Your specialists in international projects
Edouard BERTRAND, aged 42, has been jointly managing the Litigation & Arbitration department of cabinet LAMY LEXEL in Lyon since 2001. The department is composed of 10 lawyers, including 3 partners.
Graduate of the Institut d’Etudes Politiques, holder of a DESS (post graduate diploma) in Bank and Finance Law, he began his career working for three years for a law firm in Lyon specialising in business litigation.
He was then head of the Legal department of Cabinet Deloitte & Touche in Lyon for seven years, before joining LAMY LEXEL as a partner. At the same time he has always been very active in the bodies of his profession: he was a member of the Council of the Bar of Lyon and is at present the permanent representative of the head of the bar association to the Commercial Court of Lyon and the Commercial Division of the Appeals Court of Lyon.
Edouard BERTRAND was a lecturer in law of ailing companies at the University of Lyon3 for 10 years. Specialist in company failure, he was a member of the interprofessional working party of the Commercial Court of Lyon on the reform Safeguard Act, as representative of the Bar of Lyon.
Over the years Edouard BERTRAND has acquired a solid experience in the following fields:
Litigation in business law, Bankruptcy procedures, Company Law, Economic law, Criminal Business Law, Professional liability, Bank and Finance Law, Law of enforcement measures.
To see these missions through to a successful conclusion, he horizontally seeks his partners’ in-house expertise, in particular with regard to business law, social law, tax law, contract law …
To contact him: ebertrand@lamy-lexel.com – 33 (0)4 72 74 53 00.
Business Law
Putting a company into the hands of a receiver due to debts owing to its subsidiaries (Cour de Cassation, commercial division - 24 March 2009 - n° 08-12212)
A firm should be placed in the hands of a receiver as soon as its assets no longer allow it to meet its current liabilities.
In this case, a company was trying to establish that its financial debts towards other companies of the group should not be taken into account in the calculation of the current liabilities.
The Cour de Cassation dismissed the claim on the grounds that the company’s financial debts to the other companies of the group are part of those liabilities, even if, as the company upheld, their reimbursement had not been claimed. The subsidiaries would have hand to expressly consent to waiver their claims or postpone the due date for these debts not to be taken into account: the simple existence of capitalistic links is not sufficient.
In the same decision, the Cour de Cassation judged that the debts of the company on the companies belonging to the group could not in this case constitute current assets due in particular to the incapability of these companies belonging to the group to settle their debts intra-group.
Firms belonging to a group of companies do not therefore, within the scope of the assessment of the current liabilities, benefit by any preferential system with regard to intra-group debts.
Suspension of payments may be even more severely considered concerning them and in particular with regard to the debts they hold on other companies of the group, since the Commercial Court will no doubt have an easier access to information concerning the economic situation of such companies.
Determination of the value of the social rights by an expert (Cour de Cassation, commercial division - 5 May 2009 - 08-17465)
Here the Cour de Cassation confirms its position as to the impossibility of avoiding the rules of public order set out in article 1843-4 of the Civil Code on the determination of the transfer price in the event of compulsory transfer provided for by the Articles of Association.
In this case, the articles of association of a company set out that in the event of exclusion the price for the transfer or stock repurchase would be determined by application of an assessment method mentioned in the same articles of association.
At the request of excluded partners, the Tribunal de Grande Instance had appointed, pursuant to article 1843-4 of the Civil Code, an expert charged with determining the repurchase value of their partners’ shares and indicated in their decision that the said expert should operate freely and exclude the application of the statutory valuation method.
The Cour de Cassation confirms this decision underlining that the expert remains the sole judge of the valuation criteria that he considers the most appropriate among which might be those of the articles of association.
This legislation, protecting the withdrawing party, constitutes a strong limit to the initial will of the parties who, in accepting to become partners, also accept the rules set down by the articles of association and, in principle, the method of valuing their shares if it is statutorily fixed.
