FRANCE Trends and Developments Contributed by: Karl Hepp de Sevelinges and Nicolas Martin, Jeantet
the company closes its annual accounts on 31 December). In accordance with French law requirements and practice, the distribution of dividends out - side the annual ordinary general meeting of the shareholders is only possible in the following cases. • Distribution of interim dividends ( acomptes sur dividendes ) before the approval of the annual accounts. (a) In order to carry out such a distribution the balance sheet (established in the course or at the end of the relevant finan - cial year) of the company must show that sufficient profits have been generated by the company since the closure of the last closed annual accounts and such balance sheet shall be certified by the statutory auditor ( Commissaire aux Comptes ) of the company. In case the company does not have a statutory auditor, the shareholders will have to appoint an ad hoc statutory auditor in charge of certifying such bal - ance. (b) The total amount of interim dividends dis - tributed cannot exceed the profit earned during the period (as reduced by the amount of former losses) covered by the interim accounts. • Distribution of exceptional available reserves (including amounts from the retained earnings accounts ( report à nouveau )) by an extraor- dinary general meeting outside the normal period of approval of the annual accounts. (a) The practice indeed considers that since the annual ordinary general meeting of the shareholders has allocated part of the dis - tributable benefits into available reserves ( réserves disponibles ) (other than legal and statutory reserves) including amounts
from the retained earnings accounts, an extraordinary general meeting of the shareholders may decide the distribution of those available reserves to the share- holders in the course of the financial year. This practice now seems to be challenged by the decision of the French Supreme Court dated 12 February 2025. Is it Still Possible to Distribute the Retained Earnings Outside the Annual Ordinary General Meeting Since the Decision of the French Supreme Court? On 30 January 2025, the Paris Court of Appeal rendered a decision in terms of which it ruled that retained earnings and reserves shall be part of distributable profit, and that in the absence of any legal or regulatory provision to the contrary, there is nothing to prevent an exceptional distri - bution of dividends from retained earnings and free reserves outside the annual ordinary general meeting. Such interpretation of the Court of Appeal, which was in line with the current practice, reassured practitioners following a decision of the French Commercial Court from February 2022 which had brought some uncertainty with respect to the validity of such a distribution. However, this clarified position only lasted for a short period of time, as the French Supreme Court, in a decision dated 12 February 2025, ruled that the profits from a financial year allo - cated to the retained earnings are only includ - ed in the distributable benefits of the following financial year, and consequently, only the annual ordinary general meeting of the shareholders of the next financial year can decide on the alloca - tion and distribution of the retained earnings.
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