French Competition Law provides a comprehensive review of the French rules relating to competition: restrictive agreements, commercial negotiation, abuses of a dominant position, procedure and merger control.

French Competition Law

Originally used in the United States, the “failing company” defense has been sanctioned on several occasions by French  and European Union law. Although not always completely unambiguous, the reasoning underlying the notion does not fall within the context of an exemption scheme but is part of a purely competition-oriented analysis. If the merger involves the takeover of an undertaking which would …

Failing company defense

Originally used in the United States, the “failing company” defense has been sanctioned on several occasions by French  and European Union law. Although not always completely unambiguous, the reasoning underlying the notion does not fall within the context of an exemption scheme but is part of a purely competition-oriented analysis. If the merger involves the takeover of an undertaking which would have disappeared from the market in any event, the causal link between the merger and the harm to competition is broken. In other words, the transaction is not itself the cause of lessened competition and should therefore be authorized. This form of justification is subject to three conditions: 

- the disappearance of the acquired undertaking must be imminent and inevitable ;  according to the Competition Authority, the fact that the target company or companies were in a situation of suspension of payments and had been the subject of bankruptcy proceedings before a commercial court is generally sufficient to demonstrate that the criterion relating to the rapid disappearance of the target company in the absence of the merger has been met ;

- the absence of an alternative solution which is less prejudicial to competition ; to establish that no other offer which is less prejudicial to competition would have made it possible to ensure the continuity of the target undertaking's business, the notifying party must demonstrate that the divestiture process guarantees sufficient publicity for it to be presumed that all relevant alternative offers have in fact been identified , it being understood that procedures governed by the Commercial Court generally make it possible to presume a sufficient level of publicity ; in its assessment of the existence of an alternative offer, the Competition Authority must of course take account of changes in market structure ; when carrying out an independent analysis, specific to each case, of the successful nature of alternative bids and their impact on competition, the Competition Authority may take into consideration not only equivalent bids, but also lower-priced bids, as long as these relate to the whole of the scope taken over, or to a substantial part of it ; in the Competition Authority's view, the second criterion - the absence of a less detrimental alternative offer - is met if the procedure to find buyers was sufficiently well publicized, if no takeover offer was made for a material part of the perimeter taken over as part of the above-mentioned compulsory liquidation procedure, and if no expression of interest for a substantial part of the perimeter taken over was made subsequently ;

- the disappearance of the company in difficulty would be no less damaging for consumers than the proposed takeover ; according to the Competition Authority, the assessment of the third criterion of the failing company theory must take place at the time of its examination, up to the date of the decision , and the analysis of the various counterfactual scenarios must cover each of the relevant markets where competition problems have been identified .

The decision-making practice of the competition authorities seemed to veer toward a more limited interpretation of the failing company defense and avoid its application, taking into consideration the possibility for the assigning undertaking to support its subsidiary . This position was explained notably by the fear of seeing merger control reduced to a shadow of its former self given the frequency of situations of financial difficulties affecting the target undertaking. For the first time, the Competition Authority, in relation to the takeover of Conforama by Mobilux accepted the failing company defense in 2022  . Two years later, however, it rejected this defense for the takeover of Ludendo by JouéClub .

Minister of the Economy, letter of 14 June 1996, LawLex200200002053JBJ; Competition Council opinion No 96-A-01 of 31 January 1996, LawLex200200002030JBJ; Minister of the Economy, letter of 31 August 1998, LawLex200200002073JBJ; 1 September 1999, LawLex200300002119JBJ; Competition Council opinion No 02-A-07 of 15 May 2002, LawLex200200006186JBJ; Minister of the Economy, letter of 5 July 2002, LawLex200200006185JBJ; Merger control guidelines, pts 785 et seq. Even before it was enshrined, the control authorities took into account in the assessment of these elements the economic context in which the merger occurred and appeared to more easily accept the sufficiency of the contribution to economic progress when the merger facilitated the reorganization of a company in difficulty, or was intended to restore the cashflow margin of a depressed industry: Competition Council opinion of 26 February 1981, LawLex200200002093JBJ, Report for 1981, 72; Competition Council opinion of 22 March 1979, LawLex200300002257JBJ, Report for 1979, 78.

Competition Council opinion No 96-A-01 of 31 January 1996, LawLex200200002030JBJ; Minister of the Economy, letter of 5 July 2002, LawLex200200006185JBJ; Cons. d'Ét., 6 February 2004, LawLex200400000223JBJ, quashing the decision authorizing a merger in application of the failing company theory in the absence of economic evidence of it being less prejudicial to consumers.

Competition Authority decision No 24-DCC-129 of 19 June 2024, LawLex202400005737JBJ.

Competition Authority decision No. 22-DCC-78 of 28 April 2022, LawLex202300003378JBJ, specifying that since the failing company theory is the last stage of the reasoning for the assessment of a merger, which is implemented at the level of each of the relevant markets defined both in terms of product market and geographic market and that the criterion of a less harmful nature of the transaction compared to a scenario of disappearance of the target activity consists of verifying the existence of a causal link between, on the one hand, the concentration and, on the other hand, the deterioration of the competitive structure of the market, the analysis of counterfactual scenarios with a view to assessing the buyer's market power  must be carried out on the relevant markets as defined by the Competition Authority.

