Category: Legal news

Law No. 2024-537 of June 13, 2024, aimed at increasing corporate financing and enhancing France’s attractiveness, was published in the French Official Journal on June 14, 2024. Its objective is to strengthen the attractiveness of Paris as a financial center and improve the economic, legal, and tax conditions for companies operating in France, with a particular focus on their international competitiveness.

Among the measures introduced by this new law, Article 25 inserts a new Article L. 311-16-1 into the French Code of Judicial Organization, which establishes the special jurisdiction of the Paris Court of Appeal (Section 5 of Chapter I of Title I of Book III), as follows:

Article L. 311-16-1: The Paris Court of Appeal, which includes an international commercial chamber, has jurisdiction over:

1. Applications to set aside international arbitration awards, under the conditions and circumstances provided for by the French Code of Civil Procedure;

2. Appeals against decisions ruling on a request for the recognition or the enforcement (exequatur) of an international arbitration award, under the conditions and circumstances provided for by said Code.

This provision, which grants the Paris Court of Appeal exclusive jurisdiction to hear applications against international arbitration awards, their recognition, or enforcement, will likely draw the attention of arbitration practitioners. Its impact on Article 1519 of the French Code of Civil Procedure, which currently provides that applications to set aside international arbitration awards must be brought before the court of appeal of the jurisdiction where the award was rendered, will need to be considered by the regulatory authorities.

However, this is not the point on which we wish to focus the reader’s attention. The aforementioned article institutionalizes, for the first time, the existence of the International Commercial Chamber of the Paris Court of Appeal (CCIP-CA).

Until now, the CCIP-CA has been set up within the Paris Court of Appeal under constant law, akin to the International Chamber of the Paris Commercial Court (CCIP-TC), without any dedicated legislative or regulatory text. Their specificities were defined by the Procedural Protocols signed on February 7, 2018, by the presidents of the concerned courts and the Paris Bar.

The absence of a legislative or regulatory framework endorsing these chambers has been highlighted as a hindrance to their visibility and development, as neither held the status of an autonomous court. When the Protocols refer to the “jurisdiction” of these chambers, they actually mean the allocation of cases through simple judicial administration measures within the Paris Commercial Court or the Paris Court of Appeal, which are the actual courts having jurisdiction (see the preface by the First President of the French Court of Cassation, Chantal Arens, and the contributions of the President of the CCIP-CA François Ancel and Maître Alban Caillemer du Ferrage at the colloquium of June 14, 2019, dedicated to international commercial chambers, whose proceedings are published in RLDA 2019/152, suppl., nos. 6819 and 6920).

Since then, it has been observed that the knowledge of the CCIP-CA among international trade actors remains limited, as the CCIP-CA has not yet, to our knowledge, been seized by application of a jurisdiction clause expressly designating it. Its cases are mainly assigned through the mechanisms of international jurisdiction rules, on the one hand, and rules of assignment of cases within the relevant courts, on the other hand, the latter resulting from a judicial administration decision beyond the parties’ control.

The legislative enshrinement of the International Commercial Chamber of the Paris Court of Appeal – pending similar recognition of its counterpart within the Paris Commercial Court – marks a decisive step towards the institutionalization and perpetuation of international commercial chambers, enhancing their visibility on the international scene in business litigation. There is no doubt that it will significantly contribute to strengthening legal security and the effectiveness of jurisdiction clauses designating these international chambers in international commercial contracts.

In response to the ongoing agricultural crisis, a new reform of the so-called « Egalim » law has been announced by the end of 2024. But what exactly is Egalim ?

1. The legal context : a plethora of legislation
   French legislation on commercial negotiations is unique. Since 1986, dozens of legislative texts have modified the system, with the obligation to sign a «single written agreement» between the supplier and the distributor « by 1 March at the latest ». This principle is accompanied by various other obligations: mandatory content, disclosure of general terms and conditions of sale, strict timetable for commercial negotiations, etc.

he so-called « EGalim » laws introduced a principle of fair remuneration for farmers. This was achieved through three laws over a five-year period, followed by the implementation of decrees and an emergency inflation law for 2024.

