Up Again France: Governance


1. What are the key topics that boards should focus on to ensure proper discharge of their duties as directors, as their businesses return to work following a lockdown?

The following practical steps are recommended for directors and boards.

  • Hold regular board meetings, and ensure comprehensive minutes are produced in a timely manner and carefully document the matters discussed and the reasons for decisions. Ordinance No. 2020-231 of 25 March 2020 provides that board meetings may be held through telephone/video conferences or by written consultations, even if this is not provided for in the bylaws of the company.
  • Financial information: ensure that up-to-date, robust financial information is regularly prepared so directors can make informed decisions in real-time, and consider the availability of existing facilities (including monitoring compliance with financial covenants) and alternative means of support (such as government assistance).
  • Seek professional advice early and regularly: for example, on workforce issues, customer and supplier arrangements (including force majeure and termination events), and directors’ duties, including those additional duties that apply when there are solvency concerns. Where appropriate, note the advice given in the relevant board minutes.
  • Customers and suppliers: engage with trading partners and keep lines of communication open. While all parties' interests may not be aligned, all share the common goal on maximising the chances of their businesses surviving.
  • Employees’ health and safety: make sure that the health and safety of those employees who cannot work remotely is ensured, by complying with governmental recommendations.

2. Should boards adopt particular governance practices in this context?

The current extreme volatility of the financial markets is a risk to be taken into account in the event of a contemplated fundraising on capital markets, with regard to both the success of the fundraising itself and the determination of the price.

In addition, under to the Prospectus Regulation, a material fundraising on capital markets requires the issuer to establish a prospectus and obtain a visa of the French Autorité des Marchés Financiers. A prospectus must be complete and comprehensible, and its information consistent. COVID-19 and the following lockdown call for particular attention to the drafting of the "risk factors" section.

Risks factors cannot be described in a generic manner; they must be specific to the company and its activity. So a thorough study of the risks in light of the current situation must be carried out. Attention should also be given to the conditions and termination events in underwriting agreements.

In an M&A context, much will depend on the exact terms of the MAC negotiated by the parties. A traditional MAC clause is typically generic and designed to cater for unknown risks, not risks. It will usually exclude material changes resulting from industry-wide or general market factors (e.g. pandemics). Alternatively, a tailored provision may be negotiated that defines specific MAC events to cover the buyer's key concerns (e.g. significant reduction in sales or the loss or insolvency of key customers/suppliers).

In the challenging environment resulting from the pandemic, it is in the interests of all parties to ensure any MAC conditions or termination rights are clear and tightly drafted. In circumstances where a buyer terminates in reliance on a broad or generic MAC, litigation is likely. A MAC clause is more likely to be successfully obtained (and conceded) if it relates to specific COVID-19 risks identified during due diligence and sets out the means by which such risks can be objectively measured and quantified. Alternatively, if the parties agree that there should be commitment to consummate the transaction notwithstanding COVID-19 risks, then the MAC (if any) should be drafted to expressly exclude such risks.

In private M&A transactions, share purchase agreements usually provide for an undertaking of the seller to disclose to the purchaser, between signing and closing, any information likely to have an impact on the target company, and any information that a purchaser may reasonable require. The effect of COVID-19 of the company shall therefore be carefully disclosed.

3. To what extent are boards being encouraged to take into account corporate purpose and values in the context of COVID-19 and a return to work?

Regarding listed companies, the French Autorité des Marchés Financiers (AMF) indicated that issuers remain subject to their ongoing disclosure obligations under the Market Abuse Regulation (MAR). So all inside information must be disclosed as soon as possible, especially when relating to significant trends, liquidity positions and key figures from unaudited financial statements. The AMF also indicated that the conclusion of any audit or limited review of the accounts may constitute material inside information that must be disclosed.

A re-evaluation of the financial situation must also be carried out systematically when the Universal Registration Document (URD) is filed, which takes place mainly between mid-March and the end of April. The URD includes a mandatory information schedule and a declaration from the management at the date of filing. This declaration confirms that the information contained in the URD is accurate and does not contain any omission likely to alter its scope.

