Corporate law

Paris Court of Economic Affairs (Tribunal des affaires économiques de Paris): entry into force of a new protocol for disputes on the merits

On 19 December 2024, the Bar, the Clerk's Office (greffe) and the Paris Commercial Court signed a new protocol relating to the introduction and scheduling of disputes on the merits, with the aim of reducing the average time taken to process these cases.

The protocol concerns the settlement of disputes on the merits (and not summary proceedings, claims and injunctions to pay) and will apply to new cases filed after its implementation, which is scheduled to take place in stages from 1 January 2025. Firstly, it aims to improve the organisation of the filing of cases by introducing a procedure for the scheduling of dates. As soon as this function is operational on the ‘digital court’, the date will be scheduled on the commercial court platform.

The case will then be placed at the clerk's office by electronic transmission (Word or PDF text format) or, if this is not possible, by filing the copy of the summons with the reservation number at the clerk's office.

The protocol also changes the way in which cases are instructed, where representation by a lawyer is mandatory, based on the provisions of articles 446-1 to 446-4 of the French Code of Civil Procedure. As soon as the case is introduced, the parties will be proposed an amicable way of resolving the dispute. In the absence of conciliation, the court will exempt the parties from attending subsequent pre-trial hearings and, after obtaining the opinion of the parties, it will set a calendar for exchanges depending on the complexity of the case. Subject to certain exceptions, the exchanges will have to take place electronically.

Corporate law

New provisions on amicable liquidation proceedings and transfer of company assets (TUP)

Amicable liquidation and universal transfer of assets (TUP) procedures are sometimes misused by fraudulent companies facing tax and social security reassessments, which they seek to elude.

To prevent such misuse, the decree of 7^th July 2024 makes it compulsory to publish the dissolution giving rise to a TUP procedure in the “Bulletin officiel des annonces civiles et commerciales” (BODACC) and to produce certificates of social security and tax compliance when closing the amicable liquidation procedure.

As a result, article 8 of decree no. 78-704 is amended to make it compulsory to publish the dissolution giving rise to a TUP procedure only in the BODACC and no longer in a legal gazette, in order to enhance the publicity given to the procedure and the information provided to creditors.

The text also amends article 10 of the same decree and article R. 237-7 of the French Commercial Code (for commercial companies) to make it compulsory to produce a certificate of social regularity and a tax certificate attesting that the accounts are fully updated when the amicable liquidation is closed, as part of this procedure, which takes place without the intervention of a judge. Although the company must not have any debts and must have enough assets to pay all its liabilities, there is no obligation to certify that, a situation that the decree seeks to correct with this new obligation.

These provisions will come into force on 1^st October 2024.

Corporate law

Conditions under which former members of a civil company (société civile) are held liable for the company's debts.

In a recent decision, the French Supreme Court (Cour de cassation) ruled that shareholders in a civil partnership who have transferred their shares may be held liable for the company's debts that became due and payable before the date of the transfer, without any need to justify unsuccessful legal proceedings against the company prior to that date.

Corporate law

General Meeting of a Société Anonyme: the failure to establish a quorum is not equivalent to a lack of quorum

The Extraordinary General Meeting of a Société Anonyme is deemed valid only if the shareholders present or represented hold at least one-quarter of the shares with voting rights on first call and one-fifth on second call (French Commercial Code, art. L. 225-96, para. 2). Resolutions adopted in breach of this rule are null and void (French Commercial Code, art. L. 225-96, para. 1).

The shareholders of a Société Anonyme requested the nullity of an Extraordinary General Meeting, arguing that the meeting officers had failed to ensure that a quorum was met.

Their claim has been rejected: only the adoption of resolutions by the Extraordinary General Meeting without respecting the quorum can lead to nullity; however, the plaintiffs did not argue that the quorum had not been met, but only that the officers of the meeting had failed to ascertain its presence.  

Corporate law

Alternative arbitration clause and attribution of jurisdiction: the court may be seized

In a recent decision, the Paris Court of Appeal stated that, in the event of an alternative clause providing for recourse to arbitration to settle disputes arising from the contract, while reserving the parties the option of submitting their dispute to the national court in the event of disagreement, the court may be seized to establish the existence of such disagreement.

