France's July 12, 2010 Loi n° 2010-788 portant engagement national pour l'environnement (law on the national commitment for the environment) (the "Law"), known as "Grenelle II", contains 257 articles affecting more than 30 legal codes. While this may make providing an exhaustive inventory of the Law's many provisions rather impractical, some of these new environmental guidelines and innovations which will impact corporate law and therefore warrant our attention, are worth being highlighted.
A. Corporate Law
Section VI of the Law, entitled "Gouvernance", includes articles 224 through 227 which amend the French Commercial code (including the core of French corporate law), and the Environmental code. Measures contemplating groups of companies are effective immediately.
1. Article L.233-5-1 of the French Commercial code now requires that the procedure applicable to "regulated agreements" be followed when companies holding an interest in or controlling another company, "[TRANSLATION] undertake to bear responsibility, in the event of their affiliated company's failure, for all or part of the obligations to prevent and repair damages" caused to the environment by that company. The applicable procedure will vary with the type of company. For the "sociétés anonymes", prior authorization from the board of directors is required.
2. In the event of a company's judicial winding-up, article L.512-17 of the Environmental code provides that, from now on, a liquidated corporation's parent company (holder of more than half of the capital stock) can be ordered to finance all or part of the site rehabilitation when operations cease. To do this, the court that declared the judicial winding-up, the action being instituted exclusively by the public prosecutor or the department's state representative, must be able to establish the manifest negligence of the parent company that contributed to the deficiency of the liquidated subsidiary's assets.
One cannot help but notice that the notion of "manifest negligence" is in no way defined, which will doubtlessly give rise to diverse interpretations that the French Supreme court will have to resolve. In theory, every act of negligence gives rise to the liability of its perpetrator. It would appear, however, that legislators believed that negligence was not sufficient to pierce or raise the "corporate veil". Have they thus created a separate fault, which may be characterized neither as gross negligence nor as intentional wrongdoing? Only time will tell …
What is more, to avoid having an onslaught of intermediate companies to escape this new liability, the Law provides for the possibility of instituting proceedings against "grandparent" companies, or even "great-grandparent" companies where the company at fault is not in a position to finance the site rehabilitation measures itself.
Note that the legislation only uses the term "company" (société); shareholders of a liquidated business that is not structured as a company will not be subject to this new liability.
In cases of companies that are not bankrupt, the French Supreme court's current case law forbids piercing or raising the "corporate veil" to involve the potential liability of a parent company in cases of environmental damage caused by a subsidiary whose dissolution it has ordered.
B. Commercial Leases
1. Article 8 of the Law provides for a new environmental schedule pertaining to commercial leases relating to premises larger than 2,000 m2 for office or commercial use. The new article L.125-9 of the Environmental code affects both new and renewed leases. The schedule's content will be determined by decree. The schedule may impose obligations on tenants to limit energy consumption for the premises in question. This obligation's effective date is differed to: January 1, 2012 for leases entered into or renewed as from that date, and three years after the Law's effective date for existing leases.
2. The first article of the Law expands the duty to perform an energy performance assessment, both for real estate sales and commercial leases.
As the energy performance assessment must henceforth be attached to all leases on all or part of a property, this requirement applies to commercial leases as well. In theory, this obligation is effective immediately, but its actual application is pending publication of the decrees or orders for each type of premises concerned, as the May 3, 2007 order applies to residential premises only. Furthermore, when all or part of a
property is sold, the assessment must be provided to the future buyer without the latter having to request it.