The only articles of association in which it is legally possible to exclude the enforcement of this public order are those of simplified joint stock companies since the law expressly provides for it.
Contracts, Competition, Distribution
Unilateral termination before term at the creditor’s risk: precisions
Under a textile lease and maintenance agreement entered into by two parties, an early termination could only occur after three motivated registered letters.
The creditor, dissatisfied with the services of the other party, notified the latter of the breach of contract with immediate effect the month following the receipt of the letter, but without following the termination procedure set out in the contract.
The Court of Appeal judged that, the conditions for implementing an early termination not having been met, the agreement had not been terminated and had therefore continued to produce its effects until its term.
In a decision dated 10 February 2009, the Cour de Cassation reversed this judgement by declaring that “the seriousness of the behaviour of a party to an agreement may justify that the other party terminates such agreement unilaterally at its own risk, whatever the formal terms and conditions for the contractual termination.”
The unilateral possibility of a creditor to terminate an agreement at its own risk, a pure precedential construction (Cour de Cassation, 1st civil division, 13 October 1998), was initially hallowed to exempting the creditor from taking the matter to court in the absence of a termination clause.
This unilateral possibility of terminating an agreement now also exempts the creditor, in the presence of a cancellation clause, from complying with the conditions of implementing it
This decision offers further legitimacy to the early termination of the agreement at the creditor’s own risk.
However, one should be particularly vigilant in implementing such a solution, and in particular in making sure that the debtor’s behaviour is serious enough to allow the termination of the agreement before its term without complying with the contractual terms and conditions for termination, and this without incurring liabilities.
Employment Law
Long-term part-time employment (Decree n° 2009-478 - 29 April 2009)
Decree 2009-478 of 29 April 2009 has fixed the new “long-term part-time employment” system intended to allow a better compensation of employees undergoing a reduction of employment below the legal number of working hours over a long period.
This follows on from an agreement concluded between the State and Unédic on 15 April 2009, providing for the setting up, due to the economic difficulties met by firms, of a long-term part-time employment arrangement, an alternative to partial unemployment, operating on the basis of agreements concluded with the professional branches or firms until 31 December 2009.
It also establishes the terms and conditions for collecting the financial participation from the unemployment insurance system for these part-time employment agreements, the amount of which is 150 million Euros for 2009.
The new “long-term part-time employment” system, partially financed by the State and Unédic, thus substitutes the previous system of “long-term part-time unemployment”.
- The part-time employment agreement
The application of this system is subject to the conclusion of an agreement between a professional or interprofessional organisation or a firm and the Minister in charge of employment
or the Prefect or, on authority of the Prefect, by the Directeur départemental du travail, de l’emploi et de la formation professionnelle.
The part-time employment agreements will allow the compensation of employees on part-time employment undergoing a reduction of activity below the legal number of working hours over a long period, within the limit of the annual quota of indemnifiable hours, for a renewable period of three months minimum, the total length of the agreement not exceeding twelve months.
- Extra benefit for part-time employment
Throughout the duration of the part-time employment agreement, the employor will pay his employees a guaranteed hourly rate equal to 75% of the gross hourly remuneration.
The firm will receive an extra benefit of:
- 1.90 € per hour compensated, covered by the State for the first 50 hours;
- 3.90 € per hour compensated, covered by the Unédic beyond the 50th hour.
This benefit will be paid in addition to the present specific partial unemployment benefit which amounts to 3.84 € for firms with a maximum of 250 employees and 3.33 € for the others.
- Considerations to be paid by the employers
In consideration of the extra benefit for part-time employment paid by the State and Unédic, the firms agree to maintain the employees in work for a “period equal to twice that of the part-time employment agreement”.
Furthermore, the employer will reimburse, if applicable, the amounts received for each employee undergoing a reduction of activity and whose work contract is breached during that period for economic reasons, retirement or pensioning off within the scope of a job saving plan.