Corporate law

Commercial agents unable to continue working for health reasons are entitled to indemnification

The In a recent decision, the French Supreme Court (Cour de cassation) ruled that in the event that a commercial agent terminates his contract for health reasons, he retains his entitlement to the contract termination indemnity, even if he is not completely unable to carry out any activity, as long as he can no longer reasonably pursue his activity as an agent.

Tax

Research tax credit (“crédit d'impôt recherche - CIR”): sub-contracted expenses can only be taken into account if they have been paid during the financial year

According to the Toulouse Administrative Court of Appeal, sub-contracted expenses can only be taken into account in calculating the research tax credit (“crédit d'impôt recherche – CIR”) in respect of a given financial year if they are actually paid in that same year.

Tax

Denial of tax exemption to non-residents is subject to the contradictory procedure

When non-resident contributors claim an exemption on the basis of a bilateral tax treaty in a letter attached to their wealth tax (“Impôt de Solidarité sur la Fortune – ISF”) declaration, the contradictory rectification procedure must be implemented (French Supreme Court 18-9-2024 no. 23-10.515 F-D).

Employment law

The duration of fixed-term contracts, even if discontinuous, is deducted from the trial period provided for in any permanent contract subsequently entered into.

In a recent decision, the French Supreme Court (Cour de cassation) has reiterated the conditions for the implementation of the trial period in the event of a succession of previous contracts, confirming its case law in this matter.

In particular, on expiry of one or more fixed-term employment contracts (CDD), the employee may be hired, without any delay, on a permanent contract (CDI) by the company in which he or she was working. In this case, the duration of the fixed-term contract(s) has to be deducted from any trial period provided for in the new employment contract (French Labor Code, art. L 1243-11, para. 3), even if the various contracts are separated by short periods of interruption. The deduction of the duration of previous fixed-term contracts from the trial period of the new contract is even more applicable in the event of new recruitment on a fixed-term contract following immediately successive fixed-term contracts. However, except in cases of fraud, the employer does not have to reduce the trial period if the new contract is for a different position requiring the employee to have different qualifications and skills.

Employment law

A recording made without the employer's awareness can be used to prove a work-related accident

The plenary session of the French Supreme Court (Cour de cassation) recently ruled that, in civil proceedings, the unlawfulness of obtaining or producing evidence does not necessarily mean that it should be excluded from the proceedings. The court must, when requested to do so, assess whether such evidence undermines the fairness of the proceedings as a whole, by balancing the right to evidence against the conflicting rights involved. The right to evidence may justify the production of evidence that undermines other rights, provided that such production is essential to the exercise of that right and that the violation is strictly proportionate to the aim pursued.

In a judgment of 6 June 2024, the Second Civil Chamber of the French Supreme Court applied this solution for the first time to disputes concerning work-related accidents. It approved the Court of Appeal's (Cour d’appel) ruling that an employee could produce an audio recording made without the knowledge of the director of the company with whom he had had an altercation, in order to obtain recognition both of the work-related nature of the accident resulting from this altercation and of the employer's inexcusable fault, after observing that the court had carefully balanced the director's right to respect for his private life and the victim's right to evidence.

Employment law

Repeated sexist comments by an employee are culpable and justify dismissal

An employee who repeatedly insults colleagues using mildly sexist language is guilty of misconduct justifying dismissal, regardless of the employer's past tolerance.

Employment law

No compensation for notice for an employee who refuses a change in working conditions

An employee who refuses a simple change in working conditions may be dismissed for misconduct. In this case, the employer may require that the notice period, if any, be performed under the new working conditions. An employee who refuses loses all entitlement to compensation for notice (French Supreme Court, Labour Division, 23-10-2024 no. 22-22.917 F-D, Association Essor c/ E).

Real estate law

Consequences of an ancient promise to sell: revocation and invalidity of the price

It is impossible for the promisor to withdraw from the unilateral undertaking to sell unless otherwise stipulated in the contract. Whether the price is too low is determined at the date of the unilateral undertaking to sell and not, as in matters of lesion, at the date of exercise of the option.

Real estate law

The seller's right to occupancy compensation is not conditional on absence of fault on his part

While the seller's bad faith does not deprive him of his right to restitution in respect of the occupation of the property sold after the invalidation of the sale, a purchaser acting in good faith only has to pay this value from the date of the claim (French Supreme Court 3^rd Civil Division 5-12-2024 no. 23-16.270 FS-B).

