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Liability of the Manager

Home > French Business Law | Published 2010-11-17

Being a leader, manager, general manager, director or CEO of any institution in reality means directing, administering, monitoring and operating multiple activities on a day to day basis. In France, being given such a role also involves the responsibilities of the company but also, in some cases his personal civil liability (and sometimes criminal responsibility).

The tort action may have a contractual basis (or improper performance of a contract to which the Company is a party). It may also have a basis in tort, such as an act of unfair competition.

Therefore, as a French Law Firm experienced in commercial law and business law, we wish to inform you about the commitment of the civil liability of officers of a corporation. In view of the rules of each commercial company (SA, SARL, SAS, SNC, ...), we can extract a series of general rules of civil liability of directors at large.

Above all, when we hear the term "officer" it typically means the limited liability company managers, the managers of SNC, the president of SAS, the directors of a classic SA or members of the Executive of its dual, etc ... Briefly, these are the people responsible for government management and administration of society, those who hire the company by their acts, and may also hire their own responsibility for these acts.

Acts involving the liability

It generally requires three offenses to trigger the officer’s civil liability:

Violations of the law applicable to commercial companies

For example, Article L222-34 of the Commercial Code, applicable to LLCs, provides that "the capital reduction is approved by the shareholders' meeting acting under the conditions required for the amendment of statutes. If the manager acts alone in his or her decision to reduce capital, the entity will incur liability because such action must be approved beforehand during a shareholder’s meeting.”

The violation of the statutes

It should be noted first that the articles are the partnership agreement, constitution of society. They should mention the other between a selected company (SARL, SA, etc...) Headquarters, the objective (activity of the company), the amount of capital and operating procedures of the company etc.

For example, in commercial law, there is a specific principle which provides that the object must be rigorously determined in the articles. According to this principle, the Board of SA must exercise its powers, including its evocative power, within its corporate purpose. If it exceeds the limitations of the corporate purpose, the directors may be held liable only in respect of shareholders of the SA (as from a European directive of March 9, 1968 transposed by an order on December 20, 1969 claiming that a company will be bound vis-à-vis third parties, even where the directors have acted beyond the limits of the object).

The commission of a fault management

Case law maintains several acts that may constitute a fault in management. This may be mere carelessness, negligence, or potentially a more serious deception. The most serious of offenses may also be criminally punished.

When a collective proceeding is related to a fault management officer, said individual may be ordered to bear all or part of the lack of assets on their personal assets. In fact, Article L651-2 of the Commercial Code states: "When solving a backup plan or reorganization or the liquidation of a corporation shows a lack of assets, the court may, in case of mismanagement that contributed to this lack of assets, decide that the debts of the corporation will be supported, in whole or in part, by all leaders of law or fact or some of them have contributed to the fault of management. In the case of several officers, the court may, for good cause, declare severally liable. "

Similarly, under Article L267 of the Book of Tax Procedures, when the officer has committed fraud or failed to comply with tax obligations borne by the company, it may be declared jointly liable for payment of tax debts. We talk about responsibility "tax" of leader, established since 1980.

The plan of action in tort

We find the three classical elements of accountability between which there must be fault, injury and causal link.

Beyond this traditional rule, there are two major distinctions in the liability regime that meets two major issues of liability:

Who is suing? Individual responsibility and several liability

The manager's responsibility may involve individual or joint liability; including what is available in Articles L225-251 (SA) and L223-22 (LLC) of the Commercial Code, which read as follows: managers "are responsible, individually or jointly, as appropriate, to society or to third parties or infringements of laws or regulations applicable to limited liability companies, or violations of statutes or of negligence in their management."

Discussions about individual responsibility when a state lacks authority may be attributed to a specific leader. Sole responsibility for the offending officer or individual will be initiated.

We discuss several liability in two cases:

  • When several officers are criminally convicted for the same offense;
  • Or if the directors have committed a common fault, so far without having committed similar acts.

This responsibility is dangerous because in case of plurality of managers, for example, if one of them is guilty of serious misconduct of which the other co-managers have not partook, they will consequently see their liability as a direct consequence of this neglect.

When the court holds a joint liability of officers, the victim may take action against any officer for redress (then that leader will be able to return under a right of recourse against the other officers). But when there is joint responsibility, i.e. when each contributes to separate acts of fault and therefore damage, the court may retain the responsibility according to this contribution, depending on the seriousness of the wrongdoing. In this regard, Article L225-251 (on SA) of the Commercial Code provides that "if more directors or more directors and the CEO have the same acts, the court shall determine the contribution of each in compensation for damage.”

Who can sue? Individual action and social action

The solution is fairly simple: only those who suffered the injury can act.

But this solution is simple when the damage is suffered by the officer via an individual person (a shareholder, another manager, third, etc...). In this case, that individual is pursuing prejudiced individual action for damages against the offending officer.

To do this they must prove that the damage it suffered was the result of an act attributable to the manager and not the company itself. Similarly, they must prove personal injury that is independent of the injury suffered by the company.

Because of this proof system, individual action is rare. But when it is exercised and is successful, the damages are awarded back to that act, not society.

The rule that only those who suffered can act becomes complicated when the damage is the company itself. In principle, the legal representatives of the company for her act in its interest. Yet often the guardians are the leaders themselves. Therefore in case of misconduct by the officers themselves, the action shall be brought only once these leaders dismissed or removed from office by the new rulers.

But in the context of strengthening the accountability of leaders, the law has provided another possibility: the action for damages brought by shareholders. This may be a group of shareholders representing at least one-twentieth of the capital, a shareholder acting alone, an association of shareholders. We're talking about derivative action.

But this action requires a great involvement of shareholders because it will proceed at their own expense, and damages awarded will go to the company. Therefore in practice this action is rarer than the derivative action school.

An action for damages against the officials (social or individual) is prescribed by three years (or 10 years if criminal). The limitation period depends on the harmfulness or concealment of the wrongdoing.

From these developments one can see that the allocation of a leader’s duties follows an equally important corollary: the ability to initiate one’s own civil liability (and occasionally criminal cases of serious misconduct). This corollary has the obvious consequence that, if convicted, the repair will be paid by the head injury, and not by the company.

In all cases, please seek advice from an experienced French lawyer when you have a question about the realization of an operation, if you are sued in civil liability and so on.

This article is available online for public information purposes. It is updated regularly, as needed. Due to the constant evolution of the laws and the legal system, we cannot guarantee that the information in this article is still applicable. We invite you to contact us with any legal questions or concerns you have regarding this topic at +33 1 56 79 11 00. In no way can this firm be held liable for articles that contain inaccuracies or are now out of date.

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