Civil Liability of Company Directors in France

I. Identification of Liable Parties

A. De Jure Directors/Officers

Civil liability can be incurred by de jure directors/officers, meaning those formally appointed by the competent corporate bodies. In the context of a traditional Société Anonyme (SA) (French Public Limited Company), this notably includes the Chief Executive Officer (CEO) and the Board Member/Director. The French Supreme Court (Cour de cassation) has affirmed that a simple Board Member can be held liable (Com. 31 May 2011, n° 09-13.975), highlighting the broad scope of this liability. It is important to note that, unless holding both positions, the Chairman of the Board is generally not considered a director/officer for the purposes of this liability.

B. De Facto Directors/Shadow Directors

Also concerned are de facto directors/shadow directors, i.e., individuals who, without formal appointment, effectively manage the company independently, whether directly or through an intermediary.

II. Liability Actions: Who Can Sue and on What Grounds

The liability regime varies depending on who brings the action.

A. Action by the Company

The company can bring a liability action against its directors/officers in the event of a breach of duty, whether it involves a positive act (such as an act of unfair competition) or an omission (such as a failure to supervise). This action, usually initiated by the new management against the former, can also be brought by minority shareholders holding at least 5% of the share capital, acting under the actio socialis ut singuli (minority shareholder action). Any damages awarded are paid to the company.

The French Supreme Court has, however, clarified in a ruling concerning the actio socialis ut singuli that such an action brought by minority shareholders of a parent company against the directors/officers of its subsidiaries is inadmissible (Com., 13 March 2019, n° 17-22.128), thus limiting the scope of this action within corporate groups.

B. Action by a Third Party

The personal liability of a director/officer towards third parties is subject to strict conditions. It can only be established in the case of a faute détachable de ses fonctions (fault separable from their duties), meaning a fault committed outside the normal scope of their functions. Case law defines this fault as an intentional act of particular gravity, incompatible with the normal exercise of corporate functions (Com. 20 May 2003, n° 99-17.092).

Examples of faults separable from their duties recognized by case law include:

• The fraudulent assignment of the same debt to two banks to deceive third parties about the company's solvency (Com. 7 July 2004, n° 02-17.729).

• The deliberate and active personal participation in acts of counterfeiting and unfair competition (Com. 7 July 2004, n° 02-17.729).

• The commission of a fault constituting an intentional criminal offense (Com. 23 September 2010, n° 09-66.255).

  
  

C. Action by a Shareholder

A shareholder can bring a liability action against a director/officer provided they can demonstrate personal damage distinct from that suffered by the company or the body of shareholders. In this case, the director's/officer's liability can be established even for faults not separable from their duties (Com. 9 March 2010, n° 08-21.547).

III. Legal Framework of Civil Liability

A. Public Policy Nature

The regime of civil liability for directors/officers is a matter of public policy. Consequently, any provision in the articles of association that aims to make a shareholder action conditional upon prior approval or authorization from the general meeting, or that includes an advance waiver of such action, is deemed null and void. Similarly, no decision of the general meeting can extinguish a liability action against directors/officers for misconduct in the performance of their duties. The quitus (discharge or release from liability) granted to a director/officer for their management does not prevent a subsequent liability action against them.

B. Multiple Directors/Officers

In the case of multiple directors/officers, in principle, only the one who committed the damaging act will be prosecuted. However, if several of them cooperated in the same acts, the court will determine each one's contributory share in the compensation of the damage.

C. Limitation Period and Jurisdiction

The limitation period for a liability action is three years from the damaging event or its discovery if it was concealed. This period is extended to ten years if the act qualifies as a crime. Liability actions are brought before the Commercial Court.

IV. Liability in Case of Judicial Liquidation (Insolvency)

In the event of an asset deficiency (insolvency) revealed during the judicial liquidation (formal insolvency proceedings) of a legal entity, the court may decide that the company's debts will be borne, in whole or in part, by all or some of the de jure or de facto directors/officers who contributed to the mismanagement that caused this deficiency. In the case of multiple directors/officers, the court may, by reasoned decision, declare them jointly and severally liable. This specific action is known as the action en responsabilité pour insuffisance d'actif (action for liability for asset deficiency) and has a limitation period of three years from the judgment ordering the judicial liquidation or the termination of the recovery plan (C. com., art. L. 651-2).

V. Practical Advice for Directors/Officers

A. Risks of Incurring Civil Liability

As directors/officers, your powers are necessarily limited by the company's articles of association and by law. Any exceeding of these powers, whether through negligence or intentionally, constitutes a fault that may lead to your personal civil liability, particularly if you:

• Fail to comply with a legal provision (e.g., not adapting equipment to current safety regulations).

• Fail to comply with a clause in the articles of association (e.g., signing an act without the necessary authority).

• Commit an act of mismanagement (e.g., implementing a risky financial and commercial policy that causes significant losses to the company).

Once one of these faults has a negative consequence for a person, the liability of the company or the director/officer may be engaged.

In principle, only the company must compensate for the damage suffered by a person as a result of a fault committed by the director/officer. Thus, the company assumes responsibility for the manager's fault. For example, if a director/officer refuses to pay an employee's salary, the employee can be compensated by the company and not by the director/officer personally.

However, in certain circumstances, the director/officer will incur personal civil liability, meaning they will be personally responsible for compensating the damage they caused. This is the case when the director/officer commits a faute séparable de ses fonctions (fault separable from their duties), i.e., they commit a fault that is:

• Intentional and;

• Of particular gravity.

For example, a director/officer who allows an employee to use uninsured equipment (e.g., a car) commits a fault separable from their duties.

B. Who Can Seek Compensation?

All individuals who have suffered damage due to the director's/officer's lack of diligence, including:

• The company itself.

• The shareholders of the company.

• Any other person who has suffered damage (employees, clients, etc.).

In addition to compensation for their damage, shareholders may decide to change the director/officer. To do this, they will have the option, for example, to proceed with the dismissal of their director/officer.

C. How is Civil Liability Triggered?

If a director/officer commits a fault separable from their duties, they will incur personal civil liability, meaning they will have to personally compensate for the damage suffered. In practice, the injured party will bring a liability action against the director/officer. If the liability action is successful, the director/officer will be ordered to pay damages.

In certain cases specifically provided for by law, the director/officer of a commercial company may incur criminal liability. This is the case when the director/officer:

• Commits a misuse of corporate assets.

• Distributes fictitious dividends.

• Fails to establish the company's accounts and presents inaccurate accounts.

• Fails to file the company's annual accounts with the registry.

If the director/officer had delegated powers, they will not be held liable. Instead, the agent will be held liable.

D. Directors' and Officers' Liability Insurance: A Solution to Protect Your Assets?

The damages you may be ordered to pay can be very high and jeopardize your personal assets. Private insurance organizations offer directors' and officers' liability insurance to cover the risk of being ordered to pay damages when your civil liability is engaged. These insurances cover civil liability but exclude criminal liability, which is uninsurable. In exchange for a monthly contribution, the insurance guarantees that it will pay your damages in the event of a conviction.

The proposed insurance can be adapted to the liability risks you face. Indeed, depending on whether you are the director/officer of a construction company or a clothing sales company, you do not bear the same risks because you are likely to be subject to different obligations.

It is possible that your company may agree to take out liability insurance for your benefit. In this case, be careful to comply with the procedure for regulated agreements/related-party transactions.

When acting on behalf of your company, always ensure that you comply with the limits imposed on you by law and by the articles of association. You now know all the risks you expose yourself to!