New law forces companies in France to try to sell plants before closing them

Out-Law News | 17 Jun 2014 | 4:33 pm | 3 min. read

Companies in France will only be able to close down sites after making a closely scrutinised attempt to sell them following the introduction of a new law which is designed to promote stability in the French economy. 

Under the new law companies wishing to close a site must first put it up for public sale and attempt to find a buyer. As part of the process they must set up a "data room" which makes all relevant accounting, financial, legal and other information available to prospective purchasers. In addition, in some cases, the seller must prepare an environmental report on the site. Sellers must also discuss approaches from potential buyers with the workers' committee of the site facing closure, and be prepared to discuss the possibility of an employee buy-out.

This rule applies to all companies which wish to close a site and will also apply following takeovers.

The new rules on site closures are among a range of new measures which have recently come into effect in France under the Loi visant à reconquérir l’économie réelle, which is also known as the Florange law in France. The law focuses on measures relating to the real economy, which is that part of the economy concerned with producing goods and services, as opposed, for example, to that area of the economy which focuses on buying and selling on the financial markets.

Under the Florange law, the new measures will affect companies or groups with more than 1,000 employees and will apply to proposed closures of small sites as well as the shut down of larger plants.

If a company is unable to sell a site it wishes to close, it must follow a strict process of due diligence before closing it, or risk severe consequences, a legal expert has said.

Christophe Clerc of Pinsent Masons, the firm behind Out-Law.com, was closely involved in discussions with the French government relating to the drafting of the new legislation.

Paris-based Clerc said: "If a company takes over another company it may wish to sacrifice one site in the interests of the profitability of the group. This law is saying that you can not do that any more without first attempting to sell that part of the business and without going through a careful process of due diligence."

"The precise procedure that companies have to follow is not fully specified by the Florange law," said Clerc. "It will be important to follow the spirit of the law and put up a sale process which is reasonable in view of the specifics of the site".

Under the Florange law companies in France also have more powers to defend themselves against takeovers. In what Clerc has previously described as a move towards the US system, French companies will now be able to employ a "poison pill" defence. A poison pill alters the company's stock plan in a way which is designed to make the target company unattractive to the bidder and is a defence which has never been beaten in the US, according to Clerc.

In addition, companies could create alliances with other companies including suppliers and clients which would be in the interests of the target company, but might not be in the interests of the bidder should a purchase take place. Such a move would be designed to make the target company less attractive to the bidder. Clerc said that among a range of other defences a target company might employ, one option might be to merge with another company.

Under the Florange law, those bidding to take over a company in France are also now legally obliged to meet with the workers' committee of the target company and answer questions about what they plan to do if they succeed in taking over. Bidders who refuse to divulge their plans, or who are later found to have withheld their genuine intentions, could in some cases face prosecution for infringing the law.

The new law is known as the 'Florange law' in reference to the ArcelorMittal steel plant in the French town of Florange. The plant became a symbol of problems in the French industrial sector after the Indian firm Mittal took over Arcelor in 2006 and later announced that it was to close down two blast furnaces in the north-eastern town. The French government threatened to nationalise the plant but later secured promises from ArcelorMittal to invest and avoid forced lay-offs among 630 workers at the site, according to Reuters.

The Florange law has come into effect at a time of widespread public debate in France and other European Union countries about foreign takeovers of companies in the EU member states.

The French government recently introduced a decree which extended its existing powers and will allow it to veto foreign takeover attempts to include additional "strategic" sectors. The government can now veto foreign takeovers of companies in the energy, transport, telecoms, water and health sectors, as well as foreign acquisitions of companies in the technology, defence and betting sectors.