Einde inhoudsopgave
Cross-border Enforcement of Listed Companies' Duties to Inform (IVOR nr. 87) 2012/4.5.2
4.5.2 Executive directors and non-executive directors
mr.drs. T.M.C. Arons, datum 07-05-2012
- Datum
07-05-2012
- Auteur
mr.drs. T.M.C. Arons
- JCDI
JCDI:ADS364790:1
- Vakgebied(en)
Ondernemingsrecht (V)
Voetnoten
Voetnoten
Guyon (2002), para. 57; Guyon (2001), para. 299.
This provision was added to the RG AMF by Decree of 26 February 2007.
S. 212-14 RG AMF.
The liability of a company's agent (directeur general délégué) cannot be established on the basis of S. 225-251 of the French Commercial Code. Versailles Court of Appeal, 7 September 2006, 12th Chamber, section 2 (SA Groupement pour la realization et l'étude en communication v Missonier) Rev. soc. 2007 (3), p. 637 et seq.
These rules do not only encompass the proper company law provision, but the general laws applicable to all market participants as well. Guyon (2006), para. 37; Le Bars (2004a), para. 32; Routier (2002), paras 62-62; 97. Otherwise: Delebecque/Pansier (2003), para 255. Application in regard to, in particular, information requirements: French Supreme Court (Commercial Chamber), 17 May 1965 (consorts Quemin v Société Dubonnet-Cinzano-Byrrh); JCP G 1966, II, § 14647 with commentary from R.J.; also: Magnier (2010a), para. 87; 97.
S. 225-256 stipulates that s. 225-251 C.com. also applies to Board of Officers. See also: Le Cannu (2003), para. 93. For the private law liability of members of the Supervisory Board, I refer to: Le Cannu (2003), paras. 126-132. Regarding the latter, it is important to note that in a recent decision, the French Supreme Court held that 'each member of the Board of Directors or the Supervisory Board of a limited liability company (S.A.) behaved tortiously on an individual basis in case he, by his act or abstention, participated in making the tortious decision by that organ, unless he can prove that he behaved as a prudent and diligent director, in particular by his opposition to that decision.' For this reason, the Court of Appeal could deduce from the fact that not a single member of the board opposed the approval of the company's misleading annual accounts, that each member had the intention to conceal the tme accounts.' French Supreme Court, 30 March 2010 (Fonds de garantie de dépóts v Société Caribéenne de conseil et d'audit) Dr. soc. 2010 (6), p. 28 et seq. with commentary from M. Roussille, JCP E 2010 (17), p. 26 et seq. with commentary from A. Couret.
S. L. 225-251 C.com. last sentence.
In order to impose an administrative sanction to the executive or non-executive director of the issuer, the applicable administrative law provision do not require that the tortious behaviour was outside the normal performance of his duties. Paris Court of Appeal 1 April 2003 (Gaume v Commission des Opérations de la Bourse) Bull. Joly Soc. 2003 (4) § 85, p. 427 et seq. with commentary from C. Ducouloux-Favard; French Supreme Court (Commercial Chamber) 31 March 2004, Dr. soc. 2004 (7), p. 28 et seq. with commentary from T. Bonneau; Bull. Joly Soc. 2004 (7) § 197 with commentary from G. Auzero; D. 2004 (27), p. 1961 et seq. with commentary from D. Caramelli; RTD com. 2004 (3), p. 564 et seq. with commentary from N. Rontchevsky.
S. L. 465-2 C.mon.fm.. Section 4.3.2 explains the elements which, according to s. L. 465-2 C. mon.fin. must be established by the prosecutor if the court is to impose the sanction provided for in this article.
French Supreme Court, 3 December 1883 (E. Maslier et al. v Crédit foncier), D. 1884, p. 339 et seq.
Bonneau/Drummon (2010), para. 436-3; Le Bars (2004a), para. 56 holds this case law contra legem.
