Background
Carrefour Proximité France franchised its Carrefour banner to Ainaydis, while CSF supplied Ainaydis under a separate agreement. Selima and Profidis, both Carrefour-group subsidiaries, held 26% of Ainaydis’s capital.
After Ainaydis entered safeguard proceedings on December 9, 2020, its judicial administrator asked the supervising judge to terminate the franchise and supply agreements under Article L. 622-13, IV of the Commercial Code. The judge granted that request, and the Lyon Court of Appeal affirmed on September 19, 2024. Carrefour Proximité France, CSF, Selima, and Profidis brought two appeals in cassation, which the Court of Cassation joined because they were connected.
The appellants argued principally that the courts should have considered the anticipated termination-compensation claims when deciding whether termination was necessary to safeguard Ainaydis. They also disputed whether termination was indispensable and proportionate, and sought production of Ainaydis’s agreements with the Système U group to challenge the projected profitability of changing banners.
The Court’s Holding
The Court of Cassation rejected both appeals. It held that necessity under Article L. 622-13, IV must be assessed by reference to the objectives of the safeguard proceeding, independently of compensation that may be owed to the contracting parties because of termination. Such compensation belongs to the distinct process for verifying and admitting claims.
The appellate court could therefore find termination necessary based on Ainaydis’s structural lack of profitability, its indebtedness, evidence that CSF’s prices exceeded competitors’ prices, the practical inability to alter those prices, and franchise constraints that left Ainaydis with insufficient returns. Forecasts showed that changing banners was the only viable option for restoring profitability, paying down debt, and presenting a safeguard plan. The appellate court also permissibly found no excessive harm to Carrefour Proximité France or CSF because they did not establish Ainaydis’s significance to their results or show that its departure would cause an irreparable financial imbalance.
Finally, the Court upheld the refusal to compel production of the Système U agreements. Whether to order production was for the merits judges to assess, and the record already contained comparative margin, pricing, and product evidence. The broadly framed request for all agreements and annexes appeared aimed at obtaining a competitor’s commercial terms rather than a specific concealed document.
Key Takeaways
- When assessing whether termination is necessary to safeguard a debtor under Article L. 622-13, IV, courts do not weigh termination-compensation claims; those claims are addressed separately through verification and admission.
- Termination may be upheld when the evidence shows that contractual pricing and operating constraints prevent sustainable profitability and that ending the agreements is the only viable route to a safeguard plan.
- A contracting party opposing termination must substantiate excessive harm with concrete evidence; a potentially substantial termination claim alone does not establish disproportionate prejudice.
- French merits courts have discretion over compelled production, particularly where comparative evidence is already available and the request broadly seeks a competitor’s contractual terms.
Why It Matters
The decision separates two questions that can otherwise become entangled in French safeguard proceedings: whether an executory contract must end to permit the debtor’s rescue, and what compensation the counterparty may later have admitted as a claim. A potentially large compensation claim does not itself defeat a termination shown to be necessary for the safeguard.
For franchisors, suppliers, and distressed franchisees, the ruling also underscores the importance of operational and financial evidence. Courts may rely on comparative pricing, structural margins, contractual constraints, and credible forecasts when determining both necessity and proportionality.