All of French Company Law: ordinary law of companies and specific regime for different types of companies

Company Law (en cours)

1) Obligations of the issuing company

In accordance with Article L. 228-98 of the Commercial Code, a company called upon to allocate marketable securities giving access to capital may not, from the date of their issuance, modify its form or corporate purpose, unless authorized by the issuance contract or under the conditions provided for in Article L. 228-103 of the Commercial Code. Under the sam …

Specific provisions relating to securities giving access to capital

In accordance with Article L. 228-98 of the Commercial Code, a company called upon to allocate marketable securities giving access to capital may not, from the date of their issuance, modify its form or corporate purpose, unless authorized by the issuance contract or under the conditions provided for in Article L. 228-103 of the Commercial Code. Under the same conditions and subject to taking the necessary measures to maintain the rights of holders of marketable securities giving access to capital under the conditions defined in Article L. 228-99, it may neither modify the rules for distributing its profits, nor amortize its capital, nor create preference shares that result in such modification or amortization. In the event of a capital reduction motivated by losses and carried out by reducing the nominal amount or the number of securities comprising the capital, the rights of holders of marketable securities giving access to capital are reduced accordingly, as if they had exercised them before the date on which the capital reduction became final.

The issuing company must also take the necessary measures to protect the interests of the holders of the rights created if it decides to proceed with the issuance, in any form, of new capital securities with preferential subscription rights reserved for its shareholders, to distribute reserves, in cash or in kind, and issue premiums or to modify the distribution of its profits by creating preference shares. To this end, it must: either enable the holders of these rights to exercise them, if the period provided for in the issuance contract has not yet opened, so that they can immediately participate in or benefit from the aforementioned operations; or take measures that will allow them, if they exercise their rights later, to subscribe on an irreducible basis to the new securities issued, or to obtain their allocation free of charge, or to receive cash or assets similar to those distributed, in the same quantities or proportions and under the same conditions, except regarding enjoyment, as if they had been shareholders at the time of these operations; or proceed with an adjustment of the subscription conditions, conversion bases, exchange or allocation methods initially provided to account for the impact of these operations . It incurs contractual liability towards bondholders when it fails, following the distribution of dividends partly drawn from capital-related premiums, to adjust the conversion or subscription ratios of convertible bonds and share subscription warrants and must, to compensate for the resulting damage, grant them compensation equal to the equivalent value of the shares they were deprived of due to the lack of adjustment . The issuance contract may provide for additional protective measures intended for all holders of securities giving access to capital .

2) Protection in the event of absorption, merger, or spin-off of the issuing company

Article L. 228-101 of the Commercial Code provides that if the company called upon to issue capital securities is absorbed by another company or merges with one or more other companies to form a new company, or proceeds with a spin-off, the holders of securities giving access to capital may exercise their rights in the beneficiary companies of the contributions. Article L. 228-65, which requires the holding of a bondholders' meeting, is not applicable, unless otherwise stipulated in the issuance contract. The number of capital securities of the absorbing or new companies to which they may be entitled is determined by adjusting the number of securities that are planned to be issued or allocated in the issuance contract based on the number of shares to be created by the beneficiary companies of the contributions. The contribution auditor must issue an opinion on the number of securities thus determined. Furthermore, the approval of the merger or spin-off project by the shareholders of the beneficiary companies of the contributions or the new companies entails a waiver by the shareholders and, where applicable, by the holders of investment certificates of these companies, of the preferential subscription right mentioned in Article L. 228-35 or, in the second paragraph of Article L. 228-92, in favor of the holders of securities giving deferred access to capital. Finally, the beneficiary companies of the contributions or the new companies are automatically substituted for the issuing company in its obligations towards the holders of said securities.