The claimants in the Flammarion case claimed liability on part of the CEO without the proof of tortious behaviour outside the normal performance of his duties on the basis that the violation of an administrative law provision to sanction the directors do not require this difference. The Paris Court of Appeal rejected the claimant's argument and found no tortious behaviour incompatible with the normal performance of the director's duties. Critical in this regard: Couret et al. (2008), para. 1501. Also: in SA Lehning Laboratoires v Berretti et al., the Versailles Court of Appeal (13th Chamber) in its judgment of 17 January 2002 held that in a case where the directors of the company recommended wrongly to its shareholders to accept a public offer, the shareholders claiming damages for personal losses are to be regarded as third parties. In order to hold the director's liable, they need to establish that his tortious behaviour was outside the normal performance of his duties. Finally, the court dismissed the claims because the directors acted negligently and were not and had not to be aware that their recommendation was contrary to the shareholders' interest. Bull. Joly Soc. 2002 (4) § 111, p. 515 et seq. with commentary from J.-F. Barbièri.
Cozian/Viandier/Deboissy (2010), paras 280-286; Bacache-Gibeili (2007), No. 156-159; French Supreme Court (Commercial Chamber), 4 October 1988 (Lepoivre v SeIRL Etablissements Loridon) Bull. civ. 1988, IV, No. 265; Even though the requirement could be inferred from previous case law, the French Supreme Court (Commercial Chamber) in its judgment of 22 January 1991 for the first time clearly wrote down the requirement of a faute séparable des ses fonctions' , RJDA (1992) (2). This line is continued to the present day for liability towards third parties. For a proper analysis of the distinction between behaviour falling outside the performance of duties (faute détachée) and behaviour incompatible with the normal performance of duties (faute détachable), I refer to the Caffin-Moi's commentary to the Supreme Court (Commercial Chamber)'s decision of 18 January 2011 (Lévy-Lambert v Blet) where the Court that the director's incompatible behaviour was not excluded in the director's liability insurance contract (Rev. soc. (2011), p. 679 et seq.).
Supreme Court (Commercial Chamber), 1 March 2011 (Société Financière Sofic v Société Socofinance et al.) Bull. Joly Soc. 2011(5), p. 395 et seq.
Bill No. 1304 filed at the National Assembly on 17 December 2003 by Deputy Caresche.
French Supreme Court, 20 May 2003 (Mme Seusse v SA Société d'application de techniques de l'industrie (SAT1)), Bull. Civ. 2003, IV, No. 84; Bull. Joly Soc. 2003 (7) § 167, p. 786 etseq. with commentary from H. Le Nabasque; D. 2003 (38), p. 2623 et seq. with commentary from Dondero; D. 2003, p. 1502 with commentary from A. Lienhard and p. 2623 commentary from B. Dondero; RTD com. 2003 (3), p. 523 et seq. with commentary from J.-P. Chazal and Y. Reinhard; RTD com. 2003 (4), p. 741 et seq. with commentary from CL Champaud and D. Danet Rev. soc. 2003 vol. 121 (3), p. 479 et seq. with commentary from J.-F. Barbièri; JCP E 2003 Vol. 77 (32-35) § 1203, p. 1331 et seq. with commentary from J.-J. Caussain, Fl. Deboissy and G. Wicker; JCP E 2003 Vol. 77 (40) § 1398, p. 1580 et seq. with commentary from S. Hadji-Artinian; RTD civ. 2003 (3), p. 509 et seq. with commentary from P. Jourdain; BanqueD 2003, p. 64 et seq. with commentary from M. Storck, Dr. et patrimoine 2003 (120), p. 91 etseq. with commentary from D. Poracchia; PA 2003 (223), p. 13 etseq. with commentary from S. Messaï-Bahri; French Supreme Court, 31 March 2004, Bull. Joly Soc. 2004 (7) § 197, p. 982 etseq. with commentary from G. Auzero; BUIL Joly Bourse 2004 (4) § 88, p. 460 etseq. with commentary from J.