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

Company Law (en cours)

The informed consent of the parties is necessary for the validity of the transfer. Mistake, fraud, and duress vitiate consent when they are of such a nature that, without them, one of the parties would not have contracted or would have contracted under substantially different conditions . Their determining nature is assessed with regard to the persons and the circumstances in which the consent was …

Principle

The informed consent of the parties is necessary for the validity of the transfer. Mistake, fraud, and duress vitiate consent when they are of such a nature that, without them, one of the parties would not have contracted or would have contracted under substantially different conditions . Their determining nature is assessed with regard to the persons and the circumstances in which the consent was given .

The courts consider that a transfer of shares cannot be deemed concluded under a mistake regarding the substantial qualities of the transferred shares when the transferees knew, at the time of the transaction, of the company's lack of profitability, were aware they would have to finance a significant negative cash flow for eighteen months, and planned a complete reorientation of the business . Conversely, a mistake induced by the transferor's fraudulent actions regarding the target company's ability to continue, under regular conditions, the economic activity constituting its main and dominant purpose, when this was decisive for the acquisition decision, concerns a substantial quality and results in the nullity of the transfer . Similarly, a transfer of shares may be annulled for a mistake regarding the substantial qualities of the transferred shares when the transferees were unaware of the agreement by which the target company had transferred almost all of its assets to another, depriving it of the ability to achieve its corporate purpose, conduct economic activity, and become profitable .

It is also necessary to distinguish fraud  from fraudulent concealment. Fraud, which requires the transferees to demonstrate that the transferors personally  engaged in maneuvers without which it is evident they would not have contracted , may result from the action of a transferor who falsely declares that none of the companies whose shares are being transferred is in a state of insolvency and that the annual accounts, regular and sincere, provide a true and fair view of their financial situation, while being guilty of false invoicing and embezzlement . Similarly, the transferee's error regarding the value of the target's shares, caused by a maneuver of the transferor who intentionally concealed the latter's financial situation, may justify the annulment of the transfer agreement for fraud . Furthermore, a transferee who disregards the terms of the share transfer agreement concerning the terms of a financial partnership, which is decisive for the transferor's consent, commits fraud . However, a change in accounting method two years prior to the negotiation of a share transfer cannot be considered, in the absence of fraud, as evidence of a fraudulent maneuver by the transferor .

Fraudulent concealment is closely related to the duty of information incumbent upon the parties. Indeed, the transferee of shares may invoke the fraudulent concealment by the transferor who refrained from providing a report on the pollution status of the site owned by the target company, without being blamed for not having informed themselves, given the nature of the activity conducted and the classified nature of the installation .

For fraud or fraudulent concealment to be established, the person responsible for the maneuvers must have intended to deceive the other party . The intention to deceive the assignees, on the basis of fraud, is not established, as the assignors accepted the principle of an accounting audit before the transfer, provided the documents requested by the accountant, and no element of the file allowed for establishing that the transferred company was in a state of insolvency before the transfer, nor that the assignors could have been aware of this state . Similarly, the intention to deceive the assignors is not demonstrated by the fact that the transferred company did not hold shares in the capital of another, as the assignee, experienced in business, was able to know this circumstance that the assignors did not seek to conceal .

Cass. com., 13 September 2017, LawLex202300000488JBJ.

Cass. com., 7 July 2020, LawLex202300000493JBJ.

Cass. com., 27 January 2021, LawLex202300000101JBJ

Cass. com., 28 June 2005, LawLex200600002444JBJ, considering that the breach of a pre-contractual duty of information, if established, cannot suffice to characterize fraud by omission unless it is accompanied by the finding of the intentional nature of this breach and a decisive error caused by it.

Cass. com., 21 April 2022, LawLex202200003343JBJ.

Cass. com., 11 May 2017, LawLex202300000059JBJ, considering that the intent to deceive by the transferors is not demonstrated by the fact that the transferred company does not hold shares in the capital of another, as the transferee, experienced in business, was able to know this circumstance which the transferors did not seek to conceal, just as the absence of specific information regarding the existence of a debt of the transferred company and the settlement of a tax debt by offset do not constitute either a fraudulent maneuver or deceitful silence.

Cass. com., 2 May 2007, LawLex202300000062JBJ.

Cass. com., 10 December 2003, LawLex202300000009JBJ.

Cass. com., 1 October 1991, LawLex200500006053JBJ.

Civil Code, Art. 1137: “Fraud is the act of one contracting party obtaining the consent of the other through deceit or lies. Fraud also includes the intentional concealment by one of the contracting parties of information that they know is crucial for the other party. However, it does not constitute fraud for a party not to disclose to their co-contractor their estimation of the value of the performance.”

Cass. mixte, 29 October 2021, LawLex202100006463JBJ, considering that the fraudulent maneuvers of the agent of the transferor of a company's shares, in the exercise of his mandate, only engage the liability of the principal if he has personally committed a fault, which the victim must establish.

Cass. com., 23 June 2004, LawLex202300000061JBJ.

Cass. com., 12 May 2021, LawLex202300000093JBJ; 26 May 2009, LawLex202300000070JBJ, holding that the presentation of inaccurate accounts, on the basis of which a transfer of shares was negotiated, may constitute fraud within the meaning of Article 1137 of the Civil Code, even if the transferor was acquitted of fraud charges due to the absence of fraudulent maneuvers; 15 July 1992, LawLex202300000076JBJ, specifying that the annulment for fraud of the transfer of shares is justified by the transferor's false statement that there are no ongoing disputes likely to significantly reduce the company's assets, while being aware of a warranty claim served at the company's registered office, and that without such an allegation, the other party would not have contracted.

Cass. com., 12 May 2015, LawLex202300000491JBJ.

Company Law (en cours)

96. Principle

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96. Principle

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Les notions juridiques connexes

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