The merger-absorption consists for one or more companies, called “absorbed companies”, in transmitting all of their assets to another, the “absorbing company”. This implies an increase in capital by contribution in kind for the absorbing company and dissolution without liquidation, for the absorbed companies. But the merger-absorption is a strictly supervised operation which requires not to infringe the rights of any of the parties involved: creditors, shareholders, third parties, etc. One of the objectives of the directive of 14 June 2017 relating to certain aspects of company law which replaced directive 2011/35 is to ensure the protection of “the interests of third parties”. This question of the interests of third parties arises in particular in criminal matters when a company has committed criminal acts and which is then absorbed by another company. The following question therefore arises: on whom does the criminal liability fall in the event of a merger-absorption?
The obligation to pay a fine based on breaches of the Labor Code committed by the company absorbed prior to the merger
By a judgment of 5 March 2015 , the judges of the European Union considered that a merger absorption entails the transfer to the acquiring company of the obligation to pay a fine based on breaches of the Labor Code committed by the absorbed company prior to the merger.
It emerges from this case that on February 15, 2011 the French ACT noted an infringement committed by the company Good and Cheap concerning the working hours of employees whose labor law legislation imposes a balance between consecutive hours worked and hours rest between work periods.
On February 22, 2011 the company Good and Cheap registered a proposed merger with the company MCH, on March 31, 2011 the merger was registered, resulting in the absorption of the company Good and Cheap by MCH. In 2012, ACT imposed fines for the above-mentioned offenses. MCH objected to this sanction on the basis that the fine had been imposed on the absorbed company and not on the acquiring company, following this reasoning, MCH could not be forced to pay the fine. The substantive judges questioned the Court of Justice of the European Union (CJEU) under the following terms: “ In the light of [Union] law, in particular [of Article 19, paragraph 1 , under a) of Directive 2011/35], does the merger of companies involve a system of transmission of the infringing liability to the acquiring company for acts committed by the absorbed company before the registration of the merger? ”. The question therefore arises as to whether there is a transfer of liability from the absorbed company to the absorbing company in the event of a merger of 2 companies.
To the acquiring company, the contraventional liability of the absorbed company
The judges considered that a “ merger by absorption”, […] entails the transfer, to the acquiring company, of the obligation to pay a fine imposed by final decision after this merger for infringements of the law of the work committed by the absorbed company before the said merger. ”. They consider that the extinction of liability would contradict the nature of Article 19 (1) (a) of Directive 78/855, by which ‘ The merger entails ipso jure and simultaneously the following effects: a) the universal transmission, both between the absorbed company and the acquiring company and towards third parties, of all the assets and liabilities of the absorbed company to the absorbing company ; “, That is to say that the merger involves the transmission of all the assets of the absorbed company to the acquiring company.
Then, the second justification for this solution is the preservation of the interests of third parties which is one of the objectives of the directive cited above. For example, member states of the Union could be harmed if a company could escape the legal obligations resulting from the offenses it has committed by being absorbed by another. Consequently, MHT will have to bear the legal obligations arising from the sanction imposed on Good and Cheap, which it has absorbed because the merger-absorption operations result in the transmission, to the sabsorbing company, the contraventional liability of the absorbed company.
More recently, the European Court of Human Rights has also ruled on the question of the transfer of liability in the context of a merger-absorption transaction. It has evolved its case law in a judgment of 1 October 2019 < / a>. The judges considered that the absorption having allowed the economic and professional continuity of the company, and that “ because of this continuity from one company to another, the absorbed company is not really” other “With regard to the acquiring company “, the pronouncement of the civil fine did not preclude the principle of the personality of the sentences.
This shift in European case law has led the Member States of the Union to adapt. This has given rise to a reversal of case law on the part of the French Court of Cassation, which has aligned itself with European case law. By a judgment of November 25, 2020 , the criminal chamber court of cassation retained “ that ‘ in the event of a merger-absorption of a company by another company […], the acquiring company may be criminally liable to a fine or confiscation for acts constituting an offense committed by the acquired company before the operation . ”
This decision constitutes a reversal of jurisprudence on the part of the French court which considered that, until then, article 121-1 of the Penal Code – which provides that “ no one is criminally responsible except for his own act ”- implied that it was not possible to prosecute and penalize the offenses committed by the acquired company before the merger. This decision was explained by the fact that the merger, under French law, was assimilated to the death of the absorbed company, with consequently, an extinction of public action (article 6 of the Criminal Code). Consequently, the acquiring company could not be prosecuted for offenses committed by the acquired company because it no longer existed.
The court of cassation wanted to question this approach because it did not correspond to “economic reality” and joined the European orientation. In addition to overturning an essential principle of French law, the Cour de Cassation opened the door to the development of new case law on mergers.
