French SAS (simplified joint-stock companies) recently encountered a series of decisions which shed useful clarifications on an amendment to Article L 227-19 of the French Commercial Code resulting from Law No. 2019-744 of July 19, 2019 (known as the Law on the simplification, clarification and updating of company law). The text now provides that an exclusion clause in the articles of association requiring a partner to sell his shares, in accordance with article L. 227-16 of the Commercial Code, may be adopted (or amended) by a decision taken collectively by the shareholders under the conditions and in the forms provided for in the articles of association, and no longer by unanimous vote of the shareholders.
In the early days of October, the French Supreme Court deemed serious and accepted the referral to the French Conseil constitutionnel of 4 applications for a priority preliminary ruling on the issue of constitutionality (QPC) relating to articles L. 227-16 and L. 227-19 of the French Commercial Code with articles 2 and 17 of the Declaration of the Rights of Man and of the Citizen, relating to the right of Property (Cass. Com, Oct. 2, 2022, n° 22-40.013).
In its ruling, the French Cour de cassation took the opportunity to state that the provisions abolishing "the requirement of unanimity for the adoption or modification of a statutory exclusion clause in simplified joint stock companies, have the purpose and effect of governing the legal effects of the company contract" were applicable to simplified joint stock companies created prior to the entry into force of Law No. 2019-744 of July 19, 2019. This clarification is welcomed as it facilitates and respects the spirit of the new legislation introduced a few years back.
Two months later the French Conseil constitutionnel finally ruled that the exclusion procedure provided for in the articles of association of French SAS pursuant to articles L. 227-16 and L. 227-19 of the French Commercial Code complied with articles 2 and 17 of the Constitution, which respectively provide that infringements to the right to Property must be justified by the public interest and be proportionate to the objective pursued, and that "the right to Property is inviolable" (QPC decision no. 2022-1029 of December 9, 2022).
In order to consider that the contested provisions did not disproportionately infringe the right of Property, the ruling followed a five-step analysis:
- the exclusion of the shareholder, which constitutes a forced transfer, does not entail a deprivation of property within the meaning of article 17 of the Declaration of 1789;
- the exclusion clause contributes to guaranteeing the cohesion among shareholders and the conduct of business. By providing that the adoption or modification of an exclusion clause may be decided without the unanimous consent of the partners, it also aims at avoiding blocking situations which may result from the opposition of the shareholder concerned by such a clause, thus pursuing an objective of public interest;
- according to constant case law, a decision to exclude a shareholder must be the result of a procedure provided for in the articles of association. "It must be based on a reason stipulated in the articles of association, be consistent with the company's interest and public order, and not be abusive”.
- following the provision of article L. 227-18 of the French Commercial Code exclusion implies the repurchase of the shareholder's shares at a price determined pursuant to the terms of the company's articles of association or, "failing that, either by an agreement between the parties or by an expert appointed under the conditions provided for in article 1843-4 of the French Civil Code".
- the decision to exclude the shareholder, or the price at which the shareholder's shares are sold, may be contested. The judge must then "ascertain the reality and the seriousness of the justification given".
Next steps
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Authored by Xavier Doumen and Louis-Nicolas Ricard.