The objective of the EGalim 1 legislation was to ensure that producers received a fair price for their goods. This was achieved by establishing a pricing framework based on proposals from farmers, with prices being calculated in a manner that takes into account production costs and reference indicators developed by inter-trade organisations. In the event of fluctuations in the cost of raw materials and energy, prices are renegotiated. The promotion of goods is subject to regulation, while the threshold for resale for loss on foodstuffs is increased by 10% in order to rebalance margins in favour of producers and small businesses.

The EGalim 2 law has reinforced the system by requiring written contracts between farmers and their first buyers. The share of agricultural raw materials in the price of food products is now non-negotiable and must be clearly stated in the terms and conditions of sale, according to the three options provided for by the law. Furthermore, a clause has been included which allows for the price to be renegotiated in accordance with the cost of the raw materials in the event of a fixed price.

Finally, the Descrozaille law, also known as «Egalim 3», has been supplemented by the law on the inflationary emergency in France, thereby reinforcing the already robust legal framework in this area. In order to combat the practice of international purchasing groups operated by large retailers, this law stipulates that, from 1 April 2023, relations between suppliers and distributors must be governed by French law and subject to the jurisdiction of French courts when the products or services are marketed in France.

The law also addresses an ambiguity regarding the outcome of commercial negotiations. In the event that negotiations between the supplier and the distributor fail by the 1 March deadline, the law provides for two potential solutions :

• The supplier may terminate the commercial relationship with the distributor concerned, without notice and without the distributor being able to claim that the relationship has been brutally terminated.
• Alternatively, the supplier may terminate the commercial relationship subject to reasonable notice and the « economic conditions of the market in which the two parties operate ». In the event that an agreement cannot be reached on the terms of the notice period before 1 April, a mediator may be called in to assist in the resolution of the dispute. Should no agreement be reached, the supplier may terminate the relationship, without the distributor being able to accuse it of abrupt termination.

Despite the plethora of laws that have been enacted, the various objectives have not been achieved, as evidenced by the agricultural crisis that hit France at the beginning of 2024. Furthermore, the Minister for the Economy observed that 12% of the agreements had not been signed by the 2024 deadline. Consequently, the government has initiated measures to enhance the situation.

2. Egalim 4: a solution to unsolvable problems ?

The designation « Egalim 4 » is unofficial and refers to a parliamentary mission whose objective is to propose a «light» reform of Titre IV du Livre IV du Code de commerce.

The legislative transition could be based on the information report on the Descrozaille law, published on 20 March 2024. A number of issues have been identified in commercial relations between suppliers and distributors.

The primary objective of this new law is to enhance producers’ capacity to negotiate. To this end, the President of the Republic has proposed the introduction of «floor prices» to guarantee a minimum income for producers. Some have suggested that tripartite meetings during trade negotiations between producers, suppliers and distributors may be a viable solution. Contractualisation and the consideration of producers’ production costs could also be reformed in a similar manner.

Secondly, the objective is to facilitate trade negotiations, which are perceived as increasingly challenging in the context of an economic climate characterised by tension between distributors and suppliers. Some have called for the 1 March deadline to be waived, or even for the implementation of a two-tier system based on supplier size, as was the case during the 2024 negotiations.

Finally, it is essential that the new system ensures the strict application of French law. Indeed, the use of international purchasing groups betrays a desire to evade French law. While the legislation already provides for the applicability of French law, it is the sanctions and their application that need to be corrected. In addition, wholesalers are excluded from the provisions of the EGalim law. This situation must be taken into account in order to prevent distributors from escaping the legal regime.

Ultimately, the forthcoming «EGalim 4» law is intended to refine the measures set out in the «EGalim 2» law, without fundamentally reforming the law on commercial negotiations in France. Rather than focusing on the legislation itself, the debate is more concerned with the manner in which it is applied.

When looking at the treatment of secured creditors in French insolvency proceedings, lenders sometimes come to the conclusion that they would be better off circumventing the issue, by creating so-called “double Luxco” structures, i.e. two holding companies located in Luxembourg, the lender being granted a pledge over their shares.