Pursuant to Article L. 228-103 of the Commercial Code, holders of securities granting access to capital at maturity after detachment, if applicable, of the rights of the original security, are automatically grouped, for the defense of their common interests, into a body that enjoys legal personality and is subject to provisions identical to those provided, regarding bonds, by Articles L. 228-47 to L. 228-64, L. 228-66, and L. 228-90 . A distinct body is formed, if necessary, for each type of securities granting the same rights. The general meetings of the holders of these securities are called to authorize any modifications to the issuance contract and to decide on any decision relating to the conditions of subscription or allocation of capital securities determined at the time of issuance . If holders representing at least one-thirtieth of the securities of a body can request a convocation of the general meeting of holders, this meeting cannot propose to the issuing company a modification of the maturity of these securities . However, an operation of reducing the capital to zero and the consequent cancellation of bonds redeemable in shares, which affects the conditions of allocation of capital securities determined at the time of issuance, requires a prior convocation of the general meeting of bondholders .

Each security giving access to capital entitles the holder to one vote. The quorum and majority conditions are determined in the second and third paragraphs of Article L. 225-96, according to which the meeting is validly deliberated only if the shareholders present or represented hold at least, on the first call, one-quarter and, on the second call, one-fifth of the shares with voting rights. Failing this, the second meeting may be set for a date no later than two months after the date on which it was convened. The statutes may provide for higher quorums. The meeting decides by a two-thirds majority of the votes cast by the shareholders present or represented. The votes cast do not include those attached to shares for which the shareholder did not participate in the vote, abstained, or voted blank or null. The general meeting of holders of bonds redeemable in shares must be annulled when, in violation of the provisions of Article L. 228-61 of the Commercial Code, which prohibits any company holding at least 10% of the capital of the debtor company from voting at the meeting with the bonds it holds, a principal shareholder, through companies it controls, participated in a decisive vote . The meeting expenses and, more generally, all expenses related to the operation of the different groups are borne by the company called upon to issue or allocate new securities representing its share capital.

The representatives of the body of bondholders have, unless restricted by the general meeting of bondholders, the power to perform on behalf of the body all management acts for the defense of the common interests of the bondholders . According to the first paragraph of Article L. 228-54 of the Commercial Code, when duly authorized by the general meeting of bondholders, the representatives of the body alone have the authority to initiate, on behalf of the bondholders, actions for the nullity of the company or acts and resolutions subsequent to its formation, as well as any other legal actions aimed at defending the common interests of the bondholders, including requesting the judicial liquidation of the company as provided in Article L. 237-14 . A holder of convertible bonds cannot disregard the mandatory provisions of Article L. 228-54 . An action initiated individually by the subscriber of convertible bonds against the issuing company is therefore inadmissible under the provisions of Article L. 228-54 of the Commercial Code if the alleged fault arises from a breach of the issuance contract stipulations and affects the interests of all bondholders, which are necessarily defended by their representative . The holders of convertible bonds, when they are the majority within the body of bondholders, do not justify an interest to act distinct from that of the body, which would allow them to dispense with its representative . The remuneration of the representative of the body of holders of stock warrants can only be set under the conditions provided by Articles L. 228-56 and R. 228-63 of the Commercial Code, as referred by Article L. 228-103 of the same code and not by those set by the Code of Civil Procedure for the fees of legal auxiliaries . The holders of bonds redeemable in shares may, even in the case of the appointment of representatives, act individually to annul the resolutions of their meetings .

Holders of securities giving access to capital have the right to access corporate documents provided by the issuing company to shareholders or holders of investment certificates or made available to them . This right of access is exercised under the same conditions as those provided for shareholders of joint stock companies . When rights to a share of the corporate capital are incorporated or attached to bonds, the right of access is exercised by the representatives of the body of bondholders, in accordance with Article L. 228-55 . After these rights are detached from the original security, the right of access is exercised by the representatives of the body constituted in accordance with Article L. 228-103 . In all cases, the representatives of the different bodies have access to the general meeting of shareholders, but without voting rights. They cannot, in any way, interfere in the management of corporate affairs .

5) Protection in the event of the opening of safeguard or judicial reorganization proceedings against an issuing company

When a safeguard or judicial reorganization procedure is initiated for a company issuing securities giving access to capital under the conditions of Article L. 228-91, the period provided for exercising the right to allocation of a share of the corporate capital opens from the judgment approving the safeguard or reorganization plan, at the discretion of each holder, and under the conditions provided by this plan . The representative of the body of bondholders does not need to justify a special power or authorization from the general meeting of bondholders to declare a claim of the holders of convertible bonds . The declaration of claim made by the agent appointed by the court to ensure its representation, from the day after their appointment, even though the law grants them a period of fifteen days to do so, is regular .