Competition Council opinion No 05-A-18 of 11 October 2005, LawLex200500010086JBJ, stating that the failing company requirement is not met where there has been no declaration of bankruptcy or joint proceedings have not been initiated against any of the undertakings; Competition Authority decision No 12-DCC-154 of 7 November 2012, LawLex201200002499JBJ, considering that the failing company exception is not applicable when there is another offer for the takeover of a substantial part of the business.

Competition Authority decision No. 22-DCC-78 of 28 April 2022, LawLex202300003378JBJ, holding that the merger should be authorized without commitments since the cumulative criteria for the failing company defense are met, i.e. the difficulties of the target undertaking would lead to its rapid collapse in the absence of a takeover, there is no other less anticompetitive takeover bid than that of the notifying party for all or a substantial part of that undertaking, and finally the demise of the undertaking would be no less detrimental to consumers than the proposed takeover.

Competition Authority decision No. 24-DCC-129 of 19 June 2024, LawLex202400005737JBJ: the failing company theory cannot be applied to the concentration in question since, for all the problem areas identified, with the exception of the “Rodez” area, a competitor of the parties has expressed an interest in taking over the target assets present in these areas and a takeover by that operator of the stores concerned would lead to a more favorable competitive situation than that resulting from the notified transaction in the identified problem areas.

Competition Authority decision No. 22-DCC-78 of 28 April 2022, LawLex202300003378JBJ, specifying that, even if the target was not in a state of suspension of payments at the time of its takeover by the notifying party, the absence of such a takeover would have made it impossible for the target to continue its business, the first criterion for the applicability of the failing company exception identified by decision-making practice should be considered to have been met; No 24-DCC-129 of 24 June 2024, LawLex202400005737JBJ: since the liquidation procedure enabled the applicant to make an offer to buy back the target assets, and if the target assets had not been taken over, they would have faced difficulties likely to lead to their rapid disappearance, the first condition of the failing company theory is met.

Competition Council opinion No 96-A-01 of 31 January 1996, LawLex200200002030JBJ; Minister of Economy, letter of 14 June 1996, LawLex200200002053JBJ; 5 July 2002, LawLex200006185JBJ; Competition Council opinion No 05-A-01 of 7 January 2005, LawLex200500009097JBJ.

Competition Authority decision No 22-DCC-78 of 28 April 2022, LawLex202300003378JBJ: when assessing the existence of alternative offers, the Competition Authority, which may rely on searches for buyers implemented by the parties involved in the divestiture process (in particular conciliators or commercial courts), is not bound by the conclusions of such procedures, since its assessment of the takeover process is based on competitive criteria, which may be distinct from those used by the other parties involved in the divestiture procedure; No. 24-DCC-129 of June 19, 2024, LawLex202400005737JBJ.

Competition Authority decision No 22-DCC-78 of April 28, 2022, LawLex202300003378JBJ, adding that while the opening of a conciliation procedure does not in itself make it possible to presume sufficient publicity concerning the sale of the target, the latter's financial difficulties were widely publicized in the press, which made it possible, at the very least, to inform potential buyers so that they could position themselves if necessary, thus establishing that the sale process guaranteed sufficient publicity, to presume that all relevant alternative offers had been identified.

Competition Authority decision No 22-DCC-78 of 28 April 2022, LawLex202300003378JBJ: in the context of the failing company theory, according to changes in the market structure - for example due to the entry or exit of competing operators subsequent to the procedures supervised by the commercial court - it may be necessary for the parties to demonstrate that no alternative offer has emerged between the day on which the notified transaction was sufficiently finalized to be subject to notification and the day on which the Competition Authority adopts its decision on the notified transaction.

Competition Authority decision No 22-DCC-78 of 28 April 2022, LawLex202300003378JBJ, specifying that to be considered a credible alternative offer within the meaning of the second criterion of applicability of the failing company defense, an offer does not necessarily have to have the same degree of success as the offer presented by the parties, in particular, the filing of an offer with the Commercial Court as part of a formal takeover procedure is considered neither a necessary nor a sufficient criterion.

Letter from the Ministry of the Economy, 5 July 2002, LawLex200200006185JBJ: the condition would also be met in the event of the acquiring undertaking taking over the market share of the acquired undertaking in the event of the latter's cessation; Competition Authority decision No 22-DCC-78 of 28 April 2022, LawLex202300003378JBJ: in the context of the failing company theory, the criterion of the less prejudicial nature of the transaction compared to a scenario in which the target activity ceases to exist makes it possible to compare the specific effects of the merger with the spontaneous dynamics of the market, by identifying credible alternative counterfactual scenarios in the event that the notified transaction is not completed in a broader context than the analysis of the second criterion of the absence of less harmful alternative offers, so that if offers have been rejected under this second criterion because of their lack of credibility or their partial nature, they can be taken into account at the third stage; No 24-DCC-129 of 19 June 2024, LawLex202400005737JBJ: the third criterion of the failing company theory pursues the analysis of the causal link between the transaction and the deterioration of the competitive situation on the market, by comparing the effects on competition of the transaction and those of the various possible scenarios in the event that it does not take place, it being understood that the examination is carried out market by market and that such a demonstration presupposes, in the first instance, demonstrating that the assets would inevitably have disappeared and, in the second instance, comparing the effects for the consumer of such a disappearance with those of the planned transaction, and this, in each relevant market.

French Competition Law

570. Failing company defense

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

570. Failing company defense

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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au contenu exclusif Livv – juristes d’entreprise