Real estate law

Legal standing for a non-professional creditor in a compulsory sale of the principal residence of a debtor in compulsory liquidation

A creditor with a charge over real property, to whom the declaration of unseizability of a property belonging to a debtor in compulsory liquidation cannot be set up against, may proceed with its sale on seizure. The non-professional creditor's right to bring an action is recognised because it is not an action to order the debtor to pay a sum of money prohibited by article L. 622-21 of the French Commercial Code (French Supreme Court, Commercial Division, 20 November 2024, F-B, no. 23-19.924).

Data Protection

Users’ right not to receive unsolicited commercial calls

The Spanish Data Protection Agency (AEPD) has issued a circular clarifying some parts of the content of the General Telecommunications Law. First of all, the law, in accordance with the protection of personal data and privacy, prohibits commercial communications that have not been authorised by the user, generating great controversy as companies have continued to send commercial communications. The AEPD has stated that this law has a period of one year to enter into force from the time it is published in the Official State Journal.

This new regulation implies a substantial change with respect to the legal regime applicable under the derogated General Telecommunications Law, article 48.1.b. of which recognised the right of end users “to oppose receiving unwanted calls for commercial communication purposes that are made by means of systems other than those established in the previous letter and to be informed of this right”, giving priority to the right of end users not to receive such calls and the consequent obligation of those responsible not to make them, unless they can prove the existence of any of the exceptions contemplated in the law.

Real Estate

Law 12/2023 of 24 May on the right to housing

The new Housing Law in Spain establishes significant changes in the real estate sector, such as the obligation of the landlord to pay brokerage fees, the creation of a database of rental contracts, and the possibility of declaring “stressed residential market areas”. It also introduces tax incentives for landlords who rent out their properties and establishes penalties for unoccupied properties.

Definition of large tenant
A definition of large tenant is established, and it is considered as such a person (natural or legal) owner of more than ten urban properties for residential use or owner of a built surface area of more than 1,500 m2 for residential use. This excludes garages and storage rooms. The definition may be modified by the Autonomous Region and replaced by “owner of more than five properties”, when so motivated by the competent administration.

Database of rental contracts
A database of housing rental contracts will be created. This register will be formed with information from bond registers, property registers and other sources of information at state, regional or local level, which will allow the administration to have even more information on rentals and payments.

Limits on rent
The competent administrations will be able to declare housing “stressed residential market areas”, those areas where there is a particular risk of insufficient housing supply. The duration of this declaration will be 3 years and may be extended annually. The declaration of a “stressed residential market area” will require the preparation of a justification report, indicating that one of the following circumstances exists: (i) the average mortgage or rent burden in the family unit plus supplies of the households in that area, exceeds 30% of incomings, (ii) the purchase or rental price of housing in the area has experienced in the last 5 years a percentage of growth of at least 3% more than the CPI (Consumer Price Index) of the autonomous region.

A penalty for owners of empty properties
The different administrations, by cross-referencing their data, will be able to check the use and destination of properties throughout their territorial scope. This collection of information is specially aimed at analyzing unoccupied properties. Local councils may impose a penalty of up to 50% of the IBI (Property tax) quota on residential properties that are permanently unoccupied. Properties will be considered permanently unoccupied if they remain unoccupied, continuously and without justified cause, for a period of more than two years, and belong to owners of, four or more properties destinated for residential use, in addition to any other additional requirements that may be included in the municipal by-laws. The penalty that local councils may impose may be up to 100% when the period of inoccupation exceeds three years. They may even increase this penalty by a further 50% in the case of properties belonging to owners of two or more residential properties that are unoccupied in the same town.

Income tax incentives
The following tax benefits are granted to property owners who may be included in any of these
situations:

• Deduction of 90% of the net rental income. This bonus applies to owners of properties in stressed areas who reduce the rental price by more than 5%.
• Deduction of 70% of the net rental income. This bonus applies to owners who meet the following conditions:
  o Housing located in a stressed residential market area, which is rented for the first time and the tenant is between 18 and 35 years of age.
  o The tenant must be a public administration or non-profit organization and the property is destinated for social renting with a monthly rent lower than that established in the rental subsidy program.
• Deduction of 60% of the net rental income. This applies when the home has been subject to renovation, and this has been completed in the two years prior to the conclusion of the contract.
• Deduction of 50% of the net rental income in other cases.

