Newsletter No. 18 – Business Law
REGULATION
Creation of the national register of persons prohibited from managing a business.
Decree of February 19, 2015.
Reform of insolvency proceedings.
Bill of February 18, 2015.
CASE LAW
… of February 17, 2015
Admissibility of the works council's appeal for annulment due to abuse of power
… of February 17, 2015
Clarification on the form and content of a warning to declare a claim
… of February 10, 2015 The sale by auction of jointly owned property may be ordered in the event of insolvency proceedings against a co-owner
… of March 10, 2015 Clarification regarding mismanagement
… of March 10, 2015 Action for recovery of movable property: burden of proof
… of February 27, 2015 Fate of the co-surety of a discharged guarantor
… of March 3, 2015 Clarification on the concept of significant imbalance
… of February 10, 2015 Obligation to deliver
… of February 10, 2015 Compensable damages upon termination of business relations
… of February 10, 2015 Condition for the regularity of the appeal In payment of the guarantee
of February 10, 2015. Terms of removal of the auditor.
REGULATION
Creation of the national register of those prohibited from managing
Created by the Law on the Simplification of the Law and the Streamlining of Administrative Procedures of March 22, 2012, the national register of individuals prohibited from managing a business was established by a decree of February 19, 2015.
This decree, which came into effect on January 1, 2016, sets out the procedures for registering and removing data from the register, as well as the procedures for communicating this data.
Registration and Removal from the Register:
Management bans must be registered in the national register of individuals prohibited from managing a business by the clerk of the commercial court responsible for maintaining the Trade and Companies Register (RCS) in which the individual subject to the ban or the legal entity of which they were the de facto or de jure manager is registered. If the ban is not registered in the RCS, the clerk of the commercial court that issued the ban is responsible for registering the individual in the register.
Registration must take place as soon as the court's decision is no longer subject to any appeal that suspends its enforcement.
Registration in the national register of persons prohibited from managing a business includes, in particular, information enabling the identification of the individual and details of the measure imposed on them (nature, date, duration).
When the prohibition from managing a business is removed from the Trade and Companies Register (RCS), the clerk responsible for maintaining this register, if informed by the clerk of the commercial court that issued the lifting of the prohibition or by the public prosecutor if the lifting was ordered by a civil or criminal court, must, as soon as the decision is no longer subject to an appeal that suspends its execution, immediately remove the corresponding entry from the national register of persons prohibited from managing a business. Similarly, when the prohibition expires, it must be automatically removed.
In the event of removal, the information recorded at the time of registration can no longer be disclosed and is deleted from the register.
Data Disclosure:
The decree establishes the list of persons who may receive the information recorded in the register. This list primarily targets agents of various government departments, such as judicial police officers or agents of the Directorate General of Public Finances. The decree also specifies that requests for and the provision of data must be made electronically. Consultations, modifications, and queries of the national register of individuals prohibited from managing a business are recorded and retained for thirty months from the date of recording.
Finally, the rights of access and rectification provided for in Articles 39 and 40 of Law No. 78-17 of January 6, 1978, as amended, concerning information technology, data files, and civil liberties, are exercised through the National Council of Clerks of Commercial Courts.
Reform of insolvency proceedings
The draft law ratifying Ordinance No. 2014-1088 of September 26, 2014, supplementing Ordinance No. 2014-326 of March 12, 2014, reforming the prevention of business difficulties and collective procedures, was tabled in the Senate on February 18, 2015.
This draft law provides for a single article under which the Ordinance is ratified.
CASE LAW
Admissibility of the appeal for annulment by the works council for abuse of power
Com. 17 February 2015 (No. 14-10.279) FS-PB:
The appeal against the judgment approving the transfer plan, filed by the central works council of a company in receivership, was declared inadmissible by the Court of Appeal. In support of its decision, the Court of Appeal specified that the consultation with the works council prior to the adoption of the plan involving redundancies was purely advisory and did not entitle the works council to be considered a party to the decision.
The Court of Cassation overturned the judgment. According to the Court, even though, pursuant to Article L. 661-6 III of the French Commercial Code, an appeal to overturn the judgment on the transfer plan is only available to the debtor, the public prosecutor, the transferee, or the other party to the contract, the works council can file an appeal for annulment on the grounds of abuse of power.
Nature and content of the warning to declare
Com. 17 February 2015 (No. 13-24.403) FS-PB:
In this case, the receiver of a company undergoing judicial reorganization notified a creditor to file its claim. Because the notice reproduced the provisions of Article R.622-21 of the French Commercial Code in a version prior to its current application, the Court of Appeal ruled it irregular and that it had not triggered the filing deadline for the secured portion of the claim.
