Long associated with the world of the stock market and takeover bids, concerted action has gradually found its way into ordinary company law. This development, albeit discreet, is profoundly changing the way we analyse the balance of power within companies, whether listed or not. The key to this transformation lies in the concept of "joint control", which makes it possible to grasp the reality of the power exercised by a group of coordinated shareholders. This mechanism has direct consequences for the obligations and rights of each party, particularly in terms of conflicts of interest. Understanding this extension has become essential for all directors and partners.
The transition of action in concert from stock exchange law to ordinary company law
Historically, the general concept of acting in concert was developed to meet the specific needs of stock market regulation, mainly to ensure the transparency of shareholdings and to provide a framework for takeover bids. However, a major law has blurred the boundaries, making this concept a relevant tool for all commercial companies.
Introduction of the concept of "joint control" by the law of 15 May 2001 (Art. L. 233-3 C.com)
The real turning point came with the law of 15 May 2001 on new economic regulations. By amending the definition of control in the French Commercial Code, the legislator introduced a new concept: joint control. This innovation removed the concept of acting in concert from the law. its stock market origin to bring it within the scope of ordinary law.
Article L. 233-3, III of the French Commercial Code now states that "two or more persons acting in concert shall be deemed to jointly control another where they in fact determine the decisions taken at a general meeting". While this wording may seem technical, it is far-reaching. It recognises that a group of shareholders, even if they do not individually hold a majority, may collectively exercise de facto control over a company if they act in a coordinated manner.
Explicit reference to "persons acting in concert
By expressly referring to "persons acting in concert", the French Commercial Code establishes a direct and indissociable link between joint control and the "exercise of control". legal definition of a concert. Therefore, to determine whether joint control exists, it is necessary to analyse whether the shareholders concerned have entered into an agreement "with a view to implementing a common policy with regard to the company".
This extension means that the concept of concerted action is no longer confined to listed companies. Any commercial company, regardless of its size or form, can have part of its shareholding qualified as a concert party if the conditions for joint control are met. This qualification brings with it its most important corollary: solidarity.
The solidarity of concert performers in the face of company law obligations
The main legal consequence of classifying an action in concert as such is to establish joint and several liability between its members. This fundamental principle now applies to obligations arising under ordinary company law, and not just under financial regulations.
The principle of solidarity set out in Article L. 233-10, III
Article L. 233-10, III of the French Commercial Code clearly states that "persons acting in concert are jointly and severally liable for the obligations imposed on them by laws and regulations". Joint and several liability means that each member of the concert may be held liable for the entire obligation incumbent on the group. If one of the concert performers fails to fulfil an obligation, the others may be sued for the whole.
The effect of this rule is to treat the group of concert performers as a single, homogeneous entity, even if it has no legal personality of its own. The aim is to prevent the division of shareholdings within a group from serving to dilute responsibilities and circumvent the law.
Application to conflict of interest situations
It is with regard to conflicts of interest that this solidarity finds a particularly relevant field of application in common law. Many provisions of the Commercial Code prohibit a shareholder who is personally "interested" in a transaction from voting. The question that arises is whether this prohibition, aimed at an individual, can be extended to all persons acting in concert with him.
Jurisprudence, initially reticent, is moving towards recognition of this collective dimension. The idea is that the community of interests that binds concert performers together justifies them all being considered as "interested" when one of them is. The personal interest of one becomes the shared interest of the group.
Examples of the application of solidarity under ordinary law
Several situations illustrate how the mechanism of concerted action and joint control extends the voting prohibitions provided by law. These examples differ from implications for takeover bids and show the scope of this concept in the everyday life of societies.
Regulated agreements (no voting rights)
The regulated agreements procedure (Articles L. 225-38 et seq. for public limited companies) is designed to prevent conflicts of interest by making certain agreements between the company and one of its directors or significant shareholders subject to authorisation and ratification. The partner or shareholder concerned may not take part in the vote on ratification.
Thanks to the concept of joint control, this voting ban can be extended to all members of the concert acting with the shareholder concerned. If a family group controls a company and one of its members enters into a regulated agreement, it is logical that the whole group, sharing the same policy and the same interests, should be deprived of its voting rights on this point.
No voting rights for contributors in kind
Similarly, Article L. 225-147 of the French Commercial Code prohibits contributors in kind and their spouses, PACS partners or cohabitees from taking part in the vote on the valuation of their contribution. The purpose of this rule is to ensure the objectivity of the valuation of the assets contributed to the capital.
Recent case law tends to extend this prohibition to companies or persons acting in concert with the contributor. If the contributor is part of a group of shareholders that controls the company, it is right that the entire group should be excluded from voting. The aim is to prevent the law being circumvented by means of corporate structures or secret agreements.
Treasury stock and prohibition on voting by subsidiaries
Treasury stock is when a company holds its own shares through one or more of its subsidiaries. Under article L. 233-31 of the French Commercial Code, the voting rights attached to these shares are suspended to prevent management from artificially consolidating its power.
The concept of joint control has strengthened this system. The Court of Cassation has upheld the deprivation of voting rights of a company which, although not directly a subsidiary of the issuer, acted in concert with a third party to exercise joint control over the latter. The shareholding is then treated as treasury stock, and the voting rights are neutralised. This complex analysis often requires the assistance of a company law lawyer to unravel the implications.
New means of identifying concert performers for all companies
One of the challenges of acting in concert is proving it. How can a group of shareholders acting in concert be identified, especially if their agreement is not formalised in writing? The legislator has gradually introduced transparency tools which, although they have their own purposes, make this identification much easier.
Information on significant shareholdings (Art. L. 233-6 C.com)
Article L. 233-6 of the French Commercial Code, which applies to all joint stock companies, requires a company to disclose in its management report any significant shareholdings (above certain thresholds such as 5%, 10%, etc.) in other companies.
What is more, Article L. 233-13 requires companies to disclose the identity of persons holding significant proportions of their own capital. This information, which concerns all companies and not just those that are listed, makes it possible to map the shareholder base and identify the capital links that may underlie a concerted action.
Identifying beneficial owners
An even more powerful tool has been introduced as part of the fight against money laundering and terrorist financing: the obligation for most companies to identify and declare their "beneficial owners" in a dedicated register. The beneficial owner is the natural person or persons who ultimately own or control the company.
This radical transparency requirement forces companies to work their way up even the most complex chains of ownership to identify the individuals at the helm. In doing so, it highlights the groups of individuals who exercise joint control, providing almost irrefutable proof of the existence of a community of interests and, potentially, of action in concert.
The extension of the concept of acting in concert to ordinary company law, via the concept of joint control, represents a major step forward in terms of transparency and making business life more ethical. It provides judges and minority shareholders with effective tools for enforcing the rules on conflicts of interest and ensuring that decisions are taken in the interests of the company, and not in the interests of a hidden group of shareholders.
To analyse your shareholding structure or assert your rights against a group of partners, our firm can help you assess the relevance of classifying a situation as acting in concert.
Sources
- French Commercial Code: articles L. 233-3, L. 233-6, L. 233-10, L. 225-38, L. 225-147, L. 233-31
- Law no. 2001-420 of 15 May 2001 on new economic regulations
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