Introduction

Matrix organization

Mergers by absorption

Risks related to the expansion of the scope of criminal liability of legal entities

Validity conditions

Proof of delegation

Exemption from individual liability of delegator

Attribution of offense to legal entity

Delegations of authority

Criminal risk management within business organizations

Complicity in crimes against humanity

Breaches of secrecy

Personal data breaches

Theft

Extortion

Blackmail

Fraud

Misappropriation

Receiving/concealment of unlawfully obtained property (recel)

Attacks on automated data processing systems

Money laundering

Misappropriation by public official (concussion)

Corruption and influence peddling

Unlawful acquisition of an interest

Favoritism

Forgery and use of forgeries

Violation of Criminal Code

Offenses under the Monetary and Financial Code

Offenses under the Commercial Code

Environmental Code violations

Offenses arising from other codes

Types of offenses

Offenses under the Criminal Code, the Commercial Code, or the Environmental Code, Criminal procedure

White Collar Crime (en cours)

Merger by absorption is the operation by which one or more companies transfer their assets to an existing entity . It results in the dissolution without liquidation of the absorbed companies, which disappear, and the universal transfer of their assets to the beneficiary, absorbing companies, in the state they are in on the date of final completion of the operation . Since the absorbed company is n …

Principle

Merger by absorption is the operation by which one or more companies transfer their assets to an existing entity . It results in the dissolution without liquidation of the absorbed companies, which disappear, and the universal transfer of their assets to the beneficiary, absorbing companies, in the state they are in on the date of final completion of the operation . Since the absorbed company is not liquidated and its liabilities are transferred to the absorbing company, the question arises of the possible transfer of its liability, as an element of its liabilities.

In criminal matters, the Criminal Chamber of the Court of Cassation initially considered that if the absorbed company had been subject to a criminal conviction with civil damages before its absorption, the absorbing company was liable for them . However, it held that Article 121-1 of the Criminal Code, which states that no one is responsible except for their own actions, opposed the prosecution of the absorbing company for acts committed by the absorbed company before the merger . This interpretation was based on an assimilation of the situation of the absorbed legal entity to that of a deceased natural person: the merger, which results in the dissolution of the absorbed company, causing it to lose its legal personality, should lead to the extinction of the public action pursuant to Article 6 of the Code of Criminal Procedure, which addresses the extinction of public action due to the “death” of the defendant. The absorbing company, as a distinct legal entity, could not consequently be prosecuted for the acts committed by the absorbed company .

However, this position has become incompatible with European case law, which held that Article 19 of Directive No 78/855 of 9 October 1978 on the merger of public limited companies , which provides for the universal transfer, both between the absorbed company and the absorbing company and with respect to third parties, of all the assets and liabilities of the absorbed company to the absorbing company, entails an obligation for the absorbing company to pay the criminal fines imposed on it after the merger for acts committed by the absorbed company before it . Similarly, the European Court of Human Rights, based on the economic and operational continuity existing in fact between the absorbed company and the absorbing company, held that “the absorbed company is not truly another with respect to the absorbing company,” so that imposing a civil fine on the latter for competition law violations committed by the absorbed company prior to the merger by acquisition does not infringe the principle of the individuality of offenses and penalties .

Although this decision concerns an infringement of competition, which involves a civil sanction, the Criminal Chamber, in a judgment of 25 November 2020, considered that it now allowed it to interpret Article 121-1 of the Criminal Code as authorizing the criminal conviction of the absorbing company for acts committed by the absorbed company prior to the merger by absorption operation . This judgment, which dismisses the assimilation of the dissolution of the absorbed company to the death of a natural person, finally takes into account the specificity of legal entities to draw the consequences of the economic reality of the merger. The merger by absorption operation automatically results in the cessation of the existence of the absorbed company, so that without the transfer of criminal liability to the absorbing company, this liability would be extinguished. However, such extinction would contradict the very nature of the merger by absorption as defined by the directive, as such a merger consists of a transfer of all the assets of the absorbed company to the absorbing company following a dissolution without liquidation. The transfer of criminal liability also meets the objective set by the directive to protect third parties, among which is the State. If the transfer of liability were excluded, a merger would constitute a means for a company to evade the consequences of offenses it would have committed, to the detriment of the State or other potential interested parties.

