Newsletter No. 23 – Business Law
LEGISLATIVE AND REGULATORY NEWS
RCS Registration, Removal from the SIRENE Directory and the RSEIRL
Decree of April 14, 2015
The decree of April 14 aims to clarify, adapt and simplify the provisions relating to the maintenance of the RCS, removal from the SIRENE directory and the RSEIRL
CASE LAW
: COMPANIES IN DIFFICULTY -
Director's Liability -
Specificity of Liability Actions for Insufficient Assets and the Starting Point of the Limitation Period
Admission of claim: Pending proceedings remove the supervising judge's power to rule on the admission of a claim.
Arbitration clause
: Continued performance of the contract requires compliance with the stipulated arbitration clause.
CONTRACTS
Suretyship
Failure to subrogate the surety: burden of proof
Abusive termination of credit facilities does not release the surety from their obligation to pay
Third-party objection by the surety to the arbitration award
Mortgage guarantees Terms of distribution of the debtor's available balance
Jurisdiction clause: Sanction for the imbalance resulting from a jurisdiction clause
COMPANIES
Real Estate Civil Partnership
Loss of partner status is subject to reimbursement of the value of the partnership interests.
Partners are liable for company debts.
LEGISLATIVE AND REGULATORY NEWS – MAINTENANCE OF THE RCS, REMOVAL FROM THE SIRENE DIRECTORY AND THE RSEIRL
New provisions 1 relating to the maintenance and deletion of entries in the various registers are applicable from 1 July 2015.
Provisions relating to the trade and companies register (RCS)
The first two amendments concern the Trade and Companies Register (RCS) and, more specifically, the dissolution of companies. Indeed, under the new Article R. 123-75 of the French Commercial Code, in the event of the dissolution of a company resulting in the universal transfer of its assets to the sole shareholder who is not a natural person, the clerk of the court may issue the certificate of no objection after a period of thirty days from the publication of the dissolution, rather than within one month of the completion of the asset transfer. Furthermore, the clerk has the power to automatically register the dissolution of a company upon the expiry of its statutory term, except in cases of extension (Article R. 123-124 of the French Commercial Code).
Changes made to the national register of businesses and their establishments (SIRENE)
The National Institute of Statistics and Economic Studies (INSEE) is granted the power to remove an individual from the SIRENE directory if they are removed from the self-employed social security scheme (Article R. 123-227 of the French Commercial Code). The decree specifies that removal from the SIRENE directory can only occur after the removal of merchants, whether natural or legal persons, subject to registration with the Trade and Companies Register (RCS), commercial agents, whether natural or legal persons, subject to registration with the special register of commercial agents, and entrepreneurs registered with the register of sole proprietorships with limited liability (EIRL) (Article R. 123-228 of the French Commercial Code). In the case of multiple registrations, removal from the SIRENE directory is contingent upon removal from all registers (Article R. 123-230 of the French Commercial Code).
Entries recorded in the special register of EIRLs
From now on, in the absence of a request for deregistration by the entrepreneur, in the event of total cessation of his activity, the judge in charge of monitoring the RCS can issue an order requiring the person concerned to proceed with his deregistration.
Registration in the national register of those prohibited from managing
Finally, as of January 1, 2016, in the absence of registration of the natural person or the legal person of which he was the de jure or de facto manager, personal bankruptcies, measures prohibiting management, administration or control, must be entered in the register of prohibited managers by the clerk of the commercial court, in whose jurisdiction these measures were pronounced, as soon as the decision is no longer subject to any appeal suspending execution.
JURISPRUDENCE
Liability for insufficient assets
Com. April 8, 2015 (n°13-28.512) F-PB:
In this case, the action for liability due to insufficient assets against the director of a company in judicial liquidation was declared admissible. The director contested the admissibility of this action. According to him, the action for liability due to insufficient assets was combined, on the one hand, with actions for tortious liability. Furthermore, the rules governing the action for liability due to insufficient assets were combined with those governing actions for liability against directors of public limited companies; consequently, the action was subject to a three-year statute of limitations and could only be based on management errors not barred by the statute of limitations under Article L.225-254 of the French Commercial Code.