CMF (Monetary and Financial Code), Art. L. 228-99.

CA Paris, 25 November 2008, LawLex202300005302JBJ.

Cass. com., 7 April 2010, LawLex202200011357JBJ.

CA Paris, 13 March 2012, LawLex202200011489JBJ.

CA Paris, 29 September 2016, LawLex202300005529JBJ.

Cass. com., 7 May 2019, LawLex202200011511JBJ; CA Montpellier, 16 January 2020, LawLex202300005669JBJ, holding that the president of the Judicial Court can only be validly seized by the representative of the body of holders of stock warrants with a request for the determination of his remuneration through a petition filed with the registry and notified to the opposing party.

Cass. com., 13 June 1995, LawLex202200011313JBJ.

Commercial Code, Article L. 228-105, para. 1.

Commercial Code, Art. L. 228-105, para. 2.

Commercial Code, Art. L. 228-105, para. 3.

Commercial Code, Art. L. 228-105, para. 4.

Cass. com., 26 February 2020, LawLex202300005426JBJ, considering that a creditor holding OCEANE bonds or high yield bonds can only contest the regularity of the bondholders' meetings, their composition, or the regularity of the votes, and not the safeguard plan of the issuing company itself.

CA Paris, 14 December 2021, LawLex202300005540JBJ, previously cited.

CA Bastia, 14 December 2016, LawLex202300005994JBJ.

CA Versailles, 17 November 1994, LawLex202200011314JBJ, holding that like bondholders, holders of bonds redeemable in shares, who only become shareholders at maturity, enjoy the rights associated with bond ownership, including the right to be automatically grouped into a body, and share the same characteristics as bondholders until redemption; Cass. com., 13 June 1995, LawLex202200011313JBJ.

CA Paris, 14 December 2021, LawLex202300005540JBJ, considering that the bondholders' general meeting cannot be annulled solely because it does not appear from its minutes that it was convened by the board of directors of the issuing company, as long as all the bondholders attended, and specifying that the appointment of a representative of the group by the bondholders' general meeting cannot be annulled solely because it does not appear from the minutes of the deliberation that the meeting was convened by the board of directors of the issuing company, as long as all the bondholders attended.

CA Douai, 23 January 2020, LawLex202300005464JBJ.

Cass. com., 10 July 2012, LawLex202200004119JBJ.

CA Versailles, 17 November 1994, LawLex202200011314JBJ; Cass. com., 13 June 1995, LawLex202200011313JBJ, affirming that the prohibition imposed on a company holding at least 10% of the capital of the debtor company from voting at the bondholders' meeting can only result from its direct participation in the capital of that company and not from that of several of its subsidiaries not individually holding 10% of shares.

Commercial Code, Art. L. 228-53. - See, for an application, Cass. com., 10 July 2012, LawLex202200004119JBJ, considering that when the capital of a debtor company is reduced to zero, with a view to its subsequent increase, the representative of the body of bondholders redeemable in shares remains in office, as long as the body persists until a final decision has been made on its rights.

Cass. com., 10 December 2013, LawLex202200011346JBJ, specifying that the action aimed at obtaining compensation for the damage related to the failure to adjust bonds convertible into shares is reserved for the representative of the body of bondholders, as long as it is likely to concern all bondholders placed in the same situation; CA Douai, 23 January 2020, LawLex202300005464JBJ, holding that only the representative of the body of bondholders, duly authorized to defend the common interests of the subscribers of redeemable share warrants, is admissible to act for compensation for the financial damage caused to some of them by the refusal to convene a general meeting of holders to decide on the conversion of their securities.

Company Law (en cours)

128. Specific provisions relating to securities giving access to capital

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Les notions juridiques connexes

128. Specific provisions relating to securities giving access to capital

Demandez un accès gratuit au contenu exclusif Livv – juristes d’entreprise

Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

Demandez un accès gratuit
au contenu exclusif Livv – juristes d’entreprise