In a decision dated November 25, 2020, the Criminal Division of the French Supreme Court (Cour de cassation) made a particularly remarkable reversal of case law concerning the criminal liability of the absorbing company in the event of a merger-takeover. It thus aligns itself with European case law.
Until now, under French law, the criminal liability of the absorbed company was not transferred to the absorbing company.
Under French law, the article 121-1 of the penal code provides that« no one is criminally liable except for his or her own actions. »
The Court of Cassation has consistently held that the acquiring company was a legal entity totally unrelated to the acquired company.
It deduced that an absorbing company was not criminally liable for the acts of the company it had absorbed.
The European courts have validated the possibility of a transfer of criminal liabilitye
In a decision dated March 5, 2015, the European Court of Justice noted that a merger-takeover operation carried out pursuant to European Council Directive 78/855/EEC of October 9, 1978, automatically entails the universal transfer of all the assets and liabilities of the absorbed company to the absorbing company.
It considers that the criminal liability is part of the assets and liabilities of the absorbed company.
Consequently, the CJEU ruled that in the event of a merger, the criminal liability of the absorbed company is transferred to the absorbing company.
Furthermore, by a decision date October 24, 2019, lthe European Court of Human Rights notes that there is an « economic continuity » between the absorbed company and the absorbing company.
As a result, it considers that « the he absorbed company is not really a “third party” with respect to the absorbing company ».
Consequently, the Court ruled that the transfer of the criminal liability of the absorbed company to the absorbing company is in accordance with the European Convention on Human Rights.
From now on, the absorbing company can bear the criminal liability of the absorbed company
Following these rulings, the Court of Cassation has reconsidered its analysis of the effects of a merger.
Relying on the French Commercial Code and the French Labor Code, the Court of Cassation emphasized that « the economic activity carried out within the framework of the absorbed company, which constitutes the realization of its corporate purpose, continues within the framework of the company which benefited from this operation ».
It deduced that the absorbing company was not distinct from the absorbed company.
Consequently, the Court of Cassation ruled that the absorbing company is criminally liable for the acts of the absorbed company
Consequences of the reversal of case law
This reversal of jurisprudence applies for the moment to a limited field :
- Criminal liability is only transferred for mergers of public limited companies and simplified joint stock companies subject to the European Council Directive 78/855/EEC of October 9, 1978
- The criminal liability transferred is limited to pecuniary penalties (fines or forfeiture)
- Criminal liability is transferred only for mergers and acquisitions completed after November 25, 2020.
However, this limited framework does not apply in the event of fraud, i.e., when the purpose of the merger-takeover operation is to avoid criminal liability on the part of the absorbed company. In this case, the criminal liability of the acquiring company may be incurred regardless of the form of the company and regardless of the date of the merger. In addition, there is no restriction as to the penalties that may be imposed.
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Read also : our article on the penal risk incurred by the company and the company director in case of a traffic violation by an employee.
On a similar subject,see also our article on the delegation of powers a llowing the transfer of criminal liability from the company director to an employee.