“ all the assets and liabilities of each dissolved company is transferred to the beneficiary companies”
The principles governing the merger in Belgian law differ from French law. Indeed, Belgian law had already adopted, before the judgment of the CJEU, the principle according to which an acquiring company to be sanctioned for offenses committed by the absorbed company. To understand why Belgium has chosen this orientation, we have to go back to how the merger works under Belgian law. The principle is the universal transmission of the various elements of the heritage of the absorbed company to the absorbing company. Article 682 of the Belgian Companies Code provides that “ all the assets and liabilities of each dissolved company is transferred to the beneficiary companies”, which therefore implies, for example, a transmission of assets, liabilities or still pending proceedings, ie if a proceeding is brought against the absorbed company this proceeding should be continued by the acquiring company which will automatically become the defendant. The transfer of liabilities involves in particular the transfer of liabilities of criminal origin. So the fines imposed on the absorbed company are, of course, passed on to the absorbing company. In addition, article 86 of the Belgian penal code explicitly states that “The loss of the legal personality of the convicted legal person does not extinguish the penalty”.
But the answer to the question of whether the recipient company can be convicted of offenses committed by the company dissolved before the merger is less clear. Article 20 of the law containing the Preliminary Title of the Belgian Code of Criminal Procedure declares that “ Public action ceases by the death of the accused or by the closure of liquidation, judicial dissolution or dissolution without liquidation in the case of a legal person. »It follows fromthis provision the principle of the personality of penalties and the autonomy of criminal law, like French law. It therefore seems that the acquiring company cannot, in principle, be prosecuted or convicted on the basis of the criminal acts committed by the acquired company. The Belgian judges have not yet ruled on the question of whether or not the liability of the acquiring company could be sanctioned in this situation since the European case law of 2015, but it seems that the case law will have no other choice than to comply with the decision of the European judges. The main objective of the 2015 judgment was to dissuade companies which have committed offenses from merging in order to escape their criminal liability, whereas article 20, paragraph 2, of the Preliminary Title of the Code of Criminal Procedure provides that “The Public action may still be exercised subsequently, if the liquidation, judicial dissolution or dissolution without liquidation was intended to avoid prosecution ”. It was therefore already an objective that the Belgian legislator was pursuing and that the Belgian judges were striving to implement. Finally, we see that the situation in Belgium is rather similar to the situation in France and that in both countries, companies will have to adapt.
Economic players and especially societies will have to change their behavior
What will be the consequences of this reversal of this new case law for companies?
EternosCorp supports you to allow you to adapt to these new standards if you wish to initiate a merger procedure.
Economic players and especially companies will have to change their behavior. This new responsibility which falls on the absorbing company as a result of the actions of the absorbed company implies a duty of care on the part of the absorbing company. Indeed, the new principle of transfer of criminal liability requires European companies to identify the risks associated with a merger – acquisition, particularly with regard to anti-corruption laws, international economic sanctions, competition law, etc. All of these regimes aim to prevent and penalize wrongdoing by companies, therefore companies must be particularly vigilant to see their criminal liability engaged. This obligation of vigilance must be all the more important since the European judges in their decision of 2015, by which they considered that an acquiring company can be sanctioned for the acts committed by the acquired company, could not be called into question by the fact that the administrative offense would be prejudicial to the interests of creditors and shareholders insofar as “ nothing prevents the acquiring company from having a detailed audit carried out before the merger of the economic and legal situation of the company to be absorbed for obtain, in addition to the documents and information available under the legislative provisions, a more complete view of the obligations of this company ”. Only such an analysis actually allows the acquiring company to take account of the criminal risks associated with the acquisition. If significant tax risks are discovered, the acquiring company may negotiate price adjustments to offset the risks. But given that the Court of Cassation in its 2020 judgment considered that the legal person of the absorbed company continues or the absorbing company, the latter benefit from the same rights as the absorbed company. Consequently, it will be able to avail itself of all the means of defense that the absorbed company could have invoked.
What are the sanctions likely to be imposed on the acquiring company? Under French law, absorbing companies can only be ordered to pay a fine or be subject to confiscation measures. This implies that they cannot be sanctioned by exclusion from public contracts or by dissolution, for example.
However, when it is demonstrated that the merger was set up to escape final liability, the acquiring companies may incur any possible criminal sanction because, in fact, this new case law could give rise to abuse: a company could attempt to escape to his criminal responsibility by being absorbed by another and in addition to avoid compensating the victims of his offense. Consequently, in the event of fraud against the law, that is to say the desire to fight criminal proceedings by resorting to an absorption operation, the criminal liability of all companies havingtaken part in the operation may be initiated. Thus, the acquiring company is exposed to the risk, under French law, of being ordered to be dissolved in accordance with article 131-39 of the French penal code.
This jurisprudential development offers greater protection to creditors, but to the detriment of the acquiring company which is not necessarily aware, during the transaction, of the antecedents of the acquired company. Increased vigilance therefore becomes essential on the part of the acquiring company.
EternosCorp remains at your disposal to assist you in all your merger procedures to allow you to be vigilant and to engage in the safest possible way for your company.