France has just passed legislation imposing a new obligation on smaller and mid-size employers to provide information to the employees directly at least two months before a proposed sale of 50% of more of the shares or business transfer.

A failure to comply with the obligation could result in the share sale/business transfer being held to be null and void.

This will apply to transactions closing on or after 1 November 2014.

The law also imposes an obligation on such employers to provide information every 3 years to the employees generally on their ability to make an offer for 50% or more of the share or the business.

Law n° 2014-856 of 31 July 2014 (in force from 2 August 2014) (Loi sur l’économie sociale et solidaire – ESS)

(NB the Decree in relation to such law has not yet been published)

Background

Companies with a works council already have an obligation under French law to inform and consult with the works council prior to the shareholder entering into an agreement to sell the shares in the company or prior to any business transfer.

As a result of the new Law n° 2014-856 of 31 July 2014, companies without a works council, who previously did not have prior information or consultation obligations for such transactions, and other small to mid-size companies with a works council will now also need to provide information directly to the employees 2 months prior to the proposed transaction.

The purpose of this measure is to enable the employees potentially to make an offer for the shares or the business. The background to this measure is a concern to seek to ensure the future of a number of smaller and mid-size businesses in France whose owners or senior managers will reach retirement age in the next few years.

Which companies are impacted by this measure?

The new law covers:

  1. companies which are not currently required to put in place a works council (i.e. which have fewer than 50 employees) and
  2. those which have a place a works council, but which are categorised as “PME” companies – i.e. smaller and medium sized companies with fewer than 250 employees and an annual turnover of less than €50M or a balance sheet of less than €43M.

What information must be provided to the employees?

The employees must be provided with notification of the proposal to sell 50% or more of the shares or the assets of the business and have 2 months in which to respond to present an offer to acquire the shares (or business).

The employees are obliged to keep the information confidential but can be assisted by a representative of the Regional Chamber of Commerce and Industry, the Regional Artisan Chambers of Commerce and other individuals to be determined by a forthcoming Decree which has not yet been published.

Interaction with the works council

If a works council is in place (for companies with 50+ employees), the information to the employees must be given at the same time as the information and consultation of the works council.

Timing

The information must be provided to the employees at least 2 months prior to the proposed transaction. However, in certain cases (and subject to conclusion of any works council information and consultation process), if all of the employees respond earlier than the 2 months’ period to confirm that they are not interested in making an offer, the company is to complete an alternative transaction with a third party earlier than the expiry of the 2 months period.

The sale to any third party must take place within 2 years of the notification to the employees – otherwise, in the event of any continuing wish to sell thereafter, the notification to the employees must be repeated.

Sanctions

A failure to comply with the obligation could render the sale to a third party null and void. Any of the employees may bring such an action for nullity within 2 months from the date the employees are informed of such intention to sell.