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

Company Law (en cours)

Despite their great freedom of action, the management and supervisory bodies in the SA are subject to control over agreements concluded with the company, to prevent any conflict of interest situations. Article L. 225-38 of the Commercial Code provides that any agreement entered into directly or through an intermediary between the company and its chief executive officer, one of its deputy chief exe …

Procedure

BALENSI, Agreements between commercial companies and their directors, Economica, 1975; BARANGER, Regulated agreements, Practical Dossiers Francis Lefebvre, 2007.

Despite their great freedom of action, the management and supervisory bodies in the SA are subject to control over agreements concluded with the company, to prevent any conflict of interest situations. Article L. 225-38 of the Commercial Code provides that any agreement entered into directly or through an intermediary between the company and its chief executive officer, one of its deputy chief executive officers, one of its directors , one of its shareholders holding more than 10% of the voting rights, or, if it is a shareholder company, the company controlling it within the meaning of Article L. 233-3, must be submitted for prior authorization by the board of directors. The same rule applies when one of these persons is indirectly interested . Agreements entered into between the company and an undertaking are also subject to prior authorization if the chief executive officer, one of the deputy chief executive officers, or one of the company's directors is an owner, partner with unlimited liability, manager, director, member of the supervisory board, or, in general, an executive of that undertaking.

The question arises as to which agreements fall within the scope of the control procedure. Article L. 225-46 subjects exceptional remunerations for missions or mandates entrusted to directors to control. Thus, the allocation of an exceptional indemnity by the board of directors to its chairman and shareholder of the company, due to the sale of his shares and the consequent cessation of his duties, is subject to the authorization procedure for regulated agreements, without its beneficiary being able to participate in the vote . The authorization given by a board of directors, pursuant to the provisions of Article L. 225-38 of the Commercial Code, to conclude an agreement relating to the severance indemnity of the CEO does not, however, by itself, entitle the latter to such an indemnity, in the absence of the effective conclusion of the intended agreement . Similarly, the lease concluded by the deputy CEO of a joint-stock company with the owning company of which he is a partner must be subject to the procedure for regulated agreements under penalty of nullity, if this executive is indirectly interested in the conclusion of the agreement . Finally, the agreement establishing a supplementary pension scheme for the benefit of the chairman of the supervisory board and the management board of a company must be authorized by the supervisory board and approved by the general meeting .

A contrario, the agreement regularly concluded without fraud at a date when the beneficiary was not yet a member of the management board is not subject to the special authorization procedure for regulated agreements . Similarly, the amendment to an employment contract concluded at a date when the person concerned was not yet a director or chief executive officer of the company is not subject to the authorization procedure for regulated agreements . Furthermore, a unique unwritten agreement between a public limited company and one of its directors, expressly approved by the board of directors, whose nature and purpose are unequivocal and whose effects have extended over time, is considered an agreement of indefinite duration, which does not require new annual authorizations nor a particular form .

In accordance with Article L. 225-40, the chairman of the board of directors notifies the statutory auditors, if any, of all authorized and concluded agreements and submits them for approval to the general meeting. The statutory auditors or, if none have been appointed, the chairman of the board of directors, present a special report on these agreements to the meeting, which deliberates on this report  .

Except in cases of fraud, a regulated agreement authorized by the board of directors binds the company as soon as it is accepted by the beneficiaries, even if the general meeting of shareholders has not approved it . Article L. 225-41 indeed provides that agreements approved by the assembly, as well as those it disapproves, produce their effects with respect to third parties, unless they are annulled for fraud. This is precisely the case of an amendment to an employment contract that grants an employee compensation in the event of dismissal, stipulated just before the appointment of the person concerned as CEO, but backdated by several months . Furthermore, Article L. 225-42 of the Commercial Code provides that, without prejudice to the liability of the person concerned, agreements concluded without prior authorization from the board of directors may be annulled if they have had harmful consequences for the company . This is the case of the agreement that resulted in the company lessee bearing an inflated rent solely for the benefit of the family members of its CEO, who indirectly derived a personal interest from it,  or the clause providing for the granting to the CEO of compensation in the event of termination of his duties representing one year of remuneration . This action for annulment, which is open only to the company and not to its co-contractor , is subject to a three-year limitation period from the date of the agreement . If the agreement was concealed, the starting point of the limitation period is postponed to the day it was revealed . However, case law considers that the starting point of the limitation period for the action for annulment of an unauthorized regulated agreement cannot, even if it was hidden, be postponed to the date of its revelation when proof of an intention to conceal is not provided . Moreover, the three-year limitation period for the action for annulment based on non-compliance with the provisions applicable to regulated agreements does not apply when their annulment is requested for violation of the laws or principles governing the nullity of contracts . If the limitation period has expired, the exception of nullity of a regulated agreement can only succeed if it has not yet been executed . The execution of obligations arising from a regulated agreement while remaining independent does not constitute a commencement of execution of the latter likely to thwart the exception of nullity . Finally, the nullity can be remedied by a vote of the general meeting following a special report from the statutory auditors or, if none has been appointed, from the chairman of the board of directors explaining the circumstances under which the authorization procedure was not followed . However, a public limited company may invoke the nullity of a regulated agreement not authorized by the board of directors, even if the general meeting has unanimously approved it, in the absence of a special report from the statutory auditor explaining the reasons why the prior authorization procedure was not followed .

