Coronavirus: impact on corporate law and governance in France

Out-Law Guide | 20 Apr 2020 | 12:10 pm | 6 min. read

Measures adopted by the French government in response to the coronavirus health emergency will simplify some company law requirements, while having possible negative effects on others.


Co-written by Pascaline Moisan of Pinsent Masons, the law firm behind Out-Law.


The French government adopted several ordinances on 25 March 2020 in order to adapt, amend and simplify some requirements of French corporate law. These ordinances followed the adoption of the French health emergency law no. 2020-290 dated 23 March 2020. The measures introduced by the ordinances will simplify some corporate law requirements, such as those around the organisation of shareholders' meetings, but may have negative impacts on others, including the rules around intra-group reorganisation.

Extension of time limits for the approval of statutory accounts

Article 3 of French ordinance no. 2020-318 dated 25 March 2020 extends by an additional three months the time limits set by laws, regulations or bylaws of commercial companies for approving their statutory accounts and related corporate documents, or convening a shareholders' meeting to approve the statutory accounts.

To take advantage of the extension:

  • the company's financial year end must be between 30 September 2019 and 24 June 2020;
  • the company's statutory accounts should not have been approved as of 12 March 2020; and
  • the company's statutory auditors, if any, should not have issued their report before 12 March 2020.

To make it easier to hold annual ordinary shareholders' meetings, French ordinance no. 2020-321 dated 25 March 2020 provides that shareholders can attend and vote at such meetings by telephone or video conference. In addition, written consultation of the shareholders is permitted even if the company's articles of association (statuts) do not provide for the possibility, or expressly exclude written consultation.

Where a company has benefitted from a court ordered extension of the timeframe to approve its statutory accounts and that extension is to expire between 12 March and 24 June 2020, the company cannot claim for the additional three-month extension. It must approve its statutory accounts before the date provided for in the court order.

Under article 2 of French ordinance no. 2020-306 dated 25 March 2020, filing of statutory accounts with the greffe of the relevant commercial court is also subject to a suspension of time limits. Consequently, the filing formalities will be deemed to be completed within the legal timeframe when they are completed within one month of 24 June 2020.

Prohibition on allocation of dividends or interim dividends

Certain companies will not be able to allocate dividends in 2020 to their shareholders located in France or abroad, in line with a statement by the Ministère de l'Economie et des Finances provided under the Q&A section of its website.

The prohibition applies to companies which have requested, in the context of the allocation of state assistance, the postponement of the repayment schedule of tax and social charges or the granting of loans secured by the French state.

Only large companies – those with a consolidated turnover at least equal to €1.5 billion or having at least 5,000 employees as of the closing date of the financial year during which the shareholders have decided to allocate dividends or complete a share buyback - are affected. However, within a corporate group, the prohibition applies to the whole group even if only one entity has benefitted from state assistance.

The prohibition applies when the decision to allocate dividends or interim dividends was taken after 27 March 2020, unless the allocation of dividends is a legal requirement.

Prohibition on share buybacks

The same rules prohibiting the allocation of dividends or interim dividends will also apply to share buybacks in 2020.

Share buyback schemes in the context of the allocation of free shares to employees approved before 27 March 2020 do not fall within the scope of this prohibition and can be implemented, even though the buybacks themselves will be completed after 27 March 2020.

Reorganisation

As above, the attendance of and casting of votes by shareholders at shareholders' meetings deciding reorganisation transactions - including mergers, partial contribution of assets, demergers and transfer of assets and liabilities by operation of law (transmission universelle de patrimoine) - may be held by written consultation of the shareholders or by telephone or video conference.

Filing required documents with the French tax administration

Article 10 of French ordinance no. 2020-306 dated 25 March 2020, which provides for the extension of some statutes of limitation in relation to tax matters, does not apply to the registration formalities of corporate documents arising from reorganisations. Consequently, registration formalities must be carried out within the month following the date of the corporate document.

