Interpretation of approval clauses prior to the reform of June 24, 2004 […].

Cass., Com, March 15, 2023, n°21-15.393 and n°21-15808

In its ruling of March 15, 2023, the French Supreme Court (Cour de cassation) looks at the interpretation of a clause in the articles of association requiring approval for transfers, drafted under an abolished legal rule that limited approval to transfers to third parties.

1. The legal framework

This ruling deals with the application of the law over time, and more specifically with Ordinance no. 2022-604 of June 24, 2004, which amended article L228-23 of the French Commercial Code concerning approval for share transfers.

Prior to the reform, the scope of approval was limited to the transfer of shares to a third party. The new law removes this requirement and allows the bylaws to impose an approval requirement for transfers between shareholders.

2. The facts

In this case, the 1985 Articles of Association of a société anonyme stipulated that “unless exempted by law, any sale or transfer of shares, whatever their nature and form, is subject to the prior approval of the Board of Directors”.

In 2018, a shareholder sold her shares to her uncle, who sold them the next day to her son, himself a shareholder.

Taking the view that the successive sales were fraudulent because they were made for the sole purpose of evading the approval requirement, the majority shareholder refused to enter them in the register of share movements and continued to consider that the seller was still a shareholder.

The transferees apply to the court for an order that the transfers be recorded in the company’s books, and for a declaration that the resolutions adopted at subsequent general meetings are null and void.

The Court of Appeal rejected their claims, ruling that the approval clause had to be read in the light of the 2004 reform, and therefore applied to transfers between shareholders. It also recognized that the rapid succession of the two disposals was indicative of fraud.

The assignees are appealing to the French Supreme Court.

3. The opinion of the Court of Cassation

The Cour de Cassation overturned the decision on the grounds that the Court of Appeal had failed to ascertain the parties’ intentions at the date of adoption of the bylaws.

It is required to check whether the shareholders had intended to make the scope of the approval clauses of these companies subject to all subsequent legal changes or whether, on the contrary, taking into account the legal impossibility, then in force, of making transfers of shares between shareholders subject to approval, they had intended to make only transfers of shares to third parties subject to approval, subject to the exceptions expressly provided for in the bylaws.