For many years, the French Supreme Court (Cour de cassation) has upheld the interpretation of article 121-1 of the French Penal Code, according to which a merger-takeover operation could not lead to the absorbing company being prosecuted for acts committed prior to this operation by the absorbed company, dissolved by the merger. Its case law was firm on this point, and was intended to be in line with the provisions of Article 6 of the European Convention on Human Rights (Cass. crim., June 20, 2000, n°99-86.742; Cass. crim., October 14, 2003, n°02-86.376).

This interpretation later withstood the Modelo Continente Hipermercados SA v Autoridade para as Condições de Trabalho judgment of March 05, 2015 (C-343/13), in which the European Court of Justice upheld the transfer to the acquiring company of the obligation to pay a fine imposed on the acquired company after the transaction but for acts committed prior to it, on the basis of the provisions of Article 19(1) of Council Directive 78/855/EEC of October 9, 1978 on the merger of public limited liability companies, codified in Article 105(1) of Directive (EU) 2017/1132 of the European Parliament and of the Council of June 14, 2017 on certain aspects of company law.

According to the Cour de cassation, the provisions of Article 121-1 of the French Criminal Code could only be interpreted as prohibiting criminal proceedings against the absorbing company for acts committed by the absorbed company, as the merger-acquisition transaction leads the latter to lose its existence and therefore its legal personality. In accordance with the provisions of article 6 of the Code of Criminal Procedure, the loss of legal personality extinguishes the public prosecution. 

The Court of Cassation added that the provisions of Article 121-1 of the Criminal Code did not contravene those of the Directive of October 9, 1978, since a directive cannot produce direct effect against an individual (Crim., October 25, 2016, n°16-80.366).

But in this groundbreaking ruling, the High Court opted for pragmatism, taking into consideration the reality of a company’s economic life, which may choose to continue its activity under a different legal framework or change form without being liquidated.

To this end, it included in its reasoning the provisions of article L. 236-3 of the French Commercial Code, under which a merger results in the dissolution of the absorbed company, but does not lead to its liquidation. The assets and liabilities of the absorbing company are universally transferred to the absorbing company, and the shareholders of the former become shareholders of the latter. The provisions of article L.1224-1 of the French Labor Code also stipulate that all employment contracts in force on the date of the transaction continue between the acquiring company and the company’s employees.

As a result, the economic and functional activity of the absorbed company against which proceedings had been brought continued as normal, so that the provisions of article 6 of the European Convention on Human Rights do not preclude article 121-1 of the French Penal Code from being interpreted as allowing the former to be criminally convicted for acts constituting an offence committed by the latter prior to the merger-absorption operation.

The Cour de cassation, giving way completely on this issue, reminds us that national legislations are obliged to comply with European law, so that their jurisprudence must also conform to the decisions of the European courts. French judges cannot adopt interpretations that conflict with those of their counterparts in the European Union, the only proviso being that the application of the law does not lead them to give the provisions of a directive direct effect against an individual (CJCE, 26 sept. 1993, Arcaro, C-168/95 ; CJCE, 03 mai 2005, Berlusconi e.a., C-387/02, C-391/02 et C-403/02).

Lastly, the Cour de cassation clarifies that proceedings against the acquiring company may be brought on condition that the purpose of the merger-acquisition operation was to shield the acquired company from criminal liability.

Cass. crim., November 25, 2020, 18-86.955