Cass. com., 11 March 2003, LawLex202200005001JBJ, on an agreement concluded between a joint stock company and one of its directors.

See, for an application, Cass. com., 23 October 1990, LawLex202200005860JBJ, considering that the president of a purchasing joint stock company, within the framework of a supply contract, who has direct interests through intermediaries in the supplier company, is subject to the procedure for regulated agreements, without needing to demonstrate that he is an owner with unlimited liability, manager, director, CEO, or member of the management board or supervisory board of the latter.

Cass. com., 22 May 1970, LawLex202200004990JBJ.

Cass. com., 5 January 2016, LawLex202200004935JBJ.

Cass. soc., 12 June 2012, LawLex202200004933JBJ, holding that the job offer made by the chairman of the board of directors to the chief executive officer and accepted by the latter constitutes a regulated agreement insofar as it contains stipulations exceeding ordinary law regarding remuneration, which result in harmful consequences for the company, which is subject to nullity if it was not submitted for prior authorization by the board of directors; Cass. com., 1 March 2011, LawLex202200004932JBJ; 3 June 2008, LawLex202200004937JBJ, considering that the contract by which a company subscribes to a subscription for assistance and wealth management advice for the benefit of its senior executives, which does not concern an ordinary operation, must be annulled when it has not been authorized by the board of directors, insofar as it provides these executives with services unrelated to the company's interest, imposing a significant financial burden on it without any compensation.

Cass. 3e civ., 30 November 2022, LawLex202300001073JBJ, RJDA 2023, No 150.

Cass. com., 26 November 2013, LawLex202200004929JBJ.

Cass. com., 15 March 1994, LawLex202200004936JBJ.

Cass. com., 21 January 2014, LawLex202200004993JBJ; 10 July 1978, LawLex202200004997JBJ, considering that while the action for invalidity of a regulated agreement is subject to a three-year limitation period, the exception of invalidity is perpetual; 24 February 1976, LawLex202200004992JBJ.

Cass. com., 5 January 2016, LawLex202200004935JBJ; 8 February 2011, LawLex202200004994JBJ.

Cass. com., 24 September 2013, LawLex202200004995JBJ.

Cass. com., 3 April 2013, LawLex202200004996JBJ.

Cass. com., 18 October 1994, LawLex202200004928JBJ.

Cass. com., 15 January 2013, LawLex202200004999JBJ; Cass. soc., 3 May 2012, LawLex202200004923JBJ; Cass. 1re civ., 17 June 2010, LawLex202200004998JBJ; Cass. soc., 29 November 2006, LawLex202200004921JBJ.

Cass. com., 16 October 2019, LawLex202200004931JBJ; 16 May 2018, LawLex202200004922JBJ.

Paris, 1 October 2013, LawLex202300012417JBJ; Cass. soc., 29 November 2006, LawLex202200004921JBJ; Cass. com., 24 February 1976, LawLex202200004992JBJ.

Cass. com., 20 November 2007, LawLex202200005217JBJ.

Cass. com., 16 October 2019, LawLex202200004931JBJ.

Cass. com., 16 May 2018, LawLex202200004868JBJ.

Cass. soc., 14 January 1999, LawLex202200004927JBJ.

Cass. com., 16 May 2018, LawLex202200004922JBJ.

Cass. soc., 3 May 2012, LawLex202200004923JBJ; Cass. com., 6 May 1996, LawLex202300007948JBJ, considering that agreements entered into with a person who was not yet a director of the joint stock company at the date of their conclusion are not subject to the authorization procedure of the board of directors.

Cass. com., 27 February 2001, LawLex202200004870JBJ.

Cass. com., 10 July 1978, LawLex202200004997JBJ, holding that the regulated agreement for which the prior authorization of the board of directors was irregularly given and which could not be validly approved by the general meeting due to the insufficient information provided by the statutory auditor's report, is subject to invalidity.

Company Law (en cours)

517. Procedure(1)

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

517. Procedure(1)

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