Finally, the employer agrees to offer the persons concerned a professionalisation interview in view in particular of examining the training or assessment actions that might be undertaken during the period of part-time employment.
The competent Labour Inspector for the sole internal regulations of a firm with several establishments (Circular of the Directorate General of Labour, n° 2009-09 - 17 April 2009)
A circular from the Direction générale du travail (DGT) dated 17 April 2009 specifies the territorial competence of the Labour Inspector vested with sole internal regulations.
If article L. 1321-4 of the Labour laws stipulates that the internal regulations should be communicated to the Labour Inspector, it nevertheless does not specify whether the competent inspector is that of the establishment or the firm’s head office.
However, the DRT circular n° 5-83 of 15 March 1983 and the unbroken line of precedents of the Council of State had adopted two contrary positions on this point. Indeed, according to the first point, it is the competent Labour Inspector for the establishment who should come to a decision, after having collected the observations of the Labour Inspector for the head office. As for the Council of State, it considers that only the Inspector of the place where the head office is situated and the regional manager he reports to have the competency for knowing the validity of such regulations (EC, 22 April 1998, n°85.139).
The new circular, drawing the consequences from the jurisprudence of the Council of State, updates that of 1983 on this point and stipulates that the Labour Inspector of the place where the head office is situated is competent for assessing the validity of the internal regulations.
The circular also stipulates the terms and conditions for the administrative control.
- When internal regulation of a service note is referred to the competent Labour Inspector for an establishment, he should check with the firm’s management:
- the origin and scope of the edicted measures, so as to establish or decline his competence. Indeed, certain establishments directly include in their internal regulations instructions from the head office applicable to all the establishments;
- that the establishment does not present, with regard to articles L. 1321-1 to L. 1321-3 of the Labour Laws, any particularities requiring the ediction of specific provisions.
After having carried out these verifications, if it appears that the document is the unique internal rule, the Labour Inspector must immediately send it for attribution to the Labour Inspector of the place where the firm has its head office, together with his observations, in particular with regard to the consultation of the CHSCT on the subjects falling within his competence.
- When the unique internal rule is directly referred to the Labour Inspector of the place where the firm has its head office, it is up to him, before taking a decision, to consult the Labour Inspectors of the respective establishments so as to collect their observations and make sure that the CCE and the CHSCT have been consulted on the subjects falling within their competence.
Discretionary bonuses subject to the principle of “equal salary for equal work” (Cour de Cassation, social division – 30 April 2009, n° 07-40.527)
An employee, financial analyst, had the benefit, just like his colleagues at work, of a variable bonus, qualified by the employer as “exceptional bonus”, “efficiency bonus” or “bonus”, and fixed on a discretionary basis by the employer.
To the difference of the other employees in his department, this employee saw his bonus get smaller each year, before finally being abolished by the employer.
Having been made redundant, he claimed back pay as his “bonus”, declaiming an attack against the principle of “equal salary for equal work”.
The Court of Appeal of Paris non-suited this employee on the grounds that « to the contrary of a bonus resulting from a unilateral commitment of the employer or a company usage, granted on specific terms, this bonus was purely discretionary; it was therefore vain in trying to apply the principle of “equal salary for equal work”.
This decision was censored by the Cour de Cassation.
Indeed, the Upper Jurisdiction reminds us that “it is the employer’s responsibility to establish that the difference of remuneration noted between employees doing the same job or a job of equal value is justified by objective and relevant elements that the judge controls”.
It adds that in this case the employer could not therefore “oppose his discretionary power to avoid his obligation to justify a difference of remuneration in an objective and relevant manner”.
It follows that a bonus whose amount is left to the sole discretion of the employer does not escape the judge’s control and should be based on objective, relevant and materially checkable elements, the employer not being allowed to oppose his discretionary power to the principle of “equal salary for equal work”.
