In France the assessment of the price for the transfer of social rights is a complex process encompassing many legal and financial concepts. The legislator imposes certain conditions on this price and it is not easy for the parties to the transaction to meet these legal requirements.
In order to calculate the sale price the parties can choose to call an expert appointed under Article 1592 of the Civil Code, or an expert appointed under Article 1843-4 of the Civil Code.
Article 1592 of the Civil Code concerns the general law of sales and pursuant to this article the price of the sale "may nevertheless be left to the arbitration of a third person: if such party will not or cannot make an estimate, there is no sale".
In this situation, and if the parties have not fixed a contractual price for the transfer of social rights, this expert "1592" can calculate a price. However we can see that if the third party cannot, or will not make the estimate, no sale will be made along with all the consequences of this. Therefore the lawyers must include contractual clauses in order to protect their clients and prevent this kind of situation.
Nevertheless, in certain circumstances the expert must be appointed pursuant Article 1843-4 of the Civil Code. In fact, "in all cases considering the assignment of a member’s rights in the firm, or the redemption of those rights by the firm, the value of those rights shall be determined, in case of dispute, by an expert appointed, either by the parties, or failing an agreement between them, by order of the president of the court who shall decide by way of interim relief proceedings and whose judgment shall be final".
In this situation, and in case of dispute, there is no choice for the parties even if they have fixed a contractual price. The value shall be determined by a third party pursuant to the Article 1843-4 of the Civil Code. Of course the third party can follow the contractual valuation from the parties but he is under no obligation to do so, and may go against the inviolable Article 1134 of the Civil Code if he considers that the price does not reflect the reality, or it is not fair. This could provide protection to a seller in different situations, but could be disastrous if the parties have already reached an agreement regarding a price (and this also could be disastrous for a lawyer or a third party who has drafted the valuation clause).
Since 2005 the French Supreme Court has extended the power of the expert "1843-4" and the scope of his application for a transfer of social rights in accordance with the law, statutory instrument and extra-statutory instrument.
However this year the legislator and the Supreme Court have backpedaled in order to follow the doctrine and the practitioner.
As of the 11 March 2014, the Supreme Court ruled to reduce the extended scope and cancel the application of the expert "1843-4" when a transfer of social rights is organized by way of extra-statutory act.
Moreover, following the law dated 3 January 2014, order dated 31 July 2014 modified the Article 1843-4 of the Civil Code.
The modified article now has two sections:
1-the first section concerns the transfer of social rights organized with reference to the Article 1843-4 of the Civil Code or the redemption of those rights by the firm.
However, if there is a valuation method within the statutes of the company or in an agreement between the parties, the expert must follow this method.
2-the second section concerns the transfer organized by the statutes of the company where the value is not determined or determinable
However, if there is a valuation method in an agreement between the parties, the expert must follow this method.
Even if the expert must follow a contractual method, we are now faced with an article which is limited to specific transfers and we can assume that the French Supreme Court will try to enlarge the scope of this text.
The legislator is trying to simplify and secure the life of the company but the doctrine and the practitioner can already envisage some of the issues which will arise in the near future.