For a very long time, the French Supreme Court (Cour de cassation) ruled that, in the event of a merger, the surviving company could not be criminally condemned for offences committed before the merger by the absorbed company.
In a ground-breaking and highly publicized ruling, dated 25 November 2020, the French Supreme Court overturned its own case law and ruled that, from now on, in the event of a merger, the surviving company can be criminally condemned for an offence committed by the absorbed company before the merger.
Scope of application
However, this transfer of criminal liability is limited.
On the one hand, such a transfer may occur only in the context of mergers within the scope of the Directive 78/855/EEC of 9 October 1978 concerning mergers of public limited liability companies ("sociétés anonymes") codified by the Directive 2017/1132 of 14 June 2017 and only in relation to financial penalties. Indeed, this directive such as interpreted by the European Court of Justice (ECJ, 5 March 2015, Modelo Continente Hipermercados SA vs. Autoridade para as Condições de Trabalho, C-343/13) is the legal ground for this transfer.
On the other hand, given the importance of this change and to ensure some level of legal predictability, the French Supreme Court decided that this new rule would apply to merger transactions entered into after 25 November 2020.
In any case, the full criminal liability of the surviving entity (notwithstanding its form and the date of the merger) is incurred if the purpose of the merger was to allow the absorbed entity to avoid its criminal liability, i.e. an evasion in law ("fraude à la loi").
Huge impact on many French criminal proceedings
This major change in French case law is consistent with the ECJ and the European Court of Human Rights' case law.
In practice, this ruling will obviously have a huge impact on many French criminal proceedings. In the context of contemplated corporate transactions, it will be even more necessary to precisely identify and consider the risks involved with current and potential criminal rulings initiated against a target. Given that this new solution applies to mergers entered into after 25 November 2020, it will probably be of interest for corporate deals currently being discussed. In this respect, the application in time of this ruling will probably be a major subject of questioning.
Please note this blog post was written by a Clifford Chance LLP employee. Clifford Chance LLP is the parent company of Clifford Chance Applied Solutions (CCAS). The content within this post does not constitute legal advice.
In the event of the merger of a company into another company, the surviving company may, from now on, under certain conditions, be criminally condemned for offences committed by the absorbed company before the merger.