Two questions were put to the Court of Cassation. First, it was necessary to determine whether the irregularity of the notice could be sanctioned in the absence of evidence of prejudice, and second, whether a notice to file a claim is irregular simply because it contains an earlier version of the relevant provisions. The Court of Cassation initially ruled that the notice is not a procedural act. The invalidity of the act is therefore not subject to the application of Article 114 of the Code of Civil Procedure, which notably requires proof of prejudice caused by the irregularity. The Court then quashes the judgment insofar as the Court of Appeal failed to examine whether the notice in question was sufficient to inform the creditor of their rights and obligations.
The sale of jointly owned property by auction may be ordered in the event of insolvency proceedings against one of the co-owners
Com. 10 February 2015 (No. 13-24.659) FS-PB
A building, which became jointly owned after the owners' divorce, was occupied by the husband. He repaid the loan installments, renegotiated the terms, and then obtained a new loan, naming himself as the sole borrower. Claiming the borrower's default, the bank sued him and brought his co-owner into the proceedings as a guarantor. After the wife's death, her heirs continued the legal action. The division of marital assets also presented difficulties, and a judgment dated February 8, 2011, addressed these difficulties and ordered the sale of the building. The husband appealed this judgment after being placed under court-ordered administration on January 20, 2011. As part of these proceedings, a judgment dated January 26, 2012, approved the reorganization plan and declared the building inalienable. During the appeal, the heirs filed a third-party objection to the final judgment. The Court of Appeal notably rejected the heirs' request for the sale of the jointly owned property. According to the Court of Appeal, the third-party objection filed by the heirs was inadmissible because it was filed too late, and only the debtor could file a motion to lift the inalienability.
The Court of Cassation partially overturned the judgment on the grounds that, under Article 815 of the Civil Code, no one can be compelled to remain in joint ownership and that partition can always be demanded.
Clarification regarding the management error
Com. March 10, 2015 (n°12-15.505) FS-PB:
The manager of a liquidated limited liability company (SARL) was found liable for mismanagement that contributed to the company's insufficient assets on the grounds that she had not contributed enough capital when the company was formed. The judgment was overturned by the Commercial Chamber of the Court of Cassation, which ruled that insufficient capital contributions made to a company at its formation, attributable to the shareholders, do not constitute mismanagement.
Action for recovery of movable property: burden of proof
Com. March 10, 2015 (n°13-23.424) FS-PB
A creditor of a company placed under judicial reorganization reclaimed professional kitchen equipment that had been sold to the creditor with a retention of title clause and for which the price was partially unpaid. The Court of Appeal held that the debtor had not provided proof that the claim concerned movable property incorporated into other property, the separation of which could not be effected without damage, or property permanently attached to the property, and authorized the creditor to recover certain items.
The Court of Cassation took the opposite position and overturned the judgment. According to the Court of Cassation, it is incumbent upon the claimant to establish the existence in kind of the claimed property within the debtor's assets on the date the insolvency proceedings were initiated and, consequently, that the separation of movable property incorporated into other property can be effected without damage.
Fate of the co-surety of a discharged bond
Mix. February 27, 2015 (No. 13-13.709) PBRI:
In this case, the plaintiff, manager of a company to which several loans had been granted, had acted as joint and several guarantor for these loans. His co-guarantor having been released from his obligations due to their manifest disproportion, only the plaintiff was subsequently sued for payment following the company's default. The plaintiff then argued against the bank that he had been deprived of recourse against his co-guarantor and claimed the benefit of Article 2314 of the Civil Code, which provides that a guarantor is released when, due to the creditor's actions, subrogation to the creditor's rights, mortgages, and privileges can no longer be effected in favor of the guarantor.
The question was therefore put to the Court of Cassation as to whether a guarantor can invoke against the creditor the impossibility of any subrogation of the creditor's rights against another guarantor.
The Court of Cassation's reasoning unfolds in two stages. First, the Court clarifies that the sanction provided for in Article L.341-4 of the Consumer Code renders the guarantee agreement ineffective with respect to both the creditor and the co-guarantors, who cannot subsequently take action against the guarantor released from their obligation. It then considers that, in the absence of the transfer of a right of which they were deprived, the co-guarantor cannot claim the benefit of Article 2314 of the Civil Code in their relationship with the bank.
Clarification on the concept of significant imbalance
Com. March 3, 2015 (n° 13-27.525) FS-PB:
In this case, the Minister for the Economy sued a distributor to stop practices that created a significant imbalance in its relationships with its suppliers.
This significant imbalance stemmed from two clauses in a standardized agreement used by the distributor. The first clause concerned the procedures for revising tariffs, while the second addressed the calculation of the service rate and the penalties owed by the supplier in the event of a breach.