An employee exempted from notice is entitled to RTT days (cut in working hours) (Cour de Cassation, social division - 8 April 2009, n° 07.44.068)
An employee, dismissed for professional inadequacy, was exempted by the firm from working his notice. He referred the matter to the Conseil de Prud’hommes (French industrial tribunal) and in particular claimed a back payment of RTT concerning the notice period.
The Court of Appeal of Chambéry dismissed the employee’s request on the grounds that « if, under the 35 hours agreement, certain absences were assimilated to actual working hours, such was not the case for a remunerated but unworked notice period”. Thus, according to the judges of the law and fact, the employee exempted from notice had not acquired any RTT during this period and was therefore not entitled to claim a back payment of RTT.
This argumentation was not retained by the Cour de Cassation which considered that:
« Whereas exemption by the employer from working a notice period does not result in any reduction of salaries and advantages that the employee would have received had he accomplished his work until expiry of his notice, that it can be deduced that the employer cannot deprive the employee of the benefit of the RTT days to which he would have been entitled had he worked during the notice period”.
The Upper Jurisdiction thus stipulates, for the first time, in this decision of 8 April 2009, that the employee is entitled, for the month’s notice for which he is exempted, to RTT days.
Tax Law
Focus on a real tax risk that companies are still unaware of: Carousel fraud
In a press release dated Tuesday 23 June 2009, the European Commission brought good faith tax payers an important guarantee of tax security against the collateral damage caused by Carousel fraud.
This is therefore a good opportunity for making an inventory in this matter which is causing some heavy damage among French companies.
In this purpose, the notion of Carousel fraud shall be illustrated by two different examples, including its financial consequences, before the new protective measure taken by the European Commission is presented.
1. Presentation of the notion of Carousel fraud
a. First example of Carousel fraud, the “typical” example
A first example of Carousel fraud consists in a firm A (in France, for example) acquiring a good from a company B established in another Member State (sale not liable for VAT, since it is an intra-community delivery), then selling it (invoicing the VAT) to a company C in France. Company A then « disappears », having collected VAT but neither paid it back directly to the State, nor to its supplier (since the sale was exempted).
b. Second example of Carousel Fraud, the “practical” example
A second example consists for this same company C, established in France, in purchasing a good from a company D, also established in France (which bought the goods in question either in another country, or outside the EU) ; C resells the goods to E (established in the EU or outside the EU). D normally collects the (French) VAT and pays it to the tax authorities; C does not collect the French VAT (intra-community delivery or export), but simply applies the deductible VAT invoiced by D to the VAT it collected under cover of its other activities.
Thus, C (chosen on purpose by the fraudsters – more often than not behind the backs of the managers of C), applies the deductible VAT to the collected VAT.
Without the intervention of C, D (who has no other activity) would have resold the goods directly to E (established in the EU or outside the EU). D, who would thus be continually in credit of VAT (VAT deducted on purchases and not collected on the resale – intra-community delivery or export), would be obliged to claim the reimbursement of monthly VAT credit … thus attracting the attention of the Tax Authorities, which might result in an inspection.
c. Tax and financial consequences of these Carousel Fraud mechanisms
The VAT directive and the French Tax Code in particular stipulate, in addition to the penalties provided for against a fraudster, that the purchaser who “knew, could not ignore or should have known, that he was taking part in a chain of fraudulent transactions”, may have his right to deduct upstream VAT reviewed.
An operator acting in good faith (company C) may therefore be a tax victim of this fraud if he is unable to prove that he was not in a position to identify the fraudulent circuit set up.
The financial consequences might be dramatic since the operator, although acting in good faith, might be obliged to return the evaded VAT.
The tax authorities recommend that economic operators take all the reasonable measures in their power, within the scope of the normal performance of their activity, to ensure that their transactions with another operator are not involved in such a fraud scheme. (Instruction 3 A-7-07 of 30 November 2007).
These recommendations became quite harmful for taxpayers in the jurisprudence of the Council of State.