-J. Daigre; D. 2004 (15), p. 1087 et seq.; D. 2004 (27), p. 1961 et seq. with commentary from D. Caramalli; French Supreme Court, 7 July 2004 (X et al. v Société Monsanto Company et al.), Bull. Joly Soc. 2004 (12) § 303, p. 1531 et seq. with commentary from H. Le Nabasque; French Supreme Court, 25 January 2005, Bull. Joly Soc. 2005 (5), § 135, p. 599 et seq. with commentary from B. Le Bars; French Supreme Court, 27 September 2005, RCA 2005 (12) comm. No. 354, p. 20 et seq.; French Supreme Court, 20 June 2006 (Société Elitt), BulL Joly Soc. 2007 (1), p. 84 et seq. with commentary from B. Dondero: The behaviour of a director guaranteeing the contractaal debts of a subsidiary and falsely presenting the solvability of the panent company to a third party does not qualify as an intentional tort of a particular seriousness and thereby incompatible with the normal performance of his duties; French Supreme Court, 4 July 2006, BulL civ. 2006, IV, No. 166; Bull. Joly Soc. 2007 (1) § 10, p. 93 et seq. with commentary from B. Dondero; French Supreme Court, 10 February 2009, (SeiRL Société de gestion Pierre Cardin v Lucky), Bull. Joly Soc. 2009 (5) § 99, p. 499 et seq. with commentary from S. Messaï-Bahri; Dr. soc. 2009 (8), p. 22 et seq. with commentary from D. Gallois-Cochet; French Supreme Court, 28 September 2010) discussed in Bocobza-Berlaud (2010); in its decision of 23 November 2010 with commentary from A. Lienhard in Rev. soc. 2011(1), p. 33 et seq., the Supreme Court did not upheld the ruling of the Rouen Court of Appeal because it did not consider whether, in case the buyer of a company claims damage from the CEO, the Jatter committed a tort outside the normal performance of his duties.
French Supreme Court, 19 February 2003, Droit Pénal juillet-aollt 2003, p. 17 with commentary from J.-H. Robert: a director is personally liable for a tort intentionally committed and of a particular seriousness such that it is incompatible with the normal performance of his duties even though the director acted in the interest of the company and did not pursue a personal benefit from his action; French Supreme Court, 20 May 2003, Bull. Joly Soc. 2003 (11) § 242, p. 1166 et seq. with commentary from Th. Massart; RJDA 2003 (12), p. 1026 et seq., No. 1181; French Supreme Court, 7 September 2004, Case No. 03-86.292.
French Supreme Court (1 st Civil Chamber), 16 November 2004 (SeiRL Pagus et al. v SACEM), Bull. Joly Soc. 2005 (3) § 72, p. 370 et seq. with commentary from B. Dondero.
In French Supreme Court (Plenary Assembly), 14 December 2001 (Cousin), Bull. civ. Ass. Plén., No. 17; Bull. Joly Soc. 2002 (3) § 84, p. 394 et seq. with commentary from J.-F. Barbièri; JCP E 2002, p. 345 et seq. with commentary from M. Billiau; RCA 2002, chr. No. 4, the Plenary Assembly of the Court ruled on a private claim before a criminal court (action civile). It upheld that an agent (préposé), i.e. an employee, who intentionally commits fraud can be held personally liable by a third party that incurred losses as a result of this fraud even though he acted within the normal performance of his duties. Dezeuze, in my opinion, correctly states that the same reasoning must be followed with respect to a private claim against a company's director. Dezeuze (2003), p. 271. Cf. French Supreme Court (Plenary Assembly), 25 February 2000 (Costedoat v Girard et al.), Bull. civ. 2000, Ass. Plén., No. 2; JCP G 2000, II (17) § 10295, p. 743 et seq. with commentaries from M. Billiau; JCP G 2000, I (26) § 241, p. 1244 et seq. with commentary from G. Viney; D. 2000 (32), p. 673 et seq. with commentary from P. Brun; Dr. et patrimoine 2000 (82) § 2567, p. 107 et seq. with commentary from F. Chabas; RTD civ. 2000 (3), p. 582 et seq. with commentary from P. Jourdain; French Supreme Court (Criminal Chamber), 23 January 2001, Bull. Crim. No. 21; RCA 2001 (7-8) com. No. 212, p. 10 et seq. with commentary from H. Groutel; RJDA 2001 (8/9), No. 918, where both Chambers ruled that an agent, i.e. an employee, cannot be held personally liable by a third private party in case the agent acts within the limits of his mission.