Contrary to what the Criminal Chamber seems to assume, the solution was not unforeseeable, both in light of European case law and domestic case law. Indeed, the Commercial Chamber of the Court of Cassation already accepted the application to the absorbing company of civil fines imposed for violations of competition regulations committed before the merger by the absorbed company . The Constitutional Council has also endorsed this case law by considering that the principle that no one is punishable except for their own actions was subject to adaptations justified by the nature of the sanction and the objective pursued, and proportionate to that objective . It particularly emphasized “the mutability of the legal forms under which the concerned economic activities are conducted,” and noted that the civil fine incurred by the absorbing company can only be imposed on a person benefiting from the transfer of the absorbed company's assets, dissolved without liquidation. The Council of State had also repeatedly admitted that, in matters of financial market regulation and taxation, financial penalties could be imposed on the absorbing company for acts committed before the merger .

The Court of Cassation specifies, in its explanatory note regarding the judgment of 25 November 2020, that the absorbed legal entity being continued by the absorbing company, the latter benefits from the same rights as the former and can avail itself of any defense that the former could have invoked. This could be the case, for example, with any exception of nullity, including those that only the absorbed company had standing to invoke.

The Court of Cassation adopted, in its decision, the grounds of the 2015 Court of Justice ruling . It thus rejects the argument that the transfer of contrcatual liability of an absorbed company would be contrary to the interests of the creditors and shareholders of the absorbing company, as they would not be able to assess the economic and proprietary consequences of this merger. According to the EU court, those creditors must, under Article 13(2) of Directive No 78/855, have the right to obtain adequate safeguards when the financial situation of the merging companies makes this protection necessary, if necessary by seizing the competent administrative or judicial authority to obtain such guarantees. On the other hand, the shareholders of the absorbing company can be protected, notably by inserting a representations and warranties clause in the acquisition agreement. Finally, nothing prevents the absorbing company from conducting a detailed audit of the economic and legal situation of the company it intends to absorb before the merger to obtain, in addition to the documents and information available under legislative provisions, a more complete view of the obligations of this company. This audit should cover the past activities and actions of the target company, or even an entity itself absorbed by the target company, over the entire period not covered by a criminal prescription. If it is difficult, if not impossible, to comprehensively review all the target's activities, certain areas such as compliance or tax law should be subject to enhanced audit. This audit will allow the absorbing company to better assess the criminal risks related to a potential acquisition, particularly to negotiate price adjustments. Particular attention should be paid to drafting the warranty clauses.

It is therefore necessary to draw all the consequences from this ruling and the recommendations of the Court of Cassation, especially since the risks assumed by absorbing companies are not subject to guarantee. Indeed, the Third Civil Chamber recently decided that the liability insurance taken out before a merger by absorption by the absorbing company is not intended to cover events concerning the absorbed company, as the insurance contract covers, unless otherwise stipulated, the liability of the sole insured company, the sole beneficiary, to the exclusion of any other, even if subsequently absorbed by the insured .

Cons. const., 18 May 2016, LawLex201600000944JBJ.

Cons. d'Et., 22 November 2000, No 207697; 30 May 2007, No 293423; 4 December 2009, No 329173; 17 July 2013, No 352989; 9 April 2014, No 359913; 23 June 2014, No 352990; 23 July 2014, No 359902.

CJEU Case C-343/13 Modelo Continente Hipermercados SA, Judgment of 5 March 2015, LawLex201500000274JBJ, cited above.

Cass. 3e civ., 26 November 2020, No 19-17.824, LawLex202200007291JBJ.

Cass. crim., 28 February 2017, No 15-81.469, LawLex202200009224JBJ.

See notably Cass. crim., 14 October 2003, LawLex202200001480JBJ.

Cass. crim., 25 October 2016, LawLex202200001481JBJ.

Now replaced by Directive No 2017/1132 of 14 June 2017 relating to certain aspects of company law, OJ L 169 of 30 June 2017.

CJEU Case C-343/13 Modelo Continente Hipermercados SA, Judgment of 5 March 2015, LawLex201500000274JBJ.

ECHR, Carrefour France v France, 24 October 2019, application No. 37858/14, not available in English.

Cass. crim., 25 November 2020, LawLex202200001375JBJ.

Cass. com., 28 February 2006, LawLex200600000717JBJ; 21 January 2014, LawLex201400000092JBJ.

White Collar Crime (en cours)

7. Principle

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

7. Principle

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Les décisions de justice citées dans ce paragraphe :

Les notions juridiques connexes

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