FRANCE Trends and Developments Contributed by: Karl Hepp de Sevelinges and Nicolas Martin, Jeantet
In its decision, the French Supreme Court decid - ed to make a strict interpretation of the law by considering that (in absence of provisions to the contrary) it could not be seriously argued that the provisions of the French Commercial Code allowed companies to freely distribute amounts from available reserves or retained earnings out - side the annual ordinary general meeting. This decision is quite surprising as it contra - dicts the majority of the doctrine and the cur - rent French practice which had a liberal reading of the French Commercial Code and considered that exceptional distribution of reserves (includ - ing from the retained earnings) in the course of the financial year could occur (as this was also approved by the French Court of Appeal). On the basis of this decision, any distribution of amounts from the retained earnings outside the annual ordinary general meeting of the share - holders is now prohibited. What About the Possibility to Distribute Available Reserves (Outside the Retained Earnings Amount) Outside the Annual Ordinary General Meeting of the Shareholders? Although the decision of the French Supreme Court explicitly prohibits the distribution of retained earnings (by prohibiting the realloca - tion of the funds outside an annual ordinary general meeting of the shareholders), it has not expressly addressed the possibility to carry out an exceptional distribution of available reserves (outside retained earnings). As mentioned in this article, such an excep - tional distribution of the available reserves, if not expressly foreseen by French law, is market practice and accepted by the French doctrine and by the current case law (notably by the over -
turned decision of the Court of Appeal of Paris on 30 January 2025 mentioned above). It could thus be envisaged when approving the annual accounts (if no distribution of dividends is envisaged by the shareholders at that time) to allocate the profits to an available reserve account (rather than to the retained earnings account) in order to permit an eventual future distribution of dividends in the course of the financial year without breaching the new case law set by the French Supreme Court. If such an alternative has not been called into question at this stage, we consider that this option is rather unstable since the recent posi - tion of the French Supreme Court relating to the distribution of retained earnings. Indeed, in case of litigation relating to an exceptional distribution of reserves, the court (on the basis of the French Supreme Court decision), may conduct similar reasoning and issue a similar decision to the one rendered regarding the exceptional distribution of retained earnings, potentially considering the exceptional distribution of reserves outside the annual ordinary general meeting of the share - holders as a fictitious distribution of dividends. What are the Remaining Options to Distribute Dividends Outside the Annual Ordinary General Meeting? The distribution of available reserves (except amounts from the retained earnings account) outside the annual ordinary general is still possi - ble. However, as this option might be challenged at any time by a competent court (in light of the recent decision of the French Supreme Court) we currently consider it as being rather unstable. Besides, as mentioned at the beginning of this article, the distribution of interim dividends ( acomptes sur dividendes ) still remains an option.
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