French Supreme Court (Commercial Chamber), 9 March 2010 (Société EPF Partners v Abela), Bull. Joly Soc. 2010, § 109, p. 537 et seq. with commentary from D. Schmidt; D. 2010 (13), p. 761 et seq. with commentary from A. Lienhard; Dr. soc. 2010 (6) § 109, p. 17 et seq. with commentary from M.-L. Coquelet; JCP E 2010 (20), p. 36 et seq. with commentary from S. Schiller; Rev. soc. 2010 (4), p. 230 et seq. with commentary from H. Le Nabasque.
Note that 'real' third parties, as creditors, claiming damages still need to prove that the director's tortious behaviour must be intentional, of a particular serious and being outside the normal performance of his duties. Cozian/Viandier/Deboissy (2010), paras 280-286.
Merle/Fauchon (2010), paras 407-408. For reference to the long standing case-law: French Supreme Court (Commercial Chamber), 26 January 1970 (Fouilly v Société Sodiva et al.), JCP G II 1970, § 16385 with commentary from Y. Guyon; French Supreme Court (Commercial Chamber), 18 July 1989, Défrenois 1990 (5), p. 633 et seq. with commentary from J. Honorat; French Supreme Court (Commercial Chamber), 1 April 1997, Bull. Joly Soc. 1997, p. 650 et seq. with commentary from J.-F. Barbièri; French Supreme Court (Commercial Chamber), 15 January 2002, Bull. Joly Soc. 2002 (6) § 155, p. 689 et seq. with commentary from S. Sylvestre. The Criminal Chamber of the French Supreme Court ruled differently in two cases: French Supreme Court (Criminal Chamber), 13 December 2000 (Léonarduzzi) Bull. crim. Nos 373 and 378; Bull. Joly Soc. 2001 (3) § 124, p. 497 et seq. with commentary from J.-F. Barbièri; Droit pénal. 2001, No. 47 with commentary from J.-H. Robert; JCP E, 2001, p. 1138 et seq. with commentary from J.-H. Robert; Rev. soc. 2001 Vol. 119 (2), p. 394 et seq. with commentary from B. Bouloc; Revue Société criminelle, 2001, p. 393 et seq. with commentary from J.-F. Renucci; and French Supreme Court (Criminal Chamber), 13 December 2000 (Bourgeois), D. 2001 (11), p. 926 et seq. with commentary from M. Boizard; JCP E 2001 (27), p. 1138 et seq. with commentary from J.-H. Robert; Bull. Joly Bourse 2001 (5), p. 499 et seq. with commentary from J.-F. Barbièri; Rev. soc. 2001 Vol. 119 (2), p. 399 et seq. with commentary from B. Bouloc.
See for a discussion whether the investor qualifies as member of the company or as third party: Danos (2008), p. 471; Cholet (2004), p. 1141; Likillimba (2009), p. 1.
Abuse of the company's assets (abus de biens sociaux): Leonarduzzi case; French Supreme Court (Criminal Chamber), 4 April 2001, Droit pénal 2001, No. 102 with commentary from J.-H. Robert; French Supreme Court (Criminal Chamber), 14 June 2006 Rev. soc. 2007 Vol. 125 (1), p. 136 et seq. with commentary from B. Bouloc. Otherwise: French Supreme Court (Criminal Chamber) 12 September 2001, Droit pénal 2002, No. 6 with commentary from J.-H. Robert and French Supreme Court (Criminal Chamber), 21 November 2001, Bulletin Joly Soc. 2002 (3) § 85, p. 398 et seq. with commentary from S. Messaï-Bahri. In the latter judgments, the French Supreme Court affirmed the possibility that a director of a company can be held liable by a shareholder if the latter proves that he incurred losses different from the losses incurred by the company, and that these losses are directly related to the tort committed; Abuse of power (abus de pouvoir): Bourgeois case; Mismanagement (faute de gestion): Pau Court of Appeal (2nd Chamber, 1 st Section), 18 December 2008 (Blanc v Pelletier), Dr. soc. 2009 (5), p. 25 et seq. with commentary from D. Gallois-Cochet.
