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Bluebook 21st ed.

Olivier de Precigout & Arnaud Latscha, Cleaning up French Company Law, 20 INT'l FIN.
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de Precigout, O.; Latscha, A. ., Cleaning up french company law, 20(8) Int'l Fin. L.
Rev. 19 (2001).

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Financial Law Review, 20(8), 19-21.

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Olivier de Precigout; Arnaud Latscha, "Cleaning up French Company Law," International
Financial Law Review 20, no. 8 (August 2001): 19-21

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Cleaning up
French company law

French company law has for a long time been the source of some confusion over
the differing roles of management groups. The New Economic Regulations Law has
now been passed with the intention of clearing up the mess and giving greater rights to
works councils. Olivier de Precigout of Lovells, Paris, and Arnaud Latscha of Simeon &
Associes look at the reforms
Prior to the reform brought about by the New sible for the company's general management. In
Economic Regulations (NER) Law, the law this capacity, he/she represented the company
applicable to corporations with a board of in its dealings with third parties and, subject to
directors produced a degree of confusion about the powers granted to shareholders' meetings
the roles of the management bodies and rigidity and the board of directors, was vested with the
in the functioning of the general management broadest powers to act in all circumstances in
and the board of directors. the name of the company.
The aim of the reform introduced by the This provision caused confusion, in that the
NER Law is, on the one hand, to clarify the law also provided that the board of directors was
respective functions of the various management vested with the broadest powers to act in all
bodies and, on the other hand, to make the rules circumstances in the name of the company.
of functioning of the general management The NER Law provides that the roles of the
more flexible by permitting the functions of the board of directors are henceforth as follows: the
chairman of the board of directors to be board of directors establishes the general orien-
separated from those of the general manager. tation of the company's activity and monitors
Subject to certain conditions, the NER Law its implementation. The board of directors
also authorizes the holding of board meetings deals with and settles all issues pertaining to the
via videoconference. smooth running of the company. Finally, the
board of directors carries out all investigations
Clarification of the roles of the board of and verifications which it considers appro-
directors and the general management priate.
Prior to the passing of the NER Law, the New The result of this new text is that the board
Code of Commerce provided that the retains an important role in the management of
chairman of the board of directors was respon- the company, and that this role is henceforth
directed more towards strategic policy
decisions and overseeing the day-to-day
running of the company carried out by the
Prior to the NER Law, the general management.

functions of the chairman Separating the functions of the

were, to say the least, rigidly chairman and the general manager
Prior to the NER Law, the functions of the
defined chairman were, to say the least, rigidly defined
insofar as the chairman of the board of directors
was necessarily required to also be the general

www.JFLRcom August 2001 IInternational Financial Law Review 19

 Cpany law

manager, and it was not possible to dissociate these functions. limit to the strict minimum the number of board meeting,
The NER Law enables the functions of the chairman of actually held, or to hold "paper" board meetings ir
the board of directors to be dissociated from those of the infringement of the law.
general manager. In order to allow the board of directors to monitor the
The NER Law provides that the role of the chairman of activities of the general management as often as necessary, the
the board of directors is to represent the board of directors, to NER Law provides that, henceforth, and unless the
organize and supervise its tasks and to ensure that the company's by-laws provide otherwise, the directors will be
company's corporate bodies function properly. allowed to participate at board meetings via the use ofvideo-
General management of the company, its day-to-day conferencing.
running, is handled either by the chairman or by a general However, the physical presence of the directors remains a
manager appointed by the board of directors. If proposed by requirement in respect of certain important decisions (fox
the general manager, the board of directors may also appoint example, the appointment or dismissal of the chairman or the
up to five deputy general managers. In the absence of any deputy general manager(s), the dismissal of the general
express stipulation in the law, the general manager and the manager and the closing of the annual accounts and the
deputy general manager(s) may or may not be members of the consolidated accounts). Moreover, the practical means of
board of directors. The deputy general managers are vested implementing these videoconferences will have to be fixed
with the same powers vis-A-vis third parties such as the by a decree.
general manager.
Finally it should be noted that, where the functions are Reinforcement of the rights of the works council
separated, the general manager can only be dismissed with The NER Law has not only changed the manner in which
just cause, otherwise the company runs the risk of having to corporations are organized, it has also introduced new provi-
pay damages and interest. The chairman can be dismissed sions which reinforce the rights of works councils (comit&s
without cause by the board of directors, irrespective of d'entreprise): (i) in the case of a public offer for cash or for
whether or not he handles the general management. shares; and (ii) in connection with the holding of general
The choice between these two methods of managing the shareholders' meetings.
company (ie the entrusting of the general management to First, it should be recalled that an enterprise with at least 50
either the chairman or a general manager) is incumbent upon salaried employees must have a works council. The works
the board of directors, in accordance with the conditions council has numerous rights, and the company must provide
provided in the company's by-laws. it with a certain number of documents and information. The
In practice, this dissociation of functions is therefore only works council must be consulted in certain circumstances,
optional. As the board must be given the choice, the by-laws such as the introduction of measures pertaining to the organi-
of all corporations (socit&s anonymes) will have to be modified zation, management and running of the company, or any
in order to provide for this possibility. However, the share- planned reduction in the work force or change in the
holders cannot choose, in place of the board, one or other of economic or legal organization of the company. The works
the solutions. This implies that this choice must actually be council representatives are entitled to attend board meetings
given to the board and not made merely in the by-laws. The as observers.
NER Law stipulates that, in the case of listed companies, this
statutory modification must be made at the latest 18 months Rights of the works council in case of an offer
following publication of the law, or at the next extraordinary
Prior to the NER Law, the works council already had a right
general shareholders' meeting in the case of companies whichto information and to request a meeting with the offeror in
are not listed. the case of a public offer (for cash or for shares). The Labour
This dissociation of functions may be very useful, notably
Code stipulated that: "As soon as he [the company head]
in French subsidiaries of foreign groups where general becomes aware of the filing of an offer concerning his
management of the company can be entrusted to a local company, he informs the works council thereof which, if it
manager, and the function of chairman of the board of deems necessary, invites the offeror to present to it the terms
directors can be entrusted to a representative of the group.of the offer."
The NER Law strengthens the rights of the works
Videoconferencing council, and is more restrictive for the offeror.
Until now, the members of the board of directors were Firstly, the company can no longer merely "inform" the
required to attend board meetings in person. Directors who works council, but must actually meet with it straight after the
were represented by proxies were filing of the offer. The works
not taken into account for the council must then decide if it wants
purposes of calculating the quorum, The NERLa has not only to meet with the offeror, and may,
and recourse to modern communi-
give its opinion on the
cation techniques was not permitted. changed the n anner inwhich moreover, friendly or hostile nature of the
Many companies found it zIr
corporations e organized, it offer. It is hard to imagine a works
difficult to comply with this rule due council of a company (or a Group
to the geographical distance has also introd JCed new provi- works council where the offer is for
separating certain directors, this sions which rei
nforce the rights the shares of the holding company
being particularly the case for French of a group) whose shares are subject
subsidiaries of foreign groups. Some of work. councils to a bid not exercising this faculty.
companies were therefore obliged to The offeror must provide the works

