Today's General Counsel, July/August 2021

Page 28

FEATURE

French Supreme Court Reverses on Successor Liability By  NICOLAS BROOKE

O

n November 25, 2020, the French Court of Cassation, or French Supreme Court, reversed its case law regarding criminal successor liability. The facts are as follows: Company A had been under investigation for accidentally setting fire to private property stored in a warehouse. Before any charging decisions could be made, Company A was taken over by a competitor, Company B. As a result, Company A was dissolved, making its prosecution impossible.

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The matter made its way to the French Supreme Court, which was asked to address three questions: Can Company B be prosecuted for conduct committed before the acquisition? If the Supreme Court rules that the answer to that question is affirmative, thereby reversing what had been the position under French law, should the new precedent apply immediately, or only to mergers occurring after the judgment? How should cases of fraudulent mergers be dealt with? The French Supreme Court

TODAYSGENERALCOUNSEL.COM JULY/AUGUST 202 1

had previously concluded that the absorption of a company by merger and the death of a natural person were analogous. The absorbed company would be dissolved by the merger and no longer exist as a separate entity. Given that Article 6 of the French Criminal Code provides that a deceased suspect cannot be prosecuted, the absorbed entity could therefore no longer be brought to trial after the merger. For the absorbing entity, the same solution would apply, given that Article 121-2 of the Criminal Code provides that one cannot be pursued for a third party’s misconduct. This line of precedents was at odds, however, with European law. In 2015 the European Court of Justice had held that pursuant to its 1978 Directive, which provides that third-party rights should not be infringed by a merger, an absorbing company was dutybound to pay a fine pronounced after a merger with respect to facts committed by the absorbed company before the merger, because this sanction was part of the absorbed company’s liabilities. Three years later, in 2019, the European Court of Human Rights (ECHR) relied on the “business and operational continuity” between the absorbed company and acquiring entity to hold that the absorbed entity cannot, strictly speaking, be considered a BACK TO CONTENTS


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