Bélot finds it inconceivable that a shareholder whose profession is to exploit securities investments is deprived of the possibility to get compensation for a decrease in the value of the securities caused by the defendant's tortious behaviour. Bélot (2006), p. 6. See also: Schmidt (2008), p. 383; Schiller (2009), p. 9; Germain/Magnier (2009), para. 1760-1; Le Bars (2004b), para. 498; Clermontel (2009), paras 685-686.
In Société industrielle et financière Bertin v Ravery, the French Supreme Court (Criminal Chamber) ruled that an investor who acquired his securities after the publication of false annual accounts and can prove that he based his investment decision on this false information, the losses incurred by him are personal and distinct from the losses incurred by the company. For that reason the claimant is admissible as private party to the criminal proceedings; French Supreme Court (Criminal Chamber), 30 January 2002 Bull. Joly Soc. 2002 (7), p. 797 et seq.; JCP E 2002 Vol. 76 (28) § 1082, p. 1201 et seq. with commentary from J. Cellier; Rev. soc. 2002 Vol. 76 (28), p. 350 et seq. with commentary from B. Bouloc: In this case, the Court ruled that an investor who acquired his shares before the publication of the false and misleading annual accounts can incur losses that are personal and direct. In French Supreme Court (Criminal Chamber), 5 May 2004 (Société Moulins Souffiet, Bull. Joly Soc. 2004 (10), § 254, p. 1250 et seq. with commentary from J.-F. Barbièri) the Court upheld the Court of Appeal's decision that on the basis of the facts the inexact balance sheet of company Moullet Frères did neither cause the claimant's decision to invest nor the claimant's valuation of the shares. Cf. Gaudriot case.
Cozian/Viandier/Deboissy (2010), para. 279.
Under French law, X S.A.'s executive and non-executive directors can be held liable for corporate misinformation.1 Section 221-1 of the General Regulation of the AMF prescribes that the provisions of title II of that Regulation are applicable to the issuing company as well as to its executive and non-executive directors.2 Section 223-1, which is part of Title II, prescribes that the information provided to the public by the issuer has to be accurate, precise and presented fairly.
Directors of the issuing company need to certify to the AMF that they assume responsibility for the contents of the prospectus and that they have obtained a letter of completion by the company's auditors (commissaries aux comptes) in which the later state that they have conducted a due diligence inquiry in accordance with the professional auditing standards.3 This letter of completion is not included in the prospectus. In principle, the executive directors can be held liable for the publication and distribution of a false or misleading prospectus. However, any personal liability of directors can be established, the applicable company law provisions have to be taken into account.
Section L. 225-251 of the French Commercial Code stipulates that nonexecutive directors and executive directors4 are individually or jointly and severally liable to the company or third parties either for infringements of the laws or regulations applicable to public limited companies,5 or for breaches of the memorandum and articles of association, or for tortious or negligent acts of management.6 If more than one non-executive director, or more than one nonexecutive director and the executive director, have participated in the same tortious or negligent acts, the court determines which part to the compensation awarded is to be contributed by each of them.7
First of all, it must be mentioned that the holders of the company's securities qualify as third parties. Secondly, in case of a false or misleading prospectus, investors can base their damage claim against the company's directors on a violation of the applicable General Regulation of the AMF 8 or on a violation of a criminal law provision that forbids the intentional publication of misleading information to the investment market (section L. 465-2 C.mon.fin).9
Even though section L. 225-251 of the French Commercial Code seems to be lenient in triggering liability of executive and non-executive directors for infringements of the laws or regulations applicable to public limited companies, French courts and legal scholars have for a long time upheld the rule developed in the 19th century10 that members of the board are not liable towards third parties, such as shareholders, as long as these members act within the limits of their authority and thereby bind the company.11 According to this long tradition, personal liability of a director towards third parties is exceptional and restricted to tortious behaviour incompatible with the normal performance of duties (faute séparable/détachable des fonctions)12 and for which the director can be held personally accountable (imputable personnellement).13The claimant has to specify what exactly in the tortious behaviour makes the director personally liable for the losses incurred by him.14
An amendment bill introduced on 17 December 2003 to the Lower House of the French Parliament (Assemblée nationale) sought to remove this restriction by an express legal provision.15 The proposed section L. 225-253-1 to be added to the French Commercial Code prescribes that a shareholder who has incurred a personal loss can bring a liability claim against the executive and nonexecutive directors of a company for torts committed in the exercise of their duties. On 11 May 2004, the French Parliament rejected the bili.