Business Law and M&A

Royal Decree-Law 5/2023

The “Royal Decree-Law 5/2023 of 28 June” sets out in its first book a completely new regime for structural modifications of commercial companies, both internal and cross-border, intra- and extraEuropean (i.e. outside the European Economic Area). This Royal Decree - Law not only complies with the transposition into Spanish law of the so-called Mobility Directive, but also repeals Law 3/2009 of 3 April and integrates the entire legal regime of structural modifications, both internal and cross-border, into a new regulation. The new regulation will enter into force one month after its publication in the Official State Journal, on July 29th, 2023, although a transitional regime is
established for operations in progress before its entry into force, so that Law 3/2009 will apply to structural modifications whose projects have been approved by the companies involved before July 29th, 2023.

The new law has a structure that differs significantly from the previous standard. For example, it
contains:

• Common provisions applicable to all structural modifications (whether internal or crossborder).
• Specific rules for each type of internal modification.
• General rules for cross-border structural changes for both intra-European and extraEuropean changes.

Main new developments:
Protection mechanisms:

With regards to the protection of creditors, one of the new features is the elimination of the traditional right of opposition. Instead, it is replaced by a system of appropriate safeguards. This new regime is based on the company's offer of guarantees in the draft, without making such an offer mandatory. Additionally, when an independent expert’s report is present, it allows for an independent expert to provide an opinion on the adequacy of any security offered. However, it is not mandatory for the expert to give such an opinion. Furthermore, a procedure is established for creditors to exercise their right to obtain adequate security.

The time limit for exercising this right is one month for internal transactions, and three months for cross-border transactions. The counting of this time limit starts from the publication of the draft terms, rather than from the publication of the merger resolution, as it was previously.
In mergers and split-offs, the possibility of opposing the merger based on discrepancies in the exchange ratio is eliminated. Instead, shareholders who do not vote in favor have the option to seek cash compensation through a court application. This change means that the previous article 38.II of Law 3/2009, which allowed for an expert to be involved in determining such compensation when specified in the bylaws or the resolution of the shareholders’ meeting, is no longer applicable.

The new regulation consolidates various scenarios that previously granted the right of separation or similar mechanisms. It also includes the right for dissenting shareholders in such cases to sell their shares or holdings in exchange for appropriate compensation. If there is an independent expert’s report available, it must provide an opinion on the adequacy of the compensation.

It’s important to note that a disagreement with the offered compensation does not allow to contest the amendment itself. Instead, it enables the dissenting shareholder to request additional cash payment through legal means.
The employees, as is the case for creditors and shareholders, have granted the right to submit comments on the draft structural amendment, which must be taken into account by the board to submit comments on the draft structural amendment.

Main procedural developments
The general structure of the procedure is conserved, the documents required to carry out the operation are extended, with effects on the timing of the operations.

Project:

• All structural modification operations, including transformation, will need the preparation of a structural modification project.
• The project needs to be accompanied by certificates that verify the company’s compliance with its tax and Social Security obligations.
• The explicit mention is made regarding the board's ability to amend the structural modification project.

Preparatory Advertising:
Unless in the case of structural modifications adopted by unanimous universal meeting, moreover the project, an information notice must be published on the website or filed at the Commercial Trade Registry. This notice must be addressed to shareholders, creditors, and employee representatives (or employees if they do not exist) to inform them about the possibility of providing feedback to the company regarding the proposed operation. These observations can be submitted up to 5 business days prior to the general meeting.

Administrators’ report:
The report of the administrators will include two sections, one for the shareholders and another for the employees. These sections can be presented as a single report or separately, depending on the addressee. However, if the shareholders of the participating companies agree, their section of the report may not be issued. The employees’ section of the report will provide an explanation of the implications for labor relations, significant changes in employment terms and conditions, and any impact on the location of business premises, including how these changes affect the company’s subsidiaries.

Independent expert’s report:
Is a crucial component that should encompass the expert’s assessment of the suitability of the cash compensation provided to shareholders. Additionally, upon the directors’ request, the report may also include an evaluation of any guarantees offered to creditors.
As usual, is mandatory for all structural modification operations to ensure transparency and fairness.
However, specific exceptions may be applicable in certain circumstances, allowing for flexibility in the requirement.