970) F-PB:
The exclusive jurisdiction of the insolvency court, as provided for in Article R. 662-3 of the French Commercial Code, applies only to disputes arising from those proceedings or those over which they have a legal influence. This is not the case for a Paulian action, which is distinct from an action to annul acts performed during the suspect period. Therefore, in this instance, the Court of Appeal was correct in rejecting the jurisdiction of the Commercial Court of Antibes, the place where the insolvency proceedings were initiated, in favor of that of the Commercial Court of Paris, within whose jurisdiction the defendant company's registered office is located.
Scope of the action for insufficient assets
Com. June 30, 2015 (No. 14-15.984) F-PB:
In this ruling, the Court of Cassation reiterates that the action for liability due to insufficient assets, as provided for in Article L. 651-2 of the French Commercial Code, can only be brought by the liquidator against the de jure or de facto directors of a private legal entity. Consequently, Article L.651-2 of the French Commercial Code does not apply when the judicial liquidation concerns a self-employed tradesperson and not a legal entity.
Procedure for removing the liquidator
Com. July 7, 2015 (No. 14-13.195) FS-PB:
The voluntary liquidation of a company and the appointment of a liquidator were decided at a general meeting. The liquidator, having failed to prepare and present the accounts, was sued for removal by the minority shareholders.
Their claim was dismissed on the grounds that, according to the combined application of the provisions of Articles L. 237-25, paragraph 4, and L. 238-2 of the aforementioned code, a liquidator cannot be removed for non-compliance with the obligations imposed on him by Article L. 237-25 without first requesting the summary proceedings judge to order him, under penalty of a fine, to fulfill those same obligations.
The judgment is overturned by the Court of Cassation insofar as the admissibility of the application for the removal of the liquidator made on the basis of Article L. 237-25 of the Commercial Code is not subject to the prior referral, for the purpose of an injunction, to the president of the court ruling in summary proceedings pursuant to Article L. 238-2 of the same Code.
Safeguard and surety
Com. June 2, 2015 (No. 14-10.673) FS-PB:
The directors of a company had jointly and severally guaranteed all of its obligations to a bank. The company was placed under safeguard proceedings, and the bank filed its claim and was subsequently authorized to register provisional judicial mortgages on assets belonging to the guarantors. The bank then sued the guarantors, who were ordered to pay jointly and severally certain sums that would become due as the safeguard plan's installments were met.
The Court of Cassation upheld the ruling. According to the Court, the creditor is entitled, pursuant to Articles L. 622-28 and R. 622-26 of the French Commercial Code, to register a provisional judicial mortgage on the assets of the guarantor of the principal debtor subject to safeguard proceedings, and, to validate this protective measure, is required to sue the guarantor to obtain an enforceable judgment against them covering the full amount owed. However, forced execution of this cannot be implemented as long as the safeguard plan is respected.
Contracts
Significant imbalance
Com. May 27, 2015 (n°14-11.387) F-PB:
The Court of Cassation has once again ruled on the issue of the balance of clauses contained in contracts between a purchasing group and its suppliers, structuring its decision around several points.
First, the Court of Cassation characterizes the supplier's subordination based on two elements. On the one hand, the Court notes that the disputed clauses were included in all contracts signed by the suppliers, who did not have the real power to negotiate them. On the other hand, the Court observes that the suppliers could not risk being delisted by the purchasing group.
The Court then concludes that there is a significant imbalance resulting from the general terms and conditions of purchase and the procedures for their acceptance. In this regard, the Court notes several types of clauses (distortion of payment deadlines, automatic exclusion of discounts for early payment of rebates and services and the costs inherent in the destruction by consumers of products and/or their packaging) which impose obligations on suppliers without compensation, which, due to their systematic nature and imposed by the purchasing center, characterize an imbalance of obligations to the detriment of the supplier.
Finally, the Court of Cassation ruled on the basis for enforcing penalty clauses. According to the purchasing group, a penalty clause can only be enforced under Article 1152 of the Civil Code. The Court of Cassation rejected this argument and clarified that the provisions of Article 1152 of the Civil Code do not preclude the application of Article L. 442-6 I 2° of the Commercial Code to a penalty clause, provided that the necessary conditions are met.
