Unauthorized Related-Party Agreements: Corporate Officers’ Liability Becomes Automatic
The framework governing related-party
agreements (conventions réglementées) is a cornerstone of French
corporate law. Its purpose is to prevent conflicts of interest that may arise
when corporate officers enter into agreements, directly or through an
intermediary, with the company they manage.
Until recently, case law had consistently held that a
corporate officer could invoke good faith as a defense: the mere failure to
obtain prior authorization was not sufficient, in itself, to give rise to
liability, unless concealment or fraudulent conduct was established.
A decision of the Cour
de Cassation (French Supreme Court) dated September 17, 2025[1] overturned this traditional approach.
Pursuant to Article L.225-38 of the French Commercial
Code, a related-party agreement is defined as any agreement entered into,
directly or indirectly, between a company and one of the members of its
management board or supervisory board, or a shareholder holding more than 10%
of the voting rights.
A strict procedure that must be followed
In public limited
companies (sociétés anonymes), Article L.225-86 of the French Commercial
Code subjects related-party agreements to a two-step authorization process:
· prior
authorization from the supervisory board (or the board of directors, depending
on the corporate structure);
· subsequent
approval by the shareholders’ general meeting.
Failure to comply with the procedure
applicable to related-party agreements may give rise to several sanctions.
First, the civil liability of the relevant officer may
be incurred in order to obtain compensation for the damage suffered by the
company and/or its shareholders. In addition, and without prejudice to such
liability, the agreement itself may be annulled
where it has had adverse consequences for the company (Article L.225-90 of the
French Commercial Code).
However, the last paragraph of this Article provides that such nullity
may be remedied by a vote of the shareholders’ general meeting, acting on the
basis of a special report prepared by the statutory
auditors or, failing that, by the chairman of the board of directors or of the
supervisory board, setting out the reasons why the authorization procedure was
not complied with.
Finally, the civil liability of the corporate officer
may also be incurred under Article L.225-251 of the French Commercial Code
where a breach of statutory provisions or mismanagement (faute de gestion)
is established.
The September 17, 2025 case
In this case, the chairman of the management board of
a public limited company, who was also employed by the company under an employment
contract, had implemented a time savings account accruing benefits to himself,
without obtaining prior authorization from the supervisory board. Upon his retirement, the company brought legal action
for restitution and damages, arguing that the arrangement constituted an
unauthorized related-party agreement.
The Lyon Court of Appeal initially dismissed the claim
against the corporate officer, holding that the absence of prior authorization
did not constitute mismanagement, in the absence of fraud or concealment.
For the first time, in a landmark decision marking a
clear departure from previously established case law, the Commercial Chamber of
the Cour de Cassation overturned this reasoning, holding that failure to
comply with the authorization procedure constituted per se mismanagement,
regardless of any fraudulent intent or personal benefit.
A now objective form of liability
The decision, therefore, enshrines a strict approach
to the formal requirements applicable to related-party agreements, as the
corporate officer’s misconduct is now established solely by the failure to
comply with the statutory procedure. As a result, neither the corporate officer’s
intent nor their good faith can shield them from liability.
Accordingly, compliance with procedural rules can no
longer be viewed as a mere formality; it has become a core governance
requirement, essential to ensuring the validity of corporate actions and the
protection of the company’s interests.
In other words, a corporate officer’s liability now
becomes automatic whenever the statutory procedure is not complied with.
Practical implications for companies
This development
requires companies and their corporate officers to strengthen their vigilance
and internal controls, in particular by:
· accurately
identifying any situation likely to give rise to a personal interest for a
corporate officer;
· strictly
securing the related-party agreements authorization process;
· anticipating
the risks associated with omissions or overly flexible interpretations of the
applicable rules.
Observance of the formal requirements
governing related-party agreements is no longer a mere legal constraint: it is
now a pillar of corporate governance and compliance.
[1]Commercial Chamber of the Cour de Cassation,
September 17, 2025, No. 23-20.052