Facts
Background
Decision
Comment


Facts

In a letter relating to the appointment of a managing director, the sole shareholder of a simplified joint-stock company affirmed that the managing director would be entitled to an indemnity if he was dismissed without cause. In the minutes of the sole shareholder's decision to appoint the managing director, a reference was made to this letter with respect to the terms of the managing director's remuneration. However, the company's bylaws specified that the managing director could be removed with or without cause and, in any case, without indemnity.

Three years later, the managing director was removed with no indemnity. He sued the company to obtain the payment of his indemnity.

Background

In 2004, the Supreme Court ruled that any contract, agreement or deed entered into outside the bylaws of a simplified joint-stock company may not contain any provisions contrary to those contained in the bylaws.(1) Further, in the event of contradiction between a shareholders' agreement and the bylaws of a simplified joint-stock company, the bylaws must prevail.(2)

On 31 March 2022, the Paris Court of Appeal clarified that, with respect to the removal of corporate officers, contracts or agreements entered into outside the bylaws may supplement the provisions of the bylaws.

Decision

On 12 October 2022, the Supreme Court reaffirmed this case law, holding that no contract, agreement or deed entered into outside the bylaws may validly contradict them.

With its decision, the Court seemed to state that the only way to deviate from the bylaws would be to modify them in accordance with the applicable corporate rules. This contradicts a 12 May 2015 decision rendered with respect to a company with limited responsibility, pursuant to which the shareholders were allowed to deviate from the bylaws by subsequent acts, as long as all shareholders agreed to them.

Comment

In M&A transactions, where a simplified joint-stock company is governed by both its bylaws and a shareholders' agreement, it is common practice to provide that, in case of contradiction or discrepancy between the two documents, the provisions of the latter shall prevail.

The Court's decision in this case is important since the opposite principle applies: the provisions of the bylaws will prevail over any contradictory provisions in any contract, agreement or deed as long as, pursuant to the legislation, the organisation of the simplified joint-stock company is set out in its bylaws.

If there is no contradiction between the shareholders' agreement and the bylaws, this decision should not prevent a shareholders' agreement from supplementing the bylaws. Moreover, in this case, the contradiction was direct and related to a governance matter involving a payment by the company. The letter providing for the indemnity had been issued by the sole shareholder of the company and the company was not a recipient thereof. It would be interesting to know whether the Court's analysis would be the same if the contradiction had involved share transfers and, thus, relationships between shareholders rather than the company itself.

The Court's decision clarified and framed the contractual practice of supplementing bylaws through shareholders' agreements and, in this context, of giving primacy to shareholders' agreements over bylaws. Accordingly, legal advisors should pay attention to the drafting of the bylaws of simplified joint-stock companies, as well as any other contract, agreement or deed (eg, shareholders' agreements and/or internal rules) the purpose of which is to organise relationships between the shareholders and/or the corporate officers of the company.

For further information please contact Gwenaëlle de Kerviler, Alain Levy or Nathalie Lastennetat AYACHE by telephone (+33 1 58 05 38 05) or email ([email protected], [email protected] or [email protected]). The AYACHE website can be accessed at www.ayachelaw.com.

Endnotes

(1) Cass Com, 7 January 2004.

(2) Cass Com, 5 June 2019.