20 International Financial Law Review IAugust 2001

 Company law E

council with the offer document numerous questions. On the one

provided for by the monetary and hand, the notion of "urgency" is not
financial code. Failurebyt specified. Should it be considered
Within 15 days of publication of offerorto
he
respond to t Ii that this condition will be satisfied
the offer document, the works el"invitation" when the company's management
council must meet to examine the issued thel by wishes to take measures which are
offer and, as the case may be, to hear 'orks council is
I rejected by the works council?
the offeror. If the works council sanctioned the loss of)y Should it be considered that there is
requests a meeting with the offeror, voting rights only urgency when the company is
it must give the latter at least three attached to the threatened with immediate danger?
days' prior notice. During its shares of the offereewhich The role played by the courts will be
meeting with the works council, the he/it is cquiring vital to place a precise limitation on
offeror, who may be assisted by a this notion. The role to be played by
persons of his/its choice, will take the general shareholders' meeting is
note of the comments of the works also uncertain. In most companies,
council. The works council may be assisted by an expert of its the role of the shareholders' meeting is basically limited to
choice, both at and before such meetings. approval of the accounts, the allocation of results, the
The term "invitation" used by the NER Law is amusing in appointment of corporate officers and statutory auditors or
itself, since it is a veritable obligation imposed on the offeror, the modification of by-laws. What, therefore, will be the
as proved by the sanctions imposed in case of failure to purpose of a general meeting called "on an urgent basis" at the
comply. request of the works council? What measures will it actually
Failure by the offeror to respond to the "invitation" issued be able to take?
by the works council is sanctioned by the loss of voting rights Secondly, the works council will now be able to propose
attached to the shares of the offeree which he/it is acquiring. the inclusion of draft resolutions on the agenda of General
This prohibition concerns not only the shares held by the Meetings. It is difficult at the present time to assess what effect
offeror, be it an individual or a company, but also applies to this provision will have. However, it should not be disre-
the voting rights attached to the shares held by the company garded, as it could well disrupt proceedings at general
or companies which he/it is controlled by or controls. meetings. For example, what will happen if the resolutions
In case of failure by the offeror to comply with this oblig- which the works council has requested be included
ation, he/it must in principal be called to a new meeting ofthe contradict those included on the agenda by the company?
works council within the 15-day period following the Finally, two members of the works council may now
meeting which he/it failed to attend. If he/it is not called to a attend general meetings. At their request, they may speak
further meeting within that period (and it is difficult to during all discussions requiring the unanimous vote of the
imagine this happening), he/it will once again be able to shareholders. Nevertheless, the possibilities of exercising this
exercise the voting rights attached to the acquired shares. If option will be rare in practice, since the number of resolu-
he/it is called to another meeting, he/it will be able to tions requiring a unanimous vote is in general limited.
exercise the voting rights from the day following that on
which he/it actually met with the works council. Conclusion
Previous company law reforms have tended more towards
New rights of the works committee at share- simplification and flexibility. This, however, is not the case
holders' meetings with the NER Law, which introduces nuances which either
The NER Law also grants the works council an active role in did not exist previously or which give new rights which raise
the calling and holding of shareholders' meetings. questions, if not difficulties.
Firstly, the works council will be able to request that an It is up to practitioners to ensure that the positive aspects of
officer be appointed by a court in order to call a general share- this reform are enhanced and that the functioning of
holders' meeting "in case of urgency" This text raises companies does not become even more complex. I

August 2001 International Financial Law Review 21