That is because security enforcement proves very challenging in France, any such enforcement being automatically stayed in insolvency proceedings (subject to limited exceptions) : for example, in an LBO structure, the lenders cannot enforce their French law pledge over the shares of the French target company if the French holding company has filed for safeguard proceedings or insolvency proceedings.

Since 2007, however, it is possible for creditors to benefit from a fiducie over any type of assets. The key difference with “traditional” security interest is that fiducie entails an immediate transfer of the ownership of the assets to a third party (the fiduciaire). As a result, those assets do not belong to the insolvency estate if the borrower is subsequently placed into insolvency proceedings.

Interestingly, the efficiency of fiducie was recently put to the test in a case where bondholders were trying to enforce while the issuer was subject to insolvency proceedings. Those bondholders benefitted from a fiducie over real estate assets. The debts had been accelerated shortly before the commencement of the insolvency proceedings. Thereafter, the bondholders had started the enforcement process, by requesting the fiduciaire to sell the assets. The issuer was trying to obtain a freeze of such enforcement, in summary proceedings.

The issuer tried to convince the court that it should benefit from a specific regime protecting the debtor against the enforcement of a fiducie if such debtor retained the right to use or to enjoy the assets transferred to the fiducie. In fact, the issuer had indeed kept receiving the rents paid by the tenants occupying the real estate assets, although the ownership of such assets had been transferred to the fiduciaire. However, this argument was rejected by the Court of Appeal of Bordeaux in a judgment dated 18 December 2023, because in reality the issuer was entitled to receive the rents only on behalf of the bonholders, as their agent. This decision confirms that fiducie is an efficient security interest to consider when it comes to granting loans in France.

The French legal framework for cross-border operations (mergers, spin-offs, partial contributions of assets, transformations) within the European Union has been greatly modified when France transposed the Directive (EU) 2019/2121 by the Ordinance n°2023-393 of May 24th, 2023 and the Decree n°2023-430 of June 2nd, 2023.

The purpose of the Directive (EU) 2019/2121 was mainly to (i) harmonize the laws within the European Union on cross-border mergers while introducing three other cross-border operations (spin-offs, partial contributions of assets, and transformation) and to (ii) strengthen the protection of shareholders, creditors, and employees. The Law n° 2024-364 dated April 22nd, 2024, while ratifying the Ordinance n°2023-393, has introduced some adjustments which impact, at local level, the qualification and timetable of the cross-border operations. The three main adjustments are the following :

In a cross-border merger, the shareholders, creditors and employees (directly or through their representatives) may submit observations on the contemplated operation. The notice sent to them, which is mandatory, will be filed before the clerk (greffier) of the registered office of the French company. The shareholders, creditors and employees may submit their observations at the latest five business days before the shareholder’s meeting approving the operation or, in the event of a simplified cross-border merger where the approval of the sole shareholder is not required, before the completion of the operation. We may question the impact of this notice to protect the shareholders, creditors and employees, since the French regulation doesn’t impose to take into consideration the latter’s’ observations,

The protection of creditors of companies participating in a spin-off or in a partial contribution of assets has increased since a joint and several liability (solidarité) between the participating companies has been reinstated. However, the companies, at their sole discretion, may now expressly decide to limit the beneficiary’s liability to the amount of transferred liabilities, valued on the effective date of the operation. Considering the purpose of Directive (EU) 2019/2121 to strengthen the protection of creditors, this adjustment is questionable, and

The definition of cross-border partial contribution of assets, in Article L. 236-48 of the French Commercial Code, has been amended and now insists on the fact that it’s an operation resulting in a French company contributing to or benefiting from a contribution of a portion of both the contributor’s assets and liabilities. However, in the event only assets are contributed (and no liability) and therefore the operation cannot be automatically considered as a cross-border partial contribution of assets, the parties, at their sole discretion, will decide if the operation falls under either the cross-border spin-off regime or the local regime of partial contribution of assets.

