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July 2018 | Newsletter 11

 

RECENT CASE LAW


 

Only the liquidator has the power to act in fixing how much the partners of a company in liquidation contributed to its social loss according to Article 1832 paragraph 3 of the French Code civil. In a judgment of May 3, 2018 (n° 15-20348), the Commercial Chamber of the French Cour de cassation censored the admissibility on appeal of a request made by two partners on the basis of Article 1832 of the Civil Code, which was intended to condemn two other partners for their share of the social loss endured by a Société Civile d’Exploitation Agricole (civil farming company) – SCEA -  in liquidation.

 

The company in difficulty had two partner couples, the consorts Y, of which Mr. was the manager, and the consorts Z. The economic and financial problems faced by these four people led to the liquidation of the SCEA.

 

Believing that the associates Y had committed several management mistakes, the partners Z sought to engage their responsibility in the collapse of the company. By way of counterclaim, the partners Y sought the conviction of the partners Z for their contribution to the losses of the company in proportion to their shares. 

 

The Nîmes Court of Appeal allowed the counterclaim of the spouses Y condemning Mr. And Mrs. Z to pay them various sums of money pursuant to Article 1832 paragraph 3 of the Civil Code, while this application should have been automatically declared inadmissible. That is the reason justifying the partial cassation of the appeal judgment.

 

 


 

 

Trial Judges assess the amount for a condemnation of several managers, one of whom is the subject of a collective action in her personal capacity for the exercise of another professional activity, to the extent of their individual liability for insufficient assets. In this case, the legal redress and liquidation of a transport company had resulted in the appointment of a liquidator, who had decided to sue this company managers, Mr. and Mrs. X, in liability for insufficiency of assets. Mrs. X being in legal redress for another professional activity, the liquidator assigned her legal representative in forced intervention.

 

On September 15, 2016, the Nîmes Court of Appeal condemned the spouses X on the basis of Article L651-2 of the French Code de commerce to repay in solidum 70% of the amount equivalent to the asset insufficiency to which both of them had contributed by various management mistakes. The two managers challenged the commission of the said faults on the occasion of a cassation complaint.

 

The Commercial Chamber of the French Cour de cassation dismissed their appeal in a judgment of May 9, 2018 (n° 16-26684), which recalls the sovereign power of assessment enjoyed by the trial Judges in assessing the amount of the manager contributions to the asset insufficiency of a company in liquidation.

 

The cassation Judges state furthermore that it is not for them to check the proportionality of this amount and that the placement in legal redress of Mrs. X in the exercise of another professional activity does not affect in any way the application of the Article L651-2 of the Commercial Code.

 

 

 

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June 2018 | Newsletter 10

 

RECENT CASE LAW


 

The liquidation procedure does not in itself cause the termination of the contracts in force at the time of its lunch – The judges of cassation have recalled by a judgement of October 25, 2017 (n° 15-24.060) that the organs of the collective procedure did not have to request the continuation of the contractual engagements of a company on the verge to be liquidated, knowing that the opening judgement of the liquidation process remained as such without effect on their contractual effectiveness.

 

In this case, a company A specialized in the manufacture of textile articles intended for decorative and furnishing articles was bound by a framework contract to a company B specialized in the distribution of furniture. Under this instrument, the two companies entered into a series of supply contracts. Faced with a continual rise in the price of raw materials, Company A obtained from Company B to accept several price increases. However, Company B had taken advantage of a final raise to indicate to Company A that it would refuse any new request in the future. In the meantime, Company A experienced major setbacks, leading it from an unsuccessful recovery attempt to the extremity of a bankruptcy.

 

Through its liquidator, Company A assigned Company B in payment of damages for the imposition of excessively low rates in accordance with their last contract. The judges of the merits had rejected the request on the basis of the automatic termination of the commitments whose continuation had not been solicited at the time of the liquidation. The reinstatement of the opposite principle - the implicit continuation of the contracts in force at the opening of the liquidation procedure - justifies alone the judgement of cassation rendered.

 

 


 

 

Condemnation of a creditor for a characterized interference with the management of the debtor who is subject to a collective action – By an judgement – unreported – of January 10, 2018 (n° 16-10.824, FS-D), the commercial chamber of of the French Cour of cassation validated for the first time the appeal condemnation of a ruinous credit provider in application of article L650-1 of the French Code of Commercial Law. As the judges interpret this provision, liability for “faulty” (incorrect) lending practices of the creditor can only be engaged in the event of fraud, of a characterized interference with the debtor’s management or of disproportionate guarantees – unpublished judgement of December 11, 2012 (n° 11-25.795, F-D). It follows that the creditor will not be held liable for lending operations which, while being “faulty”, do not constitute a fraud, a characterized interference or a disproportion of the associated guarantees. Similarly, the creditor will not be concerned in the presence of lending operations which, while constituting fraud, a characterized interference or a disproportion of the associated guarantees, are not ‘faulty’ – judgement of the March 27, 2012 (n° 10-20.077, FS-PBRI).

 

In this case, a supplier had granted to a farmer, who was already heavily indebted to him, four restructuring credits with interest rates ranging from 5 to 7% per annum assorted with short repayment terms. In view of its operating results, the debtor could not meet such borrowing conditions. The trial judges qualified the operation of faulty lending practices following the issuance of “ruinous” credits despite the knowledge of the irremediable economic difficulties of the farmer-debtor.

 

To this, the French Cour d’appel of Amiens was able to add the qualification of a characterized interference with the management of the debtor on the basis of clauses stipulating the full repayment with anticipation of sums lent in case of partial or total cessation of the exclusive supply relationships it had with the supplier-creditor. The guarantees taken in consideration of the faulty lending practices had been declared void accordingly. The French Cour of Cassation validated the dual qualification retained by recalling however that the creditor could be required to repair only the aggravation of the insufficiency of assets and not the entirety of the amount declared by his fault on the liabilities.

 

 

 

 

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