Security deposit: handwritten notes
1st Civil Chamber, July 9, 2015 (No. 14-21.051) F-PB:
A bank appealed the appellate court's ruling that the guarantor, an illiterate individual who had not written the handwritten statements on the guarantee agreement drawn up by the bank, could not act as guarantor for a company under a private agreement.
The Court of Cassation dismissed the appeal, ruling that an individual unable to preface their signature with the handwritten statements required by Articles L. 341-2 and L. 341-3 of the French Consumer Code, designed to ensure their protection and informed consent, can only validly enter into a guarantee agreement with a professional creditor by means of a notarial deed.
Formalities: mention of the duration of the commitment
1st Civil Chamber, July 9, 2015 (No. 14-24.287) F-PB:
The Court of Appeal declared the guarantee agreements null and void because the duration of the guarantee should have been clearly stated in the handwritten clause without needing to refer to the printed clauses of the document. According to the Court of Appeal, the imprecision of this statement affected the understanding of the duration of the guarantees and consequently their validity, even though the duration of the guaranteed transaction, in this case eighty-four months, was indicated on the first page of the guarantee agreements.
The Court of Cassation upheld the Court of Appeal's decision, reasoning that while Article L. 341-2 of the Consumer Code does not specify how the duration of the guarantee must be expressed in the handwritten clause, it remains essential that this statement, enabling the guarantor to fully understand the scope of their commitment, be clearly stated without needing to refer to the printed clauses of the document.
Assessment of the disproportionate nature of the security deposit
1st Civil Chamber, June 3, 2015 (No. 14-13.126; 14-17.203) FS-PB:
The Court of Appeal had ruled that the guarantee was not manifestly disproportionate to the guarantor's income, since their tax assessment did not take into account the expected income from the investment made by the guaranteed company, and therefore the guarantee was not significant.
The First Civil Chamber of the Court of Cassation adopted the Commercial Chamber's position on this issue and overturned the judgment on the grounds that the proportionality of the guarantor's commitment cannot be assessed in light of the expected income from the guaranteed transaction.
Validity of the probationary period in the commercial agent contract
Com. June 23, 2015 (No. 14-17.894) F-PB:
A company appealed to the Court of Cassation against its conviction to pay a termination indemnity to a commercial agent, arguing that it had terminated the contract during the probationary period stipulated therein. The Court of Appeal had ruled that "even assuming that the stipulation of a probationary period in such a contract is not in itself unlawful, it cannot have the effect of depriving the commercial agent of their right to indemnity."
The Court of Cassation overturned this decision, finding that the regulations governing commercial agents, which require for their application that the agreement be definitively concluded, do not prohibit a probationary period.
Sale of the business
First Civil Chamber, July 9, 2015 (No. 14-17.051) F-PB:
The plaintiff sought to have the mandate she had executed at her home to find a buyer for her business declared null and void. To this end, she claimed to benefit from the protective provisions relating to door-to-door sales and intended to contest the validity of the mandate on the grounds that it lacked the detachable withdrawal form required by law under penalty of contract nullity, and that in any event, the agent should not have undertaken any action before the expiry of the seven-day period following the execution of the mandate.
According to the Court of Cassation, for a business owner, the sale of their business is directly related to their activity, and therefore the transaction falls outside the scope of Article L. 121-22 of the Consumer Code, in its version prior to Law No. 2014-344 of March 17, 2014.
Companies
Effect of the resignation of the company director
Com. May 12, 2015 (No. 14-12.483) F-PB:
The president of a simplified joint-stock company resigned on the day he received a summons to appear before the president of the commercial court. The court subsequently initiated insolvency proceedings against the company. The former president, contesting the date set for the cessation of payments, filed a third-party objection to this judgment.
The Court of Appeal declared the third-party objection inadmissible. According to the Court of Appeal, the former president was not a third party to the proceedings because his resignation had not been subject to any legally required publication formalities and therefore remained, in the company's dealings with third parties, including the commercial court, its legal representative on the date of the judgment initiating the proceedings.
The Court of Cassation, on the contrary, held that since the functions of company director had ended as a result of his resignation, regardless of the fact that it had not been subject to the legally required publicity measures, it followed that he could not appear as the company's legal representative in the proceedings subsequently brought against it before the commercial court.
Commitment signed by the manager
Com. May 12, 2015 (n°13-28.504) F-PB:
Even if established, the conflict with the social interest of the security taken out by a limited liability company as security for the debt of a third party is not, in itself, a cause of nullity of the commitment.
