The fact that a company becomes insolvent does not mean that a director would automatically become liable. Such liability would only arise if the director has taken unusual steps or actions or entered unusual transactions which have worsened the financial position of the company. There would normally have to be some form of management negligence.

The commercial court considers that during the period running up to the filing for insolvency the management may have undertaken certain actions either in their own personal interests or for example to delay insolvency. Such actions may create preferential situations between creditors who should be treated on an equal footing. Transactions which occurred during this period are thus susceptible to be overturned by the court if they are not in the corporate interest of the debtor company.

The Commercial Court can summon the director or CEO to a meeting in order to discuss the financial position and possible remedial measures.

The company can request the appointment of an agent appointed by the court to assist with negotiations with certain creditors. The advantage is that the process would be confidential and flexible.

Another mechanism would be a conciliation procedure which is more formal but which would enable the company to try to reach a settlement with its creditors.

There are three broad types of insolvency procedure in France:

• The sauvegarde or “safeguard” procedure: the debtor must be faced with financial difficulties but not be insolvent. The purpose is to pre-empt a worsening of the situation.
• The receivership (redressement) procedure, in which the company is insolvent but there may chances of recovery
• The liquidation procedure, in which the company cannot be turned around.

The delegation of powers is frequent given that the CEO may not wish to bear liability for all aspects of the company’s business. It is recommended that the delegation should be in writing and clearly setting out the scope of the powers transferred. The delegated powers should fall within the skills-set of the person receiving the power.

In French, the abus de biens sociaux is a criminal offence involving the misappropriation of corporate assets or monies for personal use by a director.

A distinction should be made between serious offences (bribery and corruption, falsified documents, extortion) and the breach of rules and regulations applying to the company’s business. There are many criminal offences which support rules in the consumer field, environmental law, urban planning, data protection, as well as company law more directly.

It would first be necessary to look at the articles of association of the company as well as to determine the type of company. Certain companies by law are subject to restrictions on the sale of shares to third parties. In a SARL for example it will be necessary to seek the approval of existing shareholders before a sale can be made to a third party. In other forms of company an approval process may also be required by the articles of association such as by the Board of Directors or by the other shareholders.

Another factor which can restrict the sale of shares are pre-emption rights which could be granted to other shareholders to enable them to purchase the shares before they are offered to a third party. Pre-emption clauses are usually drafted in a fairly detailed manner and the process needs to be complied with before a sale to a third party could become possible.

There can be restrictions on the sale because the shareholders have undertaken not to sell their shares for a given period of time; the purpose of such an undertaking is to provide support of their investment to the company during for example its formative stages.

The carrying out of due diligence on the company is a vital initial step, covering the ownership of shares and property, employment, contracts …

The sale and purchase agreement should include a set of warranties and representations about the target company.

First, it needs to be clear what is being sold: the business and assets or the shares of the company. The liabilities of the vendor in regard to the purchaser will be different according to the nature of the sale.

It will be important to verify the legal and financial capacity of the purchaser. Before any pre-contractual negotiations are envisaged, a letter of confidentiality should be considered.

Post-sale, it will be important to monitor that the purchaser has carried out any formalities which ensue from the sale such as a change in directors appearing on the public company and commercial register.