The superior court (Conseil d’Etat - 23 March 2009 – N°301053, 8th s.-s., SA Hornet Computer International) has indeed just confirmed a decision of the Administrative Appeal Court of Paris stating that « tax authorities should be considered to have brought the proof that a company could not ignore that its suppliers did not have any real activity, even though they presented themselves as being liable for VAT and were registered in the Trade Register, and that therefore it intentionally took part in fraudulent operations, since:
- this company could not ignore that its suppliers were recently created companies, with no references or logistics and could not therefore be considered as having an economic activity corresponding to the purchase of the litigious goods;
- it could not fail to notice that the prices exclusive of VAT charged by its suppliers were lower than those usually proposed by other suppliers;
- the visible abnormalities affecting the transaction documents such as the estimates and invoices, which were similar in form, especially with regards to the numbering of the invoices or fax numbers, as well as the obvious incompleteness of the transport vouchers, could not escape the company managers’ attention.”
2. Protective measure set up by the European Commission
Within this context, the European Commission has set up a service that seems really useful for any company wishing to secure its position with regards to this risk.
Indeed, in a press release dated Tuesday 23 June 2009, the European Commission indicated that it had made available to the general public, within the VIES register, ,a service allowing a taxpayer to obtain a certificate attesting that he has checked the validity of the VAT number of a client at a given moment (http://ec.europa.eu/taxation_customs/vies/vieshome.do?selectedLanguage=fr).
This certificate is one of the elements that can be used, if needs be, to justify the involuntary participation in a fraudulent circuit and to avoid being held liable of the tax consequences of the fraud.
However, this is not sufficient to exempt tax payers from being particularly attentive to the conditions of the operations in which they are taking part.
Indeed, an increasing number of firms are victims of these unscrupulous doings. Here are a few examples:
1/ A car dealer in a motor oil resale circuit, for a commitment commission of 3% of the invoiced amounts,
2/ An operator, in a milk resale circuit, again for a commission,
3/ Or a carrier in a electronic technology components resale circuit, also for a commission on the quotation for the haulage service.
Litigation
The reduced rate of VAT is definitively extended to new services
The Council has adopted a new directive allowing Member States, permanently but optionally, to apply reduced VAT rates to local services using a high level of labour but which do not lead to any unfair competition between European service providers.
However, the reduced rate to be applied should represent at least 5 % of the value of the service provided or goods supplied.
The following services are concerned:
- Small repairs (shoe repair, bicycle…)
- Cleaning of private accommodation
- Home care
- Hairdressers
- Renovation of private accommodation
- Catering
- Sale of books regardless of the media
This directive came into effect on 1st June 2009. France has applied the reduced rate of 5.5 % to catering since 1st July 2009.
The national judge national should automatically examine the excessive character of a clause included in a contract concluded between a consumer and a professional.
Within the scope of a dispute concerning the execution of a telephone rental contract, a Hungarian jurisdiction questioned the Court of Justice on the interpretation of the directive 93/13/CEE concerning the excessive clauses in the contracts concluded with the consumers
The question was to know whether the national judge should take a decision, automatically if needs be, on the excessive character of a clause granting jurisdiction included in the general terms of the litigious contract within the scope of the examination of its competence.
Insofar as the national judge to whom the case was referred should ensure the useful effect of the protection required by the directive, his role should not be limited, according to the Court, to the simple possibility of pronouncing a decision on the excessive nature of a contractual clause, but includes the obligation to examine it automatically, including when he questions his own territorial competence. When he considers such a clause is excessive, he should not apply it unless the consumer is opposed to it.
The French judge should take into account the obligation made to him, beyond the simple possibility acknowledged by article L. 141-4 of the Consumer laws, to automatically bring up an excessive clause contained in a contract binding a professional to the consumer.
The question arises as to whether such a solution should be extended to other types of protection in the contractual relations encompassed by the community directives.