Each local French tax desk has its own policy in this respect. Therefore, you should liaise with the relevant tax desk having jurisdiction in the place of the registered office of the company to confirm its approach at this unprecedented time. Some tax desks may accept copies of original documents certified as true by a lawyer using the acte d'avocat (AA) process in order to avoid sending original copies.

Delays are anticipated, but it is recommended that original documents are sent to the tax desk for tax filing purposes.

Time limits for creditors to lodge objections

Where a dissolution without liquidation with transfer of all the assets and liabilities by operation of law (transmission universelle du patrimoine, or TUP) to the sole shareholder takes place under article 1844-5 of the French civil code, completion of the TUP occurs after a 30-day period calculated from the publication of the decision of dissolution in a legal gazette (journal d'annonces legales, or JAL). During this period, the creditors may lodge an objection (opposition) to the dissolution.

Articles 1 and 2 of French ordinance no 2020-306 dated 25 March 2020 provide that any timeframe set out by applicable law or regulation to lodge a claim or exercise a right, the expiry of which should occur between 12 March and 24 June 2020 shall be renewed on 24 June 2020 for the same period.

So if a decision of dissolution is published in a JAL on or before 24 May 2020 the 30-day objection period will expire before 24 June and the transfer of the assets and liabilities to the sole shareholder by operation of law (TUP) will be completed on 25 July 2020 at the earliest, assuming that no objection (opposition) will have been lodged by any creditor during the extended 30-day term starting on 24 June 2020.

To the contrary, if the decision of dissolution is published in a JAL on or after 25 May 2020 the 30-day objection period will expire after 24 June and the transferring entity should be able to complete the transfer of the assets and liabilities to its sole shareholder upon any corresponding date after 25 June 2020 assuming that no objection (opposition) will have been lodged by any of its creditors during the 30-day objection period.

It is likely that this discrepancy between timelines was not intended by the government and that correcting measures may be taken in the coming months.

The greffe of the Paris commercial court may consider issuing a non-objection certificate with reserves at the end of the 30-day period where the period was to expire before 24 June. Article 1844-5 states that a TUP cannot be completed until the objections have been either rejected by the court of first instance or paid or guaranteed. It therefore appears that no TUP resulting from a decision of dissolution under article 1844-5 taken after 12 March 2020 can be completed before 25 July 2020 if the publication in a JAL is completed on or before 24 May 2020 and before 25 June 2020, if the publication in a JAL is completed on or after 25 May 2020, assuming that the end of the health emergency state (24 May 2020) is not extended.

A statement from the National Council of the Clerks of the Commercial Courts (Conseil National des Greffiers des Tribunaux de Commerce) is expected to fix the doctrine in this respect.

Mergers, partial contribution of assets and demergers

The right of creditors to lodge objections does not prevent the final completion of mergers, partial contribution of assets and demergers under article L. 236-14 of the French commercial code. Therefore, these transactions may be completed between 12 March 2020 and 24 June 2020. However, the beneficiary should provide relevant guarantees in the event of potential objections lodged by the creditors between the date of the decision and the end of the objection period as potentially extended.

Share capital increase or reduction

As above, the attendance of and casting of votes by shareholders at shareholders' meetings deciding a share capital increase or share capital reduction may be held by written consultation of the shareholders or by telephone or video conference.

The minutes of the decisions of the shareholders are subject to filing with the relevant tax administration within the month following the date of the decision.

The completion of a share capital reduction which is not intended to absorb previous losses will take place at the end of a period allowing objections by the creditors (20 days as of the filing of the minutes of the shareholders with the greffe of the commercial court). Again, the creditors may claim that this objection period should start running on 24 June 2020 and expire on 24 July 2020 if the publication is complete before 5 June 2020 (this date included). Share capital reductions will therefore be deemed completed as from 25 July 2020 if the filing is made before 5 June 2020 and in the event no objection has been lodged by any creditor before 24 July 2020, as above.

Co-written by Pascaline Moisan of Pinsent Masons, the law firm behind Out-Law.