France: Spectacular U-turn on successor criminal liability in M&A transactions

On 25 November 2020 the French Supreme Court (Cour de cassation) overturned its decade-long case law, ruling that corporations may now be held criminally liable for offenses committed by acquired entities prior to the merger.

Corporate buyers may now face criminal fines or confiscation under the following circumstances:

  1. The transaction consists in a "merger by acquisition" (fusion-absorption) of a target company with transfer of all assets and liabilities (including so-called universal transfer of assets or transmission universelle de patrimoine) falling under the scope of the European Union merger directive of 9 October 1978, as amended.

  2. The transaction involves limited liability companies (sociétés anonymes and sociétés par actions simplifiées or SAS) only and is completed after the Supreme Court’'s decision, i.e., after 25 November 2020.

  3. The target company committed a criminal offense prior to the transaction.

As was the case beforehand, corporations remain fully liable when restructuring is designed solely to avoid liability, qualifying as fraud. In such case, companies incur the full scope of criminal sanctions, which are not limited to fines or confiscation.

This decision occurs in a global European context which undoubtedly helped the French Supreme Court to reconsider its historical position: first, the Court of Justice of the European Union ruled that a company's criminal liability is transferred as part of its assets and liabilities when merged[1]. Second, the European Court of Human Rights recently confirmed that imposing a civil fine on the acquiring company for antitrust violations committed by the acquired entity did not infringe the core principle of the individual nature of penalties (which must be specific to the offender) given that "the acquired entity does not truly qualify as a 'third party' vis-à-vis the acquiring company.[2]"

This overturn of the Criminal Chamber of the French Supreme Court is also in line with the global evolution of French case law in other domains, where similar rulings have been issued: 

  • With respect to antitrust practices, where it was considered lawful to punish the acquiring company with a civil fine for antitrust practices committed by the acquired company before the merger[3].

  • With respect to regulated financial markets and tax matters, where the Administrative Supreme Court (Conseil d'Etat) confirmed financial sanctions against the acquiring company for wrongdoings committed before the merger[4].

From now on, a corporation's potential criminal responsibility shall be dealt with like any other liability that is being transferred during the merger. As such, this landmark decision calls for enhanced pre-merger due diligence to assess any future criminal risk to be transferred to the acquiring entity. Tailored disclosure and warranty clauses should be carefully negotiated to appropriately mitigate any such potential criminal exposure.

Given the complex determination of applicable statutes of limitations under French criminal law (e.g., for hidden or concealed offenses such as deceit, misuse of corporate assets, illegal employment, etc.), it would be advisable to onboard criminal counsel early on in the due diligence process to assess the criminal exposure arising out of a contemplated transaction.

If you seek more information or assistance on your contemplated deals, feel free to reach out to Arthur Dethomas, Hogan Lovells' Investigations, White Collar, and Fraud Paris partner, and his team and, Salomé Lemasson, Hogan Lovells' Investigations, White Collar, and Fraud Berlin Senior Foreign Associate.



Authored by Arthur Dethomas and Salomé Lemasson.


[1]               CJEU, March 5, 2015, Modelo Continente Hipermercados SA c/ Autoridade para as Condições de Trabalho, C-343/13.
[2]               ECHR, October 24, 2019, Carrefour France c. France, n°37858/14.
[3]               Cass. com., February 28, 2006, No. 05-12.138.
[4]               I.a., CE November 22, 2000, No. 207697.
Arthur Dethomas


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