The Criminal Division of the Court of Cassation traditionally held that the acquiring company could not be held criminally liable for acts committed by the acquired company prior to the merger (Court of Cassation, Criminal Division, October 25, 2016, No. 16-80.366).
However, under the influence of European law, this case law was overturned in 2020 in the Iron Moutain decision (Court of Cassation, Criminal Division, November 25, 2020, No. 18-86.955). The Criminal Division then ruled that “[…] where a company is merged into another company […], the acquiring company may be sentenced to a fine or forfeiture of assets for acts constituting an offence committed by the acquired company prior to the merger”. However, this decision was based on a European directive relating to mergers of public limited liability companies (sociétés anonymes) (Directive 78/855/EEC of October 9, 1978, concerning mergers of public limited liability companies). In November 2020, the Court of cassation had limited the application of its new solution to mergers concluded after the date of its decision, except in cases of fraud, on the basis of the principle of foreseeability provided for in article 7 of the European Convention on Human Rights.
On May 22, 2024, the Criminal Division of the Court of Cassation extended this solution to limited liability companies (sociétés à responsabilité limitée – SARL).
In this case, a limited liability company had committed several breaches of planning law in 2015, before being absorbed by another limited liability company in September 2022. The latter, which had been convicted of the said offences by the lower court, appealed to the Court of Cassation, arguing that such a conviction violated the principle of personal criminal liability.
After recalling, on the basis of article 121-1 of the French Criminal Code, that a person is only criminally liable for its own actions, the Court underlines, relying on article L.236-3 of the French Commercial Code applicable to limited liability companies, that a merger does not entail the liquidation of the absorbed company, but only its dissolution. The assets of the absorbed company are therefore transferred to the absorbing company.
The Criminal Division adds that “[…] the economic and functional continuity of the legal entity means that the acquiring company cannot be considered to be distinct from the acquired company, allowing the former to be convicted of criminal offences for acts that were committed by the latter prior to the merger”.
Consequently, the Criminal Division dismisses the appeal and holds that the acquiring company may be sentenced to a fine or forfeiture for acts constituting a criminal offence committed by the acquired company prior to the merger. The Court, considering its ruling to be reasonably foreseeable since the 2020 ruling, specifies that this solution applies to all mergers and takeovers entered into after November 25, 2020.
Cour de cassation, Criminal Division, May 22, 2024, No. 23-83.180
