FRANCE Law and Practice Contributed by: Sophie Vermeille, Vermeille & Co
for legitimate reasons such as professional miscon- duct or incapacity. The request for revocation can be made by sharehold- ers holding at least 5% of the share capital.
law sets a high threshold – the abusive decision must result from a vote in the general meeting, rather than mere board-level influence. • Insolvency context: liability may be extended to a controlling company if it has interfered in manage- ment decisions in a way that contributed to the subsidiary’s financial distress. • Listed companies: controlling shareholders are fur- ther constrained by takeover law. They must launch a mandatory tender offer upon crossing certain ownership thresholds or undertaking transactions materially affecting minority shareholders’ rights. In practice, French courts are cautious in character- ising controlling shareholder abuse, and successful claims remain rare. 9. Insolvency 9.1 Rights of Shareholders If the Company Is Insolvent In court-supervised insolvency proceedings such as sauvegarde and redressement judiciaire , sharehold - ers may still vote on certain corporate decisions, such as capital increases. However, since the 2021 reform implementing the EU Pre-Insolvency Directive, the court can override a negative shareholder vote (cross-class cram-down) if the statutory thresholds and other strict conditions set out by law are met – which, in practice, is often the case for companies of a significant size. This means that shareholders can be compelled to accept capital increases through debt-to-equity conversions that significantly dilute their holdings. From this perspective, shareholders are not treated less favourably than in other jurisdictions. What is more problematic, however, is that the valuation con- ditions underpinning the decision to disregard share- holders’ votes are not clearly defined, and the oppor- tunities to challenge that valuation are very limited.
7. Corporate Governance Arrangements 7.1 Duty to Report
French law requires that the board of directors (or the supervisory board, where applicable) in all SAs, whether listed or unlisted, presents a corporate gov- ernance report each year, attached to the manage- ment report. For listed companies, the report must include addi- tional disclosures (such as board composition, com- mittee work, gender balance, application of the AFEP- MEDEF code, risk management and internal controls, and executive pay policies). Certain sections of the report – most notably those relating to executive com- pensation – must be verified by the statutory auditors, although the auditors do not issue an overall opinion on the company’s governance practices. Under French law, a controlling company (whether through majority ownership or de facto control) may, in certain circumstances, incur duties and liabilities vis- à-vis minority shareholders of the controlled company. Unlike some common law jurisdictions, French law does not recognise general “fiduciary duties” of con- trolling shareholders. Instead, liability arises in more specific cases, as follows. • Abuse of majority ( abus de majorité ): courts may annul resolutions adopted in the sole interest of the controlling shareholder and to the detriment of the company and minority shareholders. Typical examples include the systematic refusal to distrib- ute dividends despite recurring profits, in order to channel cash to the group’s benefit. However, case 8. Controlling Company 8.1 Duties of a Controlling Company
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