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France: Liabilities of nominated directors, observers and members of supervisory boards12/10/2005. Source: SJ Berwin. Pierre-Louis Périn and Isabelle Meyrier
 Under French law – as in the UK – there is no specific rule for nominated or non-executive directors, says SJ Berwin. All directors are subject to the same set of duties and liabilities.
Representatives of investors are usually appointed either as non-executive directors (administrateurs) or as members of the supervisory board (membres du conseil de surveillance). In the latter case, liability is limited to breach of their duty to supervise the managers, and in principle excludes liability for mismanagement. Alternatively, investors’ representatives can be granted the status of observer (censeur) with no voting rights or liability. Core duties
Directors’ duties stem from the company’s articles of association and a general duty of diligence, as well as statutory provisions applicable to all limited companies in respect of liability for mismanagement, breach of statutory provisions or the by-laws.
Breaches that harm the company or its shareholders can result in joint or personal liability. Directors in French companies must at all times act in the interests of the company and owe a general duty of loyalty to the company and its shareholders, and there are specific rules to deal with conflict of interest situations.
The duty of diligence requires directors to actively participate in the board meetings, keep tight control over the administration of the company and enquire into any difficult financial situation encountered by the company. Executive and non-executive directors are jointly liable for decisions made by the board, such as wrongful trading, submitting false balance sheets and improper accounting.
If a director disagrees with a majority board decision, he should ensure that his dissenting views are recorded in the minutes or resign.
Directors and de facto directors of a company facing liquidation proceedings may be held liable for the company’s debts if their acts of mismanagement caused or contributed to the insolvency. Although this liability is usually limited to executive directors, French case law has on occasion held non-executive directors nominated by investors, or investors appointed as directors or acting as shadow or de facto directors, liable for their company’s debts.
This principle will be further enhanced on 1 January 2006 as the Perben Law on insolvency, which creates a new sanction, comes into force. From 2006 a director could be held liable for all the debts of the company if the court can find a personal interest in the mismanagement.
Although investors’ representatives in France appointed as observers or members of supervisory boards face little exposure, non-executive directors are subject to the same duties and liabilities as executive directors. Therefore investors should ensure that nominated directors are aware of their duties to the portfolio company.
Pierre-Louis Périn is a partner in the Paris office of SJ Berwin. He specialises in directors’ liabilities, MBOs, M&A and venture and development capital.
He can be contacted on: T +33 (0)1 44 346 346 E pierre-louis.perin@sjberwin.com
Isabelle Meyrier is an assistant in the Paris office of SJ Berwin. She can be contacted on: T +33 (0)1 44 346 346 E isabelle.meyrier@sjberwin.com
SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on our services to the private equity industry please contact Simon Witney in our London office 020 7533 2222 or visit our website at www.sjberwin.com
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