25 January 2023
Although in practice it has been strongly challenged by the use of leaver clauses in extra-statutory agreements in the form of unilateral promises to sell subject to a suspensive condition, the exclusion clause remains a statutory provision that is very often unavoidable in companies with a certain degree of intuitus personae, particularly in simplified joint stock companies (Sociétés par actions simplifiées, henceforth "SAS").
Three recent decisions have given a significant boost to the use of contractual freedom in this area, even if it means showing little regard for the fundamental rights of the ousted shareholder.
The first decision, dated 12 October 2022, takes note of the reform undertaken by the Soilihi Law of 19 July 2019 to facilitate the adoption and amendment of exclusion clauses in the articles of association of an SAS, by ruling that it is applicable to all regardless of their date of incorporation.
It should be recalled that, breaking with the traditional requirement of unanimity of the shareholders, expressly laid down by the law since the appearance of the SAS in the corporate landscape, and generally accepted for all corporate forms, the Soilihi Law has opened up to the shareholders of SAS the possibility of inserting or amending an exclusion clause in the articles of association, simply by means of a collective decision under the conditions and in the form laid down by the articles of association. In other words, an exclusion clause can now be incorporated into the articles of association or its terms changed during the social life of the company by a simple majority decision.
While the point raised serious doubts with regard to the principle of survival of the old law, which traditionally governs the application in time of a new law in contractual matters, the first contribution of the decision lies in the choice of such an application to all SAS, including those - by assumption very numerous - which were constituted before July 2019 and still exist. The Court of cassation (Cour de cassation, henceforth "Court") refers to the - somewhat obscure - theory of the "legal effects of the contract" to implement this uniform application, which opens up unexpected prospects for shareholders controlling SASs. For minority shareholders, however, this decision is more worrying, as it exposes them to the prospect of being ousted without them generally having the means to object to the stipulation in question.
It is precisely on this point that the judgment was of even greater interest, as the Court decided to refer to the Constitutional Council (Conseil Constitutionnel) several priority constitutional issues pointing to a serious risk of incompatibility of these provisions with the protection for property right as resulting from the Declaration of the Human and Civil rights (Déclaration des Droits de l'Homme et du Citoyen, henceforth "DDHC"). On the one hand, the Court considered that this could have resulted in a deprivation of property of his shares by a shareholder without this deprivation being based on a cause of public utility, in view of the requirements of Article 17 of the DDHC. On the other hand, it considered that the possibility of an exclusion of an SAS shareholder without the latter having been required in any event to consent in advance, could also have constituted an excessive infringement of the right of ownership, as protected by Article 2 of the DDHC.
The second decision is precisely the response formulated by the Constitutional Council to these priority constitutional issues, which took place on 9 December 2022 and which enshrines the constitutionality of the contested provisions.
First of all, the Constitutional Council refuses to identify a deprivation of property within the meaning of Article 17 of the DDHC, considering - it seems to us rightly - that the exclusion can only result from an optional statutory rule. In other words, and even if we can regret the laconism of the decision on this point, the statutory exclusion clause cannot be equated with the radical calling into question of a given property right under the effect of a decision by the public authorities, such as a measure of expropriation, nationalisation or privatisation.
The Constitutional Council then similarly dismisses the complaint of excessive restriction of the right to property within the meaning of Article 2 of the DDHC, using a somewhat disordered and questionable argument on certain points.
Firstly, the Constitutional Council predictably accepted that the legislator had pursued an objective of general interest, referring in particular to the parliamentary work on the Soilihi law, which highlighted the risk of the company being blocked due to the previous unanimity rule. Secondly, it argued that there was no disproportionate infringement of property right, which could legitimately have been doubted. To do so, it first invokes consistent case law imposing a series of guarantees protecting the ousted shareholder, such as (i) following a statutory procedure, (ii) compliance with a reason provided for in the articles of association - a requirement that appears to have been denied by the Court in its latest decision of 9 November 2022 - and that is in line with public order, as well as (iii) the absence of wrongful exclusion. It goes on to state that the excluded shareholder can in any event buy back his shares and can always challenge in court both (i) the reality and seriousness of the reason for exclusion and (ii) the transfer price. This last statement is doubly surprising, insofar as (i) it is traditionally accepted that a purely objective but clearly formulated reason for exclusion is valid, notwithstanding any assessment of its seriousness, and (ii) there is no other possible legal challenge to the buy-out price than one based solely on ordinary contract law and relying on the derisory consideration that would constitute a price affected by a very large discount.
Moreover, despite the constitutionality of the mechanism, other litigations could very well be explored in the future by minority shareholders who have been evicted without their prior consent and/or on very unfavorable terms for the purchase of their shares. Without being exhaustive, we can mention the invocation of the 1st Additional Protocol to the European Convention on Human Rights (henceforth "ECHR"), the use of the theory of abuse of the majority, or the possible extension of the judicial review of the abuse to the field of the fair purchase price.
Finally, the third decision, dated 9 November 2022, admits the lawfulness of statutory exclusion clauses subject to simple "just cause".
Unlike what was most often asserted, it is therefore not necessary to specify the grounds in question further, otherwise the clause would be deemed unwritten in that it would confer discretionary power on the corporate body designated to pronounce the exclusion, in disregard of the right of any shareholder to retain ownership of his shares.
Although the solution is given in relation to a variable capital company, there is every reason to believe that it can be transposed to SASs, insofar as the texts providing for the use of statutory exclusion clauses are drafted in very similar terms for these two types of companies, with a common emphasis on contractual freedom on this point.
However, it remains to be ensured that, in the presence of such a clause, the eviction reason notified to the shareholder is sufficiently "fair". There is nothing to prevent the shareholder from challenging the reality of this reason in court, so that a company that fails to explain itself in this regard or fails to give sufficient reasons for its decision would be sanctioned. In such a case, the sanction remains uncertain: in addition to damages, it is possible that the shareholder could sue for nullity of the exclusion decision on the grounds that it was abusive, although this point remains uncertain.