Directors’ Duties in France

>> Liabilities and Penalties in France

Exercise your responsibilities carefully as the penalties for failure to do so can be severe.

Civil liability and statutory duties

Liability of the Directors vis-à-vis the company and shareholder(s);

The Directors’ civil liability may be triggered most notably when they are negligent in the management of the company (faute de gestion), including the omission to act in certain circumstances. For example:

  • directors who do not disclose the incorrect acts of the other directors
  • directors who do not take out insurance for damages caused by the use of a company vehicle
  • directors who fail to consult the shareholders

Directors may also be liable civilly when they breach the law or any other applicable regulations (ie undercapitalisation of the company at the time of its incorporation, or non-approval of the accounts at the end of each financial year), and when they breach the Articles (ie misuse of powers and votes).

Furthermore, directors may be held jointly and severally liable for any loss or damage arising from their breach of duty.

In the situations described above, either the company or the shareholders may seek to rely on the liability of the directors. In that aim, the company or shareholders will have to prove the breach of duty committed by the directors, the actual loss suffered by the company and the causal link between the unlawful conduct and  the harm.

Liability of directors vis-à-vis third parties

A third party may seek to hold the directors  civilly liable however the following conditions must be met:

  • the directors must commit a fault that can be separated from their duties (faute séparable)
  • the fault has to be intentional, gross and out of the scope of the normal performance of corporate management

For example:

  • directors (who also are the majority shareholder of the company) who decide to change the name, the registered address and the object of the company in order to conceal the fact that the company is supplying the same products as one of their clients
  • directors who know that the company is being sued by a third party, and who, despite this information, decide to undertake a transaction in order to make this sum unavailable to creditors

The directors are personally liable for any material fault they commit.

Criminal liability

The President may be criminally liable for intentional offences, as opposed to negligence or carelessness, most notably for:

  • any breach when setting up the company
  • misuse of corporate assets
  • misuse of powers and voting rights
  • distribution of fictitious dividends
  • failure to present accounts
  • presentation of false accounts
  • failure to consult the shareholders in the event of a loss of more than half of the share capital
  • any offence relating to amendments to the

share capital

  • any offence committed at the time the company is wound up

The general penalty for non-compliance is five (5) years imprisonment and the payment of a fine amounting to a maximum of EUR375,000.

In the framework of a bankruptcy, the President may be condemned to a maximum of five (5) years imprisonment and the payment of a fine amounting to a maximum amount of EUR75,000 (until EUR375,000 for an entity) if he is found guilty of any one of the offences, which are listed under article L.654-2 of the French Commercial Code:

  • embezzling or concealing all or part of the debtor’s assets
  • fraudulently increasing the debtor’s liabilities
  • keeping fictitious accounts or destroying accounting documents belonging to the business or legal entity
  • failing to keep any accounts where the applicable texts impose an obligation to do so
  • keeping accounts that are manifestly incomplete or irregular with regard to legal provisions

A directors’ liability cannot be limited by the bylaws nor by any board or shareholder’s decision. Under certain circumstances, officers can be exempt from criminal liability where there is a valid delegation of power to someone having the necessary qualification, authority and means to perform the delegated tasks.

In terms of civil liabilities any claim must be brought within three years of the commission of an act, or discovery of such, causing a damage or substantial loss. Any actions after this will be void due to the limitation of liability.

In term of criminal liabilities, the statute of limitation is different for each offence. However, there is general prescription as per the gravity of the offence: ten years for a serious crime, three years for a major offence and one year for a minor offence/contravention.

Either the breach of duty itself, or the imposition of one of the sanctions described above, may lead to disciplinary action being taken against you and/or limitations upon you being able to continue in your role

Civil action can be brought against the directors by shareholders (derivative action) or third parties.

Limitation of liability

Indemnities can be provided via a special agreement or within the director’s contract directly.

Please note that this kind of indemnity clause is very unusual under French law, especially in the articles of associations which are available for the public to view. The indemnification of directors is also a very complex and sensitive area of French law, therefore when considering the indemnification of a director, legal advice should always be sought.

Delegation of authorities

As a company director in France, delegation of your duties must be limited to certain acts or matters. The beneficiary of such delegation must have the authority and the competence to accomplish the delegated tasks, otherwise you will remain directly liable.

The president can grant a delegation of authority for one or several specific purposes on the condition that:

  1. Authority to do so is granted by a prior sole shareholder’s decision.
  2. A general power of representation covering all the powers of the president is not granted.

Directors and officers (“D&O”) insurance

D&O insurance is available against certain civil (but not criminal) liabilities, and is the responsibility of the officer or company to obtain.

Latest version updated 22nd March 2018

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