Newsletter No. 29 – Business Law – January 2016
Summary
LEGISLATIVE AND REGULATORY NEWS
- Public limited companies: reduction of the minimum number of shareholders – Order of 10 September 2015
- Consumer dispute mediation – Order of August 20, 2015
- Payment terms between professionals
CASE LAW
- Companies in difficulty
Debtor's rights
The right to exercise legal remedies
- Contracts
Nullity
Impossible to return
Penalty clause
Classification of a contractual penalty payment as a penalty clause – Role of the judge –
Indivisibility
The loan agreement is void following the cancellation of the main contract
- Companies
Real estate civil society
Conditions for participation in decisions
Abuse of majority
Legislative and regulatory news
Public limited companies: reduction in the minimum number of shareholders
The law simplifying business life has empowered the government to take measures by decree to reduce the minimum number of shareholders in unlisted public limited companies and to adapt accordingly the rules of administration, operation and control of these companies, without calling into question the powers and rules of composition, organization and operation of their bodies.
By virtue of Ordinance No. 2015-1127 of September 10, 2015, which entered into force on September 12, the minimum number of shareholders in unlisted public limited companies is reduced to two instead of seven (Article L.225-1 of the French Commercial Code). The requirement of a minimum of seven shareholders therefore remains in effect only for listed companies. The Ordinance also draws the consequences of this new rule and amends Article L.225-247 of the French Commercial Code relating to the dissolution of public limited companies when the number of shareholders has been reduced to fewer than seven for more than one year.
Finally, contrary to the terms of the authorization, the report to the President of the Republic specifies that the government has chosen not to modify the rules of administration, operation and control of these companies.
Consumer dispute mediation
Ordinance No. 2015-1033 of August 20, 2015, transposes Directive 2013/11/EU on alternative dispute resolution for consumer disputes into French law. A new section, entitled "Mediation of Consumer Disputes," is thus added to Book 1 of the Consumer Code.
Scope
This order is intended to apply to all disputes between a consumer and a professional, including cross-border disputes (Art. L.156-4 of the Consumer Code). However, the following are excluded: disputes concerning a non-economic service of general interest, healthcare services provided by healthcare professionals to assess, maintain, or restore a patient's health, and disputes involving public higher education providers (Art. L.151-4 of the Consumer Code).
Obligations of professionals
Professionals must guarantee consumers effective access to a free mediation service (Art. L.152-1 of the Consumer Code). However, professionals are prohibited from requiring consumers to undergo mediation before taking legal action (Art. L.152-4 of the Consumer Code).
Businesses must provide consumers with the contact details of the relevant mediator(s), including when a dispute could not be resolved through a complaint. Businesses may establish their own mediation system or use a mediator who meets certain requirements.
Failure to provide this information may result in a fine of up to €3,000 for an individual and €15,000 for a legal entity.
The procedures for implementing the mediation process were subsequently defined by decree, and professionals had until January 1, 2016, to comply with these provisions.
Changes to payment terms between professionals under the Macron law
Until the entry into force of Article L.441-6 of the Commercial Code as amended by the Macron Law, payment terms were set at forty-five days end of month or sixty days from the date of issue of the invoice.
The standard payment period is now sixty days from the invoice date. As an exception, the parties may agree to a maximum period of forty-five days from the end of the month following the invoice date, subject to two conditions: it must be expressly stipulated in the contract and it must not constitute a manifest abuse against the creditor.
In sectors with a particularly marked seasonal character, the parties may agree on a payment period which cannot exceed the maximum period applicable in 2013. The sectors concerned are those which already benefited from this scheme, namely, the toy, watchmaking and jewelry, leather, sporting goods and agricultural equipment sectors*.
*Decree No. 2015-1484 of November 16, 2015, establishing the list of sectors mentioned in Article L. 441-6 of the Commercial Code
Case law
The debtor has the inherent right to pursue legal remedies
Com. 8 September 2015 (No. 14-14.192) F-PB:
A company and its manager, ordered to pay various sums due to the poor performance of a contract, appealed the judgment ten days before the company was placed into liquidation. The liquidator, summoned to intervene by the respondents, indicated that he would not appear on behalf of the company due to a lack of funds. The plaintiffs then challenged the appellate court's decision for having dismissed their claims against the company and its representative.
The Court of Cassation rejects the appeal. According to the Court, it follows from Article L. 641-9 I of the Commercial Code that when proceedings seeking the condemnation of the debtor to pay a sum of money for a cause prior to the judgment opening his judicial liquidation are pending on the date of that judgment, the debtor has, in that case, the right to exercise the remedies provided by law against the decision ruling on the claim for condemnation.
