FRANCE Law and Practice Contributed by: Anne-Sophie Noury, Saam Golshani and Alicia Bali, White & Case
• There is a shortfall of assets (ie, the assets of a company are insufficient to meet its current and outstanding liabilities). • The relevant director has committed mismanage - ment prior to the opening of the liquidation pro - ceedings (any mismanagement may be grounds for an action for damages, except for simple negli - gence of the director). For example, failure to file or delayed filing of insolvency proceedings, or inad - equate investment decisions in view of the financ - ing situation of the company, may be regarded as mismanagement if such behaviour has resulted in the incurrence of additional liabilities. • The director’s mismanagement contributed to the shortfall of assets. De jure and de facto directors may be held liable even though the mismanagement has indirectly contribut - ed to, or is only one amongst several causes for, the shortfall of assets, and the courts have full discre - tion to hold a director liable – as well to determine the amount of each director’s contribution – and may therefore decide that a director shall contribute to the whole shortfall of assets. This action may be initiated by the liquidator, the public prosecutor or, subject to certain conditions, the proceeding supervisors ( contrôleurs ) within three years following the opening judgment of the liquida - tion proceedings. Directors’ board members of joint-stock companies ( sociétés anonymes ) qualify as de jure directors, and are in principle jointly and severally liable. By way of exception, board members who have voted against the detrimental decision may avoid such liability. 7.3 Duties and Personal Liability of Officers Under French Law, supervisory board members (if they are only vested with monitoring and supervisory powers) do not qualify as de jure directors; therefore, unless they have acted as de facto directors (ie, inter - fered with the management of the business without having been formally appointed as director, either by taking management decisions directly or instructing the directors on their management decisions), they do not in principle incur any specific liability relating to bankruptcy proceedings.
However, supervisory board members are still liable for personal misconduct in the performance of their duties. By way of exception, they may be held civ - illy liable for offences committed by members of the management board if, having become aware of them, they did not disclose them to the general meeting of shareholders. 7.4 Other Consequences for Directors and Officers Professional (Civil) Sanctions Personal disqualification or management prohibition is applicable to directors in a limited list of circum - stances, such as abusively pursuing a loss-making activity for personal gain, refraining from co-operating with the judicial administrator or other judicial bod - ies, or paying a creditor regardless of the cash flow insolvency situation. The action can be brought by the liquidator, the creditor’s representative or the public prosecutor. Criminal Sanctions Criminal bankruptcy ( banqueroute ) is applicable to directors in reorganisation or liquidation proceed - ings that have committed any of the offences listed in the French Code de Commerce (eg, having used ruinous means to obtain funds, having embezzled or concealed all or part of the debtor’s assets or having fraudulently increased the debtor’s liabilities) and is sanctioned by five years’ imprisonment and a fine of EUR75,000. Directors may also be exposed to ancil - lary offences as a result of behaviours contrary to the public policy rules of insolvency proceedings (eg, breaching the prohibition on payments). 8. Setting Aside or Annulling a Transaction 8.1 Circumstances for Setting Aside a Transaction or Transfer In judicial reorganisation or liquidation proceedings, when a debtor goes into insolvency, the insolvency court may declare void certain transactions that have been entered into during the hardening period ( nullités de la période suspecte ).
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