The tariff revision clause stipulated that a tariff reduction initiated by the distributor would automatically trigger an obligation for both parties to renegotiate, while suppliers would be required to justify any increase with objective criteria, with the understanding that any modification required the distributor's consent.
Due to the lack of reciprocity in the conditions for implementing tariff revisions, depending on whether the initiative came from the distributor or its suppliers, the Court of Cassation ruled that the significant imbalance was established.
The penalty clause, for its part, stipulated a penalty system in the event the supplier failed to meet a minimum service level of 98.5%, without providing a precise definition.
The Court of Cassation ruled that the general and imprecise nature of the disputed clause rendered this penalty system automatic, thus creating an imbalance between the rights and obligations of the parties. It is important to note that the Court of Cassation conducted a comprehensive analysis of the significant imbalance in both cases. Regarding the price revision clause, the lack of reciprocity in the contractual provisions, coupled with the distributor's failure to provide evidence of the existence of a clause capable of rebalancing the contract, established the significant imbalance between the rights and obligations of the parties to the contract. The significant imbalance resulting from the penalty clause was characterized by the lack of reciprocity and of any compensation for the imbalance in question.
Furthermore, the Court of Cassation clarified that lower court judges, in order to characterize a significant imbalance in the rights and obligations of the parties to a contract, must analyze not only the disputed clauses but also conduct a concrete and comprehensive assessment of the contracts in question.
We can therefore assume that if another clause, certainly likely to cause an imbalance between the parties but this time favoring the supplier, had been inserted into the contract, thus rebalancing the rights and obligations of the parties, the Court of Cassation would probably not have upheld the appeal court's ruling that ordered the distributor to cease these practices and pay a civil fine.
Obligation to deliver
Com. 10 February 2015 (No. 13-24.501) F-PB:
In this case, a company ordered a machine financed through a lease agreement. After signing the acceptance report, the buyer stopped making lease payments, claiming that no sample part had been manufactured with the precision to which the supplier had committed. The buyer then sued the supplier and the lessor for rescission of the sales contract, and the lessor sought damages from the buyer and the return of the equipment. The Court of Appeal ruled that the sale was rescinded due to a breach of the delivery obligation. The supplier then appealed this decision to the Court of Cassation. According to the supplier, the lessee's unconditional acceptance and the sending of the acceptance report to the lessor constituted acknowledgment of the equipment's conformity to the contractual specifications.
The Court of Cassation upheld the Court of Appeal's decision on the grounds that the obligation to deliver complex machines is only fully executed once the actual development of the sold item has been completed.
Compensable damages upon termination of business relationships
Com. February 10, 2015 (No. 13-26.414):
The Court of Cassation here reiterates that only damages resulting from the abruptness of the termination, and not from the termination itself, are compensable.
Condition for the regularity of the call for payment of the guarantee
Com. 10 February 2015 (No. 12-26.580) FS-PB:
In this case, a company had paid a deposit for a purchase. The guarantor had issued a first-demand guarantee for the return of this deposit, expiring on September 30, 2008. As the seller went into liquidation, the contract was not performed. On September 25, 2008, the buyer, represented by its counsel, proposed to the guarantor, who accepted, an extension of the guarantee to November 30, 2008. The guarantor ultimately refused to honor the guarantee after the buyer's representative issued a payment demand on November 25, 2008. The buyer then sued the guarantor for payment.
In this ruling, the Court of Cassation dismissed the appeal against the Court of Appeal's decision declaring the guarantee demand irregular and rejecting the payment claims. Indeed, the Court of Cassation states that "after stating that strict compliance with the formal and drafting requirements for calling on the guarantee, as provided for in the letter of guarantee and the Uniform Rules for Demand Guarantees, ICC publication no. 458, is the counterpart of the autonomy of the guarantee, that the beneficiary must comply with them in order to activate it and that the guarantor must verify the apparent regularity of the request addressed to it before paying, the judgment holds that the request for payment of the on-demand guarantee was made by the company's lawyer, who was required to provide proof of special authorization for this purpose, which has not been shown to have been attached to the faxes of September 25 and November 25, 2008 or to the letters confirming them."
Procedures for removing the auditor
Com. 10 February 2015 (No. 13-24.312) FS-PB:
The CEO and chairman of a company whose accounts were being audited sued the auditor to have him removed from office. The auditor argued that the action was inadmissible due to the company's lack of standing. The Court of Appeal rejected this objection, ruling that the summons had been issued by the company itself, represented by its CEO and chairman. The
Court of Cassation overturned the lower court's decision, finding that the company whose accounts were being audited was not among the persons or entities entitled to request the removal of its auditor.
