Capitalize yes, but not just any way:

The Court of Cassation reaffirms its jurisprudence on abuse of majority. (Comments under CIV III 6 April 2022 Issue 21–13. 287 )

By a recent judgment of 6 April 2022 (No. 21–13. 287), the 3rd Civil Chamber of the Court of Cassation reaffirms its traditional jurisprudence on the – always fragile – balance that must exist between majority and minority partners.

In this case, a civil company had entered into a construction lease with a water park operating company. Particularity: the operator of the Park – the lessee – was also the majority partner and manager of the bailer company. Arguing that the SCI had to carry out numerous infrastructure works (roads, flood security, etc.) on the basis of its obligation to deliver in accordance with (Article 1720 of the Civil Code), the majority shareholder, on the occasion of the general meetings from 2014 to 2019, refused to distribute a significant part of the SCI’s profits, bringing the sums retained in « carry-over again » and « other reserves ».

Seized of this difficulty, the Court of Appeal D’AIX-EN-PROVENCE, reversing the judgment of the TGI of DRAGUIGNAN, declared null and void on the basis of the abuse of majority the deliberations concerned by judgment of 14 January 2021 (Court of Appeal of Aix-en-Provence – Chamber 3–4–N° RG 17/19 859) and ordered the distribution of 60% of the reserve accounts.

The majority shareholder’s appeal was based on two sets of grounds:

• The first, relating to reciprocal obligations between tenants and lessors. According to the tenant, the Court of Appeal distorted the construction lease entered into and the Act by considering that the work was at its expense rather than that of the lessor.
• The second, on the contours of the abuse of majority, the majority partner reproaching the Aix magistrate for not having characterized the attack on the social interest.

These two sets of pleas are rejected by the Court of Cassation.

• First, in that the high court, on the finding of the specific terms of the construction lease (which, given its nature, implies that the lessee carries out on the leased land all the constructions and works necessary for the exercise of his activity). Then, in so far as it took up the findings of the trial judges, the Court of Cassation noted that the tenant did not justify the execution of the alleged works which it nevertheless claimed to be essential …
• Moreover, on the double ground that the fact of making the SCI bailleresse bear a burden contractually incumbent on the lessee (majority partner of the SCI) is indeed contrary to the social interest, as well as the fact of “keeping reserves up to 8 times the annual profit is 24 times the share capital”.

The abuse of majority is therefore constituted here.

This solution is not new.

On the basis of Article 1382 of the Civil Code (here applicable to the case), resolutions must be nullified « taken contrary to the general interest of society and with the sole purpose of favouring the members of the majority to the detriment of the minority » (Cass. Com., 18 april 1961 ; Cass. Com., 04 October 2011).

As Mr. GUYON rightly noted about shareholders’ meetings: « If they can rule in all cases by majority, and if their decisions are binding on the minority, it is still necessary that the resolutions voted on are not tainted by fraud or abuse. In other words, the decision-making power that belongs to the majority is conferred on it, not in its personal interest, but in order to achieve the social interest. » (cited in Lamy, Sociétés commerciales, 2013, 2729, p. 1309).

The right to vote is a « right-function » that the majority, which in fact controls the action of the legal person, can only exercise in order to satisfy the interest of the latter: By exercising it in its exclusive interest and without any collective interest, the majority diverts its power and exposes itself to the censorship of the courts.

The Court of Cassation had already held it in the case of a capitalization up to 22 times the share capital « without this setting aside having any effect on the company’s investment policy ». (COM–3 june 2003 N°00–14. 386 ;COM –4 November 2020N° 18–20. 409).

To be retained, abuse of majority must consist of two distinct elements:

• a decision contrary to the general interest of society (ex. : CIV III –10 April 1991 – N° 89–16. 152)
• a decision favouring the majority to the detriment of the minorities, which in this case was undoubtedly the case since the lack of repayment of annual profits was alleged by the majority to enable it to make the SCI (and therefore the minority) bear a burden owed by itself.

This judgment is therefore a confirmation of the traditional jurisprudence of the Court of Cassation. It is not the capitalization itself that is at issue here, but its disconnection with the social interest and this constant search for balance between majority and minority partners around a fundamental axis: the interest of the company, which will never be confused with the personal interest of a partner, even if it is a majority….

 

Emmanuel BONNEMAIN