Pursuant to Articles 1382, 544 and 651 of the Civil Code governing fault-based liability and the rights and obligations of property owners, case law has established the principle that no person may cause a disturbance to another which exceeds the normal inconveniences of neighbourliness (Civ., 27 Nov. 1844), based on the idea that inconveniences associated with neighbourliness must be borne only up to a certain limit, to the extent of those inherent in life in society. On the basis of this principle, case law has developed an original autonomous liability regime in which liability is not assessed on the basis of the seriousness of an act – fault is not required – but on the basis of the abnormality of the disturbance caused (noise, smell, sight, pollution, etc.). This jurisprudential creation has now been codified by Law no. 2024-346 of 15 April 2024, in the new article 1253 of the Civil Code, which states that
« the owner, tenant, unauthorised occupant, beneficiary of a title whose main purpose is to authorise him to occupy or use land, the project manager or the person exercising the powers of the latter who causes a disturbance that exceeds the normal inconveniences of the neighbourhood is automatically liable for the resulting damage ».

Taking up and extending the text of article L.113-8 of the Code de la Construction et de l’habitation (CCH), repealed at the same time, the new article 1253 of the Civil Code provides that liability is not incurred «when the abnormal disturbance arises from activities, whatever their nature, existing prior to the deed transferring ownership or granting enjoyment of the property or, in the absence of a deed, on the date of entry into possession of the property by the injured party. These activities must comply with the laws and regulations and have continued under the same conditions or under new conditions that do not aggravate the abnormal disturbance».
A reading of the new text shows that :

• The risk of damage is not mentioned as something that can be repaired, whereas this was accepted in case law,
• The prior existence of the activity that is an obstacle to compensation for abnormal neighbourhood disturbance, already provided for previously, is taken up again but now covers all activities, whatever their nature,
• The criteria for assessing whether an activity has been going on for a long time have changed slightly: it is now assessed with regard to the date of the deed transferring ownership or granting enjoyment of the property, or in the absence of a deed, the date on which the victim took possession of the property;
• Echoing article 2278 of the Civil Code, which protects possession against any disturbance that affects or threatens it, the legislator has also extended the benefit of the action for abnormal neighbourhood disturbance to the date of the transfer of ownership or the granting of enjoyment of the property.

By enshrining long-established legal principles in law, the legislator’s aim is to secure the exercise of certain agricultural, industrial and commercial activities, while respecting everyone’s right to the peaceful enjoyment of their property.

The adoption by the European Parliament on 24 April of the Corporate Sustainability Due Diligence Directive (CSDDD) raises the question of the procedural tools available to stake holders wishing to ensure compliance with the obligations it will introduce.
For the time being, French Law No. 2017-399 of 27 March 2017 on the due diligence of parent and subsidiary companies, codified in Articles L. 225-102-4 and 5 of the French Commercial Code, notably requires companies with at least five thousand employees in France – in their own company and in their direct or indirect subsidiaries – or ten thousand employees worldwide to draw up and implment a compliance plan.
The French judiciary has had the opportunity to begin clarifying the application of the French due diligence law and the procedural aspects of the proceedings initiated by those wishing to compel companies to comply with the law.
In particular, in a judgment dated 1 December 2022 (No. 22/00643), the Versailles Court of Appeal ruled on the use of Article 145 of the French Code of Civil Procedure by Cameroonian individuals against a Cameroonian company, its parent company and the latter’s parents companies, including a major French company, in order to obtain evidence for future litigation concerning the deterioration of the claimants’ environment allegedly caused by the activities of the local company.
Article 145 of the Code of Civil Procedure provides that «if there is a legitimate reason for preserving or establishing, prior to any judicial proceedings, evidence of facts on which the outcome of a dispute may depend, legally admissible measures of inquiry may be ordered at the request of any interested party, on application or by summary procedure». It can be a highly effective tool in the hands of plaintiffs.
French courts may, under certain conditions, have jurisdiction over such a request if the action on the merits, which the evidence sought is intended to support, falls within their jurisdiction or if the measure is to be carried out within their jurisdiction.
In the abovementioned ruling of 1 December 2022, the Versailles Court of Appeal ordered two foreign companies, including the Cameroonian company, to produce various documents requested by Cameroonian citizens in order to establish the control exercised by the French company over them in the context of a future action for breach of duty of care.