Contract void – Impossibility of restitution
3rd Civil Chamber, July 8, 2015 (No. 14-11.582) FS-PB:
A municipality had granted a real estate company (SCI) a lease-purchase agreement. Claiming non-payment of rent, the municipality obtained a summary judgment declaring the lease-purchase agreement terminated due to the SCI's breach and ordering the latter to pay an advance on the outstanding rent and monthly occupancy compensation until the premises were vacated. The SCI then sued the municipality to have the lease-purchase agreement declared null and void and to obtain reimbursement of the rent paid, arguing that the mayor had not been authorized by the municipal council to enter into such an agreement.
Finally, the municipality also requested, as a secondary claim, payment of an occupancy allowance for the period prior to the annulment. The Court of Appeal rejected the municipality's claim for payment of an occupancy allowance for the period prior to the annulment, insofar as the return of the property did not impoverish the municipality.
The Court of Cassation quashes the appeal judgment and specifies that in the event that a void contract has been performed, the parties must be restored to the state in which they were before this performance and that, when this restoration proves impossible, the party that has benefited from a service which it cannot return, such as the enjoyment of a rented property, must pay an occupancy indemnity.
Conventional penalty and penalty clause
2nd Civil Chamber, September 3, 2015 (No. 14-20.431) F-PB:
The sellers of a property, by notarial deed, undertook the obligation to remove a planter installed on public property, subject to a daily penalty. However, an enforcement judge declared inadmissible the buyer's request for the enforcement of the contractual penalty.
The latter having initiated, by virtue of the notarial title, a seizure and sale and two attachment orders, to obtain payment of the agreed sum, the sellers brought the matter before an enforcement judge, who rejected their request for annulment of the seizure and sale order, release of the two attachment orders and removal of the penalty payment.
To cancel the order for seizure and sale and order the release of the two attachment orders, the lower court judges held that no penalty could give rise to a measure of forced execution before its liquidation, whether this penalty is pronounced by a judge or whether it is agreed between the parties in an act to ensure the execution of an obligation to do.
The Court of Cassation first reiterates that the judge must give or restore the correct legal classification to the disputed facts and acts, without being bound by the label given to them by the parties. Consequently, it was incumbent upon the Court of Appeal to classify and assess the disputed clause, which in this case was a penalty clause.
Indivisibility
1st Civil Chamber, September 10, 2015 (No. 14-13.658) FS-PBI:
1st Civil Chamber, September 10, 2015 (No. 14-17.772) FS-PBI:
The two judgments presented here concern similar facts. In each case, a bank appealed to the Court of Cassation against the Court of Appeal's decision declaring null and void a contract for the sale and installation of a wind turbine, as well as the loan agreement granted to finance this acquisition.
The Court of Cassation dismissed both appeals. In its first ruling, the Court held that the Court of Appeal had found that the credit offer was linked to the main contract and had been completed by the seller, and that the lender had released the borrowed funds to the seller, thus establishing the existence of a contractual indivisibility between the sales and loan contracts within the meaning of Article 1218 of the Civil Code. In the second ruling, the Court considered that the lower court judges had demonstrated the indivisibility of the disputed contracts by stating, firstly, that the credit agreement was ancillary to the sales contract to which it was subordinate, and secondly, that the borrower had certified the performance of the main contract in order to obtain the release of the funds from the lender, who had made these funds available to the seller. Consequently, the termination of the main contract entailed the nullification of the ancillary contract.
Conditions for participation in decisions within a real estate civil company
3rd Civil Chamber, July 8, 2015 (No. 13-27.248) FS-PB:
The Court of Cassation reiterates that, according to Article 1844 of the Civil Code, only shareholders have the right to participate in the collective decisions of the company. Thus, the Court upholds the appeal court's ruling that declared null and void a general meeting attended by the heirs of a deceased shareholder, during which they participated in the appointment of the manager, even though they could not claim either approval or shareholder status.
Abuse of majority
3rd Civil Chamber, July 8, 2015 (No. 13-14.348) FS-PB:
A minority shareholder in a French real estate company (SCI) sued the majority shareholder to have several decisions made by the general meeting declared null and void. This SCI, initially formed to acquire and operate a building, had sold two-thirds of its shares to another company. Following this new share distribution, a capital increase was voted on and fully subscribed by the majority shareholder, the company's purpose was amended, and all profits from two fiscal years were allocated to reserves.
The Court of Appeal having concluded that the statutory rules of reinforced majority required for the amendment of the statutes had been disregarded, it sanctioned these irregularities by nullity.
The lower court judges' decision is upheld by the Court of Cassation on the grounds that the principle of unanimity, unless otherwise stipulated, for amending the articles of association, as set out in Article 1836 of the Civil Code, falls under the mandatory provisions of the title referred to in Article 1844-10 of the same Code.
