(French Administrative Supreme Court, Feb. 19, 2014, no. 346638)

In a decision handed down on February 19, 2014, the French Administrative Supreme Court assessed the “control” criterion required for application of Article 223 B, 7th paragraph (“Charasse amendment”) in its version in force before 2006 since said Article provided no definition of “control” at that time.  The French Administrative Supreme Court’s decision is nonetheless interesting with respect to application of the current wording of this provision.

In this case, the heirs of a group’s founder had the co-ownership of 52.2% of the voting rights of Laboratoires Virbac (“Virbac”).  In addition, the heirs also had shareholding in a company called Interlab, 82.9% of which was owned by Virbac.

Virbac: (i) first acquired 99.76% of the shares of Laboratoires Frères in 1993 from its subsidiary Interlab, for the purpose of including it in its tax consolidated group, (ii) then, in 1994, it acquired for the same purpose the shares of Interlab held by the heirs, i.e., its own shareholders.

The Marseille Administrative Court of Appeal ruled that these two acquisitions were within the scope of the Charasse amendment, for the following reasons:

  • Virbac directly and indirectly controlled the two target companies (Interlab, 82.9% of which was directly held, and Laboratoires Frères, 99.76% of which was indirectly held; and
  • Virbac’s shareholders had colluded so that Virbac would purchase Interlab’s shares, which they held and which they decided to sell on the same day on the same financial terms.

The French Administrative Supreme Court reversed the Administrative Court of Appeal’s decision:

  1. due to an error of law, since it clearly follows from Article 223 B that the Administrative Court of Appeal should have determined whether the buyer company and the target companies were directly or indirectly under the same persons’ control; it should not have merely noted that the buyer company had direct or indirect control of its targets before the transaction; and
  2. due to insufficient legal grounds because the fact that several shareholders sell their shares on the same day on the same terms does not prove collusion, within the meaning of Article L. 233-3 of the French Commercial Code.

The case was remanded to the Marseille Court of Appeal for a new ruling on the merits based on the criteria defined by the French Administrative Supreme Court.

The Court thereby reminded that the analysis of “control” within the meaning of Article L. 233-3 of the French Commercial Code—to which the Charasse amendment legally refers since January 1, 2006—must be limited to the specific cases mentioned by Article L. 233-3.  Furthermore, through its decision, the French Administrative Supreme Court ensures that “control” will be analyzed in the same manner for application of the Charasse amendment before and after January 1, 2006.