The importance of cybersecurity is constantly underlined by recent news in France (i.e the new investigation opened by the CNIL- the French authority responsible for ensuring compliance with GDPR – into the notable data leak affecting France Travail regarding its obligation to ensure the security of personal data according to article 5 f. of the GDPR). Moreover, the ANSSI – French authority for cyberdefence and network and information security – underlines that the methods used by cybercriminals have undergone significant evolution with the use of massive ransom campaigns based exclusively on data exfiltration (without ransomware deployment).

Several regulations engage the responsibility of those who had the obligation to protect the personal data exposed to cybercriminals :

• if the CNIL examination highlights an inadequate response protocol to the personal data breach or, upstream, insufficient technical and organizational security measures (art. 32 of the GDPR), it can hold the data controller or even its processor liable (for example, to financial penalty of up to a maximum of €20 million or 4% of worldwide annual sales). In 2023, 9 penalties were applied by the CNIL for breaches of security obligations including a 32 million euros penalty applied to Amazon France Logistique;
• the civil or criminal liability of the data controller may also be engaged in light of the French Criminal Code provisions providing that « carrying out or causing to be carried out a
  processing of personal data without implementing the measures prescribed in art. 24, 25, 30 and 32 [of the GDPR]” exposes the controller to a five-year imprisonment and a fine of 300,000 €;
• corrective measures and administrative penalties of up to 10 million euros or 2% of annual worldwide sales may be applied by the ANSSI on «operators of essential services» whose failed to implement the preventive measures to strengthen IT networks provided for in the NIS 2 Directive n°2022/2555 of December 14, 2022 on measure for a high common level of cybersecurity across the Union (art. 34). This Directive must be transposed by France before Octobre 17, 2024.

Faced with the risk of personal data leakage, prevention is better than cure: compliance cannot therefore be limited to a one-off action, it must be instilled at all levels of each entity and evolve with it over time, in line with the tools used (particularly those linked to Gen. AI). The ALERION team is at your side to support you in implementing the legal and organizational aspects of your structure’s cyber protection as well as the closely related GDPR compliance. It will also advise you on how to protect your company’s assets against cyber risks as cyber attackers have come to understand the value of the information assets their victims may possess (i.e know-how, intellectual property rights, trade secrets).

In principle, the management of the company employing the employee concerned is responsible for carrying out the redundancy procedure.

However, the CEO may delegate this power to another employee of the company involved in human resources management (for example, the human resources director (Cass. Ch. Mixte 19.11.2010 No. 10-10.095) or the financial director (Cass. Soc. 18.11.2003 No. 01-43.608), but not a person from outside the company (Cass. Soc. 20.10.2021 No. 20-11.485).

Recent case law has defined more precisely the concept of “foreign person” in groups of companies and has accepted (Cass. Soc. 28.06.2021 No. 21-18.142) that a managing director of a parent company may, under certain conditions, dismiss an employee of a subsidiary whose activities he supervises (Cass. Soc. 13.06.2018 No. 16-23.701), as may the manager of another group company who has received a mandate from the CEO of the employer company to manage the subsidiary’s commercial operations and human resources (Cass. Soc. 28.06.2021 No. 21-18.142).

Nevertheless, the human resources director of a group subsidiary may not dismiss an employee of another group subsidiary unless he has management authority in that other subsidiary (Cass. Soc. 20.10.2021 No. 20-11.485).

Since the dismissal with irregular representation can be considered as an unjustified dismissal followed by important damage claims, it is advisable to carefully check the powers of representation before initiating a dismissal procedure in a subsidiary in France.

France has once again strengthened and extended its foreign investment control regulations (“FDI“) with a decree and an order dated December 28, 2023. These measures came into force on January 1, 2024.

1 – Permanence of the 10% trigger threshold

As from 2020, the FDI procedure was adapted by lowering from 25% to 10% the threshold for holding a company’s voting rights triggering the authorization procedure for investors from third countries (outside of the European Union and the European Economic Area). The Decree of December 28, 2023, makes this – initially transitional – measure permanent.

