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

Company Law (en cours)

The restructuring of the undertaking, when it encounters difficulties, may require a consolidation of its corporate capital. Thus, like creditors, the company's associates may be called upon to contribute to the common effort by being required to make certain financial sacrifices.

To promote the proper application of the system, Article L. 631-19 of the Commercial Code deems all approval clauses unwritten.

1) Reconstitution of shareholders' equity

Pursuant to Article L. 626-3 of the Commercial Code, when, due to the losses recorded in the accounting documents, the company's shareholders' equity is reduced to a level below half of the corporate capital, the assembly is called upon to restore this equity to the amount proposed by the administrator, which cannot be less than half of the corporate capital. If the shareholders' equity has not been spontaneously restored under these conditions, Article L. 631-9-1 of the Commercial Code allows the administrator to request the appointment of a judicial representative responsible for convening the competent assembly and voting on the capital restoration, to the extent of the amount proposed by the administrator, in place of the opposing partners or shareholders, when the plan project provides for a capital modification in favor of one or more persons committed to executing the plan. This restoration of the company's equity through funds contributed by new partners is sometimes referred to as a "internal takeover" recovery plan. The judge cannot, when the plan includes such measures for restructuring the corporate capital, impose the adoption of the corresponding statutory modifications on their own initiative but must necessarily submit them to the vote of the competent assembly of partners . The partner who is aggrieved by the capital increase, notably through a dilution of their participation, may pursue the nullity of the general assembly that originated this decision, unless their attitude during the judicial recovery proposals and the legal dispute with the company of which they are the manager, shows that they did not demonstrate a real and serious willingness to participate in this capital increase in the same proportions as the third party . The person claiming to be the sole partner of the debtor company must be able to assert their partner rights against those who have committed, in the context of the plan preparation, to subscribe to a capital increase, by contesting the collective decision modifying the statutes without their consent, which aggrieves them . Nevertheless, the alternative recovery plan proposal of a partner of the debtor company is admissible notwithstanding the opposition of another partner, when it provides for a capital increase through its opening to a third party with the aim of clearing the verified liabilities and remedying the risk of losing their lease .

When the cessation of activity of an undertaking with at least one hundred and fifty employees, or constituting, within the meaning of Article L. 2331-1 of the Labor Code, a dominant undertaking of one or more undertakings with a total workforce of at least one hundred and fifty employees, is likely to cause serious disruption to the national or regional economy and the employment area, the court may impose a modification of the capital if it appears to be the only serious solution to avoid this disruption and to allow the continuation of the activity . This option, which can only be implemented after a period of three months following the opening judgment, and after examining the possibilities of total or partial transfer of the undertaking, implies that the convened assemblies have previously refused to adopt the capital modification provided for by the proposed recovery plan in favor of one or more persons who have committed to executing it. In this case, the court may, at the request of the judicial administrator or the public prosecutor, appoint a representative responsible for convening the competent assembly and voting for the capital increase in place of the partners or shareholders who refused the capital modification, up to the amount provided for by the plan.

The capital increase must be completed within a maximum period of thirty days from the resolution. To involve creditors in this method of restructuring the undertaking, the text specifies that the capital increase "may be paid up by the persons who have committed to execute the restructuring plan, by offsetting, up to the amount of the claims against the company that have been admitted and within the limit of the reduction they are subject to in the plan." However, if the capital increase is subscribed through contributions in cash, the shares issued are offered preferentially to shareholders, in proportion to the part of the capital represented by their shares.

See by analogy Cass. com., 15 January 1991, LawLex202100001795JBJ; 2 July 2013, LawLex202200004153JBJ and, in the same case, CA Paris, 22 January 2015, LawLex202200004286JBJ, concerning SARL.

See by analogy CA Versailles, 18 January 2022, LawLex202200004293JBJ, concerning an SARL.

Cass. com., 2 July 2013, previously cited.

CA Versailles, 16 March 2021, LawLex202200004303JBJ, concerning an SARL.

379. Reconstitution of shareholders' equity/Forced capital increase