As such, the "risk factors" and "recent developments" sections must be reassessed in light of the current context. The drafting of the risk factors should be specific, adapted to the activity of each issuer and highlighting the areas of the business that may be affected by COVID-19 (a generic risk factor on COVID-19 will not fulfil the conditions required by the Prospectus Regulation).

Lastly, the AMF indicated that issuers preparing their annual report must update and reassess their "risk factors" with the same principles  mentioned above.


Your company is facing liquidity issues as a result of COVID-19:

4a. What are the repercussions for continuing to operate your company?

Under French Insolvency law, in certain circumstances a director can be found personally liable for company losses where a court finds that, at some time before the judicial liquidation commenced, the director committed some act of mismanagement that led to the insolvency of the company.

Further, any manager of a company under insolvency proceedings may be:

  • found liable and condemned to personal bankruptcy;
  • banned from managing a company for several years; or
  • be found guilty of criminal bankruptcy

for acts such as having fraudulently increased the debtor's liabilities or having committed the company in an unrealistic manner – considering the company's difficulties – for the sole benefit of a third party.

However, the director will be excused if the court is satisfied that, from the relevant time, that director took every step with a view in order to avoid the state of insolvency.

4b. Do you have to file for insolvency if your company cannot pay all its debts as they fall due?

Insolvency occurs when the debtor is unable to pay its due debts with its available assets, even if the value of whole of its assets outweigh its liabilities (i.e. it is a cash notion). As result, a company that cannot pay all its debts as they fall due is insolvent.

If the directors fail to file for insolvency within 45 days of the company's state of insolvency, they can be found personally liable for the company losses and/or they can be condemned for personal bankruptcy and prohibition from managing a company.

However, French legislation has been amended in the context of the health crisis, and the insolvency filing duty is suspended from 12 March to 10 October 2020. So a director of a debtor that became insolvent after 12 March does not need to file for an insolvency proceeding (it will have to file if it is still insolvent on 10 October). The debtor, may, however choose to file for insolvency if it wishes.

4c. Are there any steps that should be taken to minimise the risk of your actions as director being challenged?

The French regime revolves around directors acting “reasonably” in the prevailing circumstances. In the current climate, directors may ultimately be afforded more latitude. However, there steps directors may take to try to protect themselves from future challenge/scrutiny. These are:

  • Consider whether are any ways of minimising losses.
  • Seek professional advice from financial advisors and lawyers.
  • Request new financing, which is facilitated thanks to the measures implemented by the French state.
  • Request exceptional delays of payments to creditors.
  • Put in place temporary layoff for employees (payment of 70% of the wages are then covered by the government).
  • In the case of unavoidable difficulties, apply for the opening ofpre-insolvency proceedings (ad hoc mandate or conciliation), which are confidential and consist of an attempt to reach a settlement with the creditors. These proceedings are initiated on the sole initiative of the debtor who files a petition with the President of the court, which appoints a mandataire ad hoc or a conciliator depending on the request (who is generally a professional trustee). Under these procedures, an agreement can be reached with the creditors. While in a normal context the opening of such proceedings is effective in protecting directors’ liability (the absence of opening of proceedings has even been considered mismanagement by certain courts), it is probably different in the current situation, where the access to courts is restricted. Hence, directors would be liable in the case of failure to use these proceedings.

4d. Will your company be wound up if you fail to make payments when due?

It is not possible to assign a debtor to judicial liquidation or any kind of insolvency proceedings from 12 March 12 to 24 August 2020. This measure reduces the immediate threat of legal action being taken against businesses that were viable but for coronavirus, which would lead them to be wound up.

In this context, please note that a judicial liquidation is subject to the company’s state of insolvency associated with the impossibility of turning around its business. In other words, failure to pay in itself will not automatically lead to the company’s winding-up.

In all cases, directors should maintain a dialogue with all stakeholders, including creditors, to keep them apprised of the company’s position, and all decisions (even if made under pressure and taken quickly) should be documented.

Applying for a pre-insolvency proceedings could also be a suitable remedy in the case of unavoidable difficulties.