In recent judgments, however, the French Supreme Court's Commercial Chamber,16 Criminal Chamber17 and Civil Chamber18 ruled that a director's intentional tortious behaviour of a particular serious nature is incompatible with the normal performance of his duties.19
In its recent judgment in the Gaudriot case,20 the Commercial Chamber of the French Supreme Court ruled that 'in a case about the liability of board members and the CEO towards shareholders for losses personally incurred by the shareholders, it is not required that the tortious behaviour must be intentional, of a particular serious nature and thereby incompatible with the normal performance of his duties'. From this ruling it is clear that the only requirement lelt for an investor claiming damages is to prove that he suffered a personal loss.21
Investors claiming damages for individual/personal losses (action individuelle) must prove that their losses are different from the losses incurred by the issuing company (préjudice social).22 For example, in case the fall in the securities price is the consequence of a lower net value of the issuer's assets caused by its directors' tortious behaviour, the individual shareholder, as member of the company (membre de la société),23 cannot claim damages from the director, because his losses are indirect: it is the company X S.A. itself that incurs the direct losses as a result of the tort committed by its directors.24 French legal scholars for a long time proposed to make a distinction between a shareholder who incurs personal and direct losses as a result of misinformation provided by the company's directors, and indirect losses incurred by the investor as a result of a fall in the securities price which is caused by a decrease in the value of X S.A.'s assets due to mismanagement.25 The French Supreme Court has ruled that losses incurred by an investor as a result of an acquisition of securities based on misinformation in the company's annual accounts are to be distinguished from the losses incurred by the company itself.26
In case of the publication and distribution of a misleading prospectus prepared and signed by the issuer's directors, the fall of the securities price at the moment when the misleading nature is revealed to the public is not related to a lower net value of the issuer's assets. On the contrary, the individual investor will claim to have been misinformed about factors that determine the company's (future) net value. The tortious behaviour of the issuer's directors is therefore directly related to the losses incurred by the individual investor. The personal right of the individual investor to receive correct information with respect to the product, i.e. securities, he acquired was violated by the directors.
It is noteworthy that on the basis of section L. 225-252 of the French Commercial Code, the company's shareholders or an association of its shareholders can make a claim against the directors on behalf of the company for losses incurred by the company (action sociale ut singuli). However, shareholders rarely use this possibility because on the one hand, they incur the costs and risks of litigation and on the other hand the eventual damages are awarded to the company on whose behalf they made the damage claim, and not to the claimant. Furthermore, the (group of) investor(s) cannot apply this legal basis to claim damages for losses incurred as a result of corporate misinformation because the directors did neither commit a tort by acting tortiously or negligently in the management of the company's assets, nor did the misinformation diminish the net value of the company's assets.
Concluding, the individual investor claiming damages from an executive director for the losses incurred by publication and distribution of false or misleading information in a prospectus has to claim and, upon challenge, prove the following facts:
the executive director can be held personally accountable;
the claimants incurred personal losses different from the company's losses.27
In its Gaudriot judgment, the French Supreme Court ruled that the publication of false or misleading information qualifies as tortious behaviour incompatible with the normal performance of an executive director's duties. Furthermore, in the Gaudriot-case, the French Supreme Court held the executive directors personally accountable for the losses incurred by the investor as a result of the publication of misinformation.