The Court of Cassation dismissed the appeal and reiterated that an action for liability due to insufficient assets is independent of the special liability action provided for in Article L. 225-254 of the French Commercial Code against the directors of a public limited company and of the general action for extra-contractual civil liability. The Court further clarified that, pursuant to Article L. 651-2, paragraph 3, of the French Commercial Code, the action is subject to a three-year statute of limitations from the date of the judgment ordering the judicial liquidation, regardless of when the alleged mismanagement by the director was committed.
1 Decree No. 2015-417 of 14 April 2015 relating to the trade and companies register, the register of businesses and their establishments and the special register of sole proprietors with limited liability
Admission of claim and pending proceedings
Com. April 8, 2015 (n°14-10.172) F-PBI:
In this case, a debtor in liquidation contested the declaration of one of its creditors due to the existence of an appeal concerning the debtor's judgment ordering payment of a certain sum to the said creditor. This latter case was struck from the docket, and the Court of Appeal ruled in favor of the claim.
With reference to Articles 383 of the Code of Civil Procedure and L.624-2 and L.641-14 of the Commercial Code (as they read prior to the Ordinance of March 12, 2014), the Court of Cassation quashed the judgment, finding that an appeal pending on the date of the judgment opening the insolvency proceedings, merely suspended by a striking-off order, deprives the supervising judge of the power to rule on the admission or rejection of the claim, regardless of whether the appealed judgment is enforceable.
The continued performance of the contract requires compliance with the stipulated arbitration clause
1st Civ. April 1, 2015 (n°14-14.552) F-PB:
A liquidator, who had continued to enforce the contracts, brought an action before the commercial court to obtain payment of sums owed by a contracting party, despite specific stipulations containing an arbitration clause. The liquidator's claim was declared inadmissible for failure to comply with the arbitration procedure. The liquidator then appealed to the Court of Cassation. In support of his appeal, the liquidator argued, in particular, that the arbitration clause is only enforceable against the insolvency proceedings bodies when they are acting on behalf of the debtor, and not when they are acting on behalf of the creditors.
The Court of Cassation upheld the appeal ruling which stated that "the liquidator had exercised the right to continue the execution of the contracts with all the rights and obligations attached thereto, which implied compliance with the arbitration clause stipulated therein".
Failure to subrogate the surety: burden of proof
Com. April 8, 2015 (n°13-22.969) F-PB:
In this case, a bank that filed its claim after the deadline was not included in the distribution of dividends stipulated in its debtor's reorganization plan. The bank therefore sued the debtor's guarantor to enforce the guarantee. The Court of Appeal ordered the guarantor to pay a certain sum because the guarantor had neither demonstrated that it would have derived any actual benefit from being included in the distributions and dividends, nor demonstrated the existence of a lost opportunity.
The Court of Cassation overturned the judgment on the grounds that the Court of Appeal had reversed the burden of proof. It is incumbent upon the creditor, and not the guarantor, to prove that the loss of the preferential right caused no harm.
The wrongful termination of the competitions does not release the guarantor from their obligation to pay
Com. March 24, 2015 (n°13-16.076) FS-PB:
In this case, the director of a single-member limited liability company (EURL) had acted as joint and several guarantor for the repayment of loans and the outstanding balance of a current account held with a bank. The bank subsequently demanded the return of the payment instruments from the company shortly before its liquidation and then sued the guarantor. The guarantor, in turn, sought to hold the bank liable for wrongful termination of the credit facilities.
The Court of Appeal dismissed the bank's claims for reimbursement and ordered it to pay damages to the guarantor.
The Court of Cassation held that, in so ruling, when the guarantor is obligated, by virtue of the accessory nature of their commitment, to pay the bank the amount of sums remaining due from the principal debtor, and the guarantor's claim for damages against the bank can only be offset, the Court of Appeal violated Article 1147 of the Civil Code.
Third-party objection by the guarantor to an arbitration award
Com. May 5, 2015 (n°14-16.644) FS-PBRI:
In this case, a debtor transferred all of his shares in a company to his creditor. On this occasion, the parties entered into a liability guarantee agreement and a litigation management agreement, each containing an arbitration clause granting the arbitrators the power to act as amiable compositeurs in the final instance. By a separate instrument dated the same day, which did not contain an arbitration clause, a third-party company became jointly and severally liable for the debtor's obligations to the creditor.