2 – New sectors subject to authorization

The decree also added to the activities subject to the FDI procedure those ensuring “the integrity, safety or continuity of the extraction, processing and recycling of critical raw materials“, as well as the security of penitentiary establishments. The list of critical technologies has also been extended to include all technologies involved in low-carbon energy production (and not just renewable energies) and photonics.

3 – Exemption for intra-group transactions in two cases

In the first case, the investor is exempted if such investor is the last in the chain of control and has already acquired control of the target company within the meaning of Article L. 233-3 of the French Commercial Code. This chain of control is made up of the group formed by the investor – a foreign-law entity or a French-law entity controlled by one or more foreign-law entities – and the persons or entities controlling it.

An investor is also exempt from the authorization requirement when that investor crosses, directly or indirectly, alone or in collusion, the threshold of 10% of the voting rights of a listed French company, provided that the investment project has been notified in advance to the Minister of the Economy. In this case, unless the Minister objects, the exemption from the authorization requirement is valid at the end of a period of ten working days from the date of notification.

4 – Principles applicable to FDIs: for additional information regarding the applicable principles, you can refer to our previous articles on Alerion’s website.

For any additional information, please contact the Compliance and Regulatory team.

Frédéric Saffroy, Partner & Alice Bastien, Attorney

The remittance basis could eventually come to an end according to Jeremy Hunt, the Chancellor of the (British) Exchequer who announced the abolition of this highly disputed regime for future income and gains arising after April 6^th, 2025.

A new regime seen as simpler and more attractive than the current approach will be adopted. The individuals will be able to bring their foreign income and gains into the UK without attracting any tax charge, encouraging them to spend and invest these funds in the UK.  

• The remittance basis is a tax treatment that is available to individuals who are resident but not domiciled in the UK. Thus, they are liable to UK tax on their UK source income and gains and on any remittances (amounts) of foreign income and gains that they remit to the UK (i.e. brought to, or received in, or used in the UK).

The remittance basis is free of charge the first 6 years. Indeed, there is a remittance basis charge of:

• £30,000 for non-domiciled individuals who have been resident in the UK for at least 7 of the previous 9 tax years;
• £60,000 for non-domiciled individuals who have been resident in the UK for at least 12 of the previous 14 tax years.

• The “New Four-Year Foreign Income and Gains (FIG) Regime” will replace the current remittance basis regime with effect from April 6^th, 2025.

According to the “4-year FIG regime”, individuals will not pay any UK tax on foreign income and gains arising in the first 4-years of tax residency in the UK and can freely bring such income into the UK.

To be eligible, individuals must not have been UK tax residents during the 10 tax years preceding the 4-year period.

After the 4-year period, individuals will be liable to UK tax on their worldwide income (i.e. on any newly arising foreign income and gains).

• The UK Government announced transitional arrangements for existing “non-domiciled residents”. There will be:
• a temporary 50% reduction in the personal foreign income subject to tax in 2025-26 for non-domiciled individuals who will lose access to the remittance basis on April 6^th, 2025 and are not eligible for the new 4-year FIG exemption regime;
• re-basing of capital assets to April 5^th, 2019 levels for disposals that take place after April 6^th, 2025 for current non-domiciled individuals who have claimed the remittance basis. This means that when foreign assets are disposed of, affected individuals can choose to be taxed only on capital gains from that date;
• non-domiciled residents will be able to remit foreign income and gains that arose before April 6^th, 2025 to the UK at a rate of 12% under a new Temporary Repatriation Facility in the tax years 2025-26 and 2026-27. 

• While the government is removing protections on non-resident trusts for all new FIG that arise within them after April 6^th, 2025, FIG that arose in protected non-resident trusts before April 6^th, 2025 will not be taxed unless distributions or benefits are paid to UK residents who have been here for more than 4 years.

• We should also see changes regarding the inheritance tax since the exposure should thus be determined by reference to the concept of residence rather than of domicile.

Finally, the precise scope of these modifications remains uncertain (especially if the Labour wins the next election).

The new FIG regime might significantly impact the taxation of individuals moving to and from the UK.

We are now awaiting more clarity.