The company whose shares had been transferred was ordered to pay a certain sum, and the creditor invoked the liability guarantee. An arbitral award ordered the debtor to pay the creditor that sum. The creditor sued the guarantor, and it filed a third-party objection to the arbitral award, which was dismissed by the Court of Appeal.
With reference to Article 6§1 of the European Convention on Human Rights, the Court of Cassation quashes the appeal judgment insofar as it considers that "the effective right to a judge implies that the joint guarantor, who was not a party to the arbitration proceedings, is entitled to lodge a third-party objection against the arbitration award determining the amount of the principal debtor's debt to the creditor".
Terms and conditions for distributing the debtor's available balance
Com. May 5, 2015 (n°14-17.941) F-PB:
In this case, a company took out two loans of the same amount from two banks, secured by two mortgages registered on the same day. The company was subsequently placed into liquidation, and the banks filed their claims. After the liquidator sold the property, the distribution of the remaining proceeds between the banks became problematic.
The Court of Appeal held that the remaining balance should be divided between the two banks in proportion to their respective mortgage claims as admitted to the liabilities of the liquidation proceedings.
The Court of Cassation upheld the ruling, clarifying that when two mortgages registered on the same property on the same day compete for the same property, and the debtor's assets are insufficient to satisfy their holders' rights, the debtor's funds are distributed proportionally.
Sanction for the imbalance resulting from a jurisdiction clause
1st Civ. March 25, 2015 (n°13-27.264) F-PB:
To finance construction work in France, a company entered into two framework credit agreements with a Swiss bank. These agreements contained a jurisdiction clause stating that "the borrower acknowledges that the exclusive place of jurisdiction for any proceedings is Zurich or the location of the bank branch where the relationship is established" and that "the bank is nevertheless entitled to bring an action against the borrower before any other competent court." Challenging the financial arrangement within which this transaction took place, carried out through the representative of a company domiciled in the United Kingdom and involving a French bank, a company, as successor to the borrower's rights, sued both the French bank and the Swiss bank in a French court, seeking compensation for its losses. The Court of Appeal upheld the bank's objection to jurisdiction, ruling that the imbalance resulting from the jurisdiction clause, inherent in a jurisdiction clause agreed upon between two contracting parties from different countries, was not sufficient to render it invalid under the Lugano Convention.
The Court of Cassation overturned the appeal court's decision. According to the Court, by failing to examine whether the alleged imbalance—in that the disputed clause reserved to the bank the right to take action against the borrower before "any other competent court" and did not specify on what objective elements this alternative jurisdiction was based—was not contrary to the objective of predictability and legal certainty pursued by the Lugano Convention, the Court of Appeal deprived its decision of a legal basis.
The loss of partner status is conditional upon reimbursement of the value of the shares
Com. May 5, 2015 (n°14-10.913) F-PB:
Following the judicial liquidation of a partner and co-manager of a French real estate company (SCI), the liquidator sued the managers to appoint a provisional administrator for the SCI. One of the managers and the SCI itself challenged the Court of Appeal's decision, arguing that the SCI's articles of association stipulated that upon the judicial liquidation of one of the partners, that partner ceased to be a member of the company.
The Court of Cassation dismissed the appeal against the Court of Appeal's decision, ruling that Article 1860 of the French Civil Code stipulates that the loss of partner status cannot occur prior to the reimbursement of the value of one's shares.
Obligation of partners to company debts
3rd Civil Chamber, May 6, 2015 (No. 14-15.222) FS-PBI:
Due to a lack of sound insulation, a property investment company (SCI) and its insurer were sued by the condominium association to obtain compensation for the resulting damages.
The insurer was subsequently ordered to pay the SCI's liquidator an amount corresponding to the cost of repairs actually incurred by the SCI. This amount did not match the amount claimed, as the Court of Appeal had deducted payments made by partners from the total, arguing that they had settled their personal debts to third parties.
The Court of Cassation, however, ruled that "a partner in a civil law partnership who settles a debt owed by the partnership pursuant to Article 1857 of the Civil Code is paying the partnership's debt, not a personal debt."
