Background
TKCG Aménagement (“TKCG”) is a French limited liability company (société à responsabilité limitée, or SARL) engaged in property dealing. Its share capital was divided among Mr. [J], Mr. [N], and TK Participations SAS. Mr. [N] served as the company’s manager (gérant). In July 2017, TKCG’s general assembly authorised Mr. [N], in his capacity as manager, to sell a plot of land for €210,000. That sale was completed on 14 March 2018 — with Mr. [N] himself as the buyer. Shortly thereafter, in September 2018, Mr. [N] incorporated two new companies: Cegea Holding and Urba Néo Patrimoine, the latter operating in the real-estate sector in direct competition with TKCG. Mr. [N] resigned as TKCG’s manager on 31 October 2018.
Mr. [N] subsequently sued Mr. [J] and the TKCG companies seeking dissolution of TKCG, annulment of certain general assembly resolutions, and damages. TKCG responded with counterclaims seeking repayment of sums allegedly misappropriated by Mr. [N], damages for breach of a non-compete obligation, compensation for the alleged under-pricing of the land sale, and damages for moral harm caused by various breaches of duty.
The Rennes Court of Appeal (Third Commercial Chamber) ruled on 14 January 2025, rejecting most of TKCG’s counterclaims. It held that Mr. [N]’s purchase of the land, while procedurally defective under the rules on regulated agreements, had not caused TKCG any compensable loss. It further held that Mr. [N]’s creation of competing companies did not in itself constitute a breach of his duty of loyalty, absent proof of a distinct act of unfair competition. Mr. [J] and the TKCG companies appealed to the Court of Cassation by way of a principal appeal; Mr. [N] filed a cross-appeal.
The Court’s Holding
The Court of Cassation partially quashed the Rennes judgment. On the land sale, the Court upheld the court of appeal’s reasoning: although Mr. [N] failed to comply with the statutory procedure for regulated agreements (Article L. 223-19 of the Commercial Code), the court of appeal was entitled to find that this procedural breach caused TKCG no actual loss. Because any harm was at most a loss of chance — the chance of selling the land at a higher price — and because the expert’s valuation range (€232,000–€280,000) was only marginally above the sale price of €210,000 in a market subject to substantial uncertainty, the court of appeal correctly concluded that even that chance had not been demonstrated.
On the duty of loyalty, however, the Court of Cassation reversed. Relying on Article L. 223-22 of the Commercial Code, it ruled that the obligation of loyalty and fidelity owed by an SARL manager prohibits him, as a matter of principle and regardless of whether any specific act of unfair competition can be identified, from incorporating a competing company while still holding office. The Rennes court had therefore erred in law by requiring proof of a distinct act of unfair competition before finding a breach.
As a consequence of the cassation on the loyalty ground, the Court also quashed the portion of the Rennes judgment that had rejected TKCG’s claim for €50,000 in moral damages, since that claim was partly premised on the same loyalty breach and was therefore necessarily dependent on it within the meaning of Article 624 of the Code of Civil Procedure. The case is remanded to the Angers Court of Appeal on those issues. Mr. [N] was ordered to pay costs and a contribution of €3,000 toward the opposing parties’ legal fees.
Key Takeaways
- An SARL manager breaches his statutory duty of loyalty (Article L. 223-22 Commercial Code) by creating a competing company during his tenure — no separate proof of an act of unfair competition is required to establish the breach.
- A procedural failure to comply with the regulated-agreements regime (Article L. 223-19 Commercial Code) does not automatically give rise to a damages award; the claimant must still prove actual prejudice, and a mere loss of chance that is insufficiently certain will be rejected.
- Where a real-estate asset’s actual sale price falls within — or close to — the expert’s valuation range, courts may legitimately find that no loss of chance to achieve a higher price has been proven, given the inherent uncertainties of property transactions.
- Under Article 624 of the Code of Civil Procedure, cassation of a ruling on a primary liability issue automatically extends to ancillary heads of claim (such as moral damages) that are necessarily dependent on it.
Why It Matters
This decision sharpens and clarifies the content of the SARL manager’s duty of loyalty under French corporate law. By holding that the mere act of incorporating a competitor while in office constitutes a breach — without requiring proof of any concrete unfair competition — the Court of Cassation aligns the standard applicable to SARL managers with the stringent fiduciary logic that governs company directors more broadly. Practitioners advising managers of closely-held companies must counsel them that stepping into a competing venture, even discreetly and before any overt competitive act, exposes them to personal liability from the moment of incorporation.
The ruling also provides useful guidance on damages causation in regulated-agreement disputes. The confirmation that procedural non-compliance does not automatically translate into compensable loss — and that a loss-of-chance theory applied to real-estate transactions faces a high evidentiary bar — gives courts a nuanced framework for assessing harm in cases where a manager self-deals in property transactions. Together, the two holdings send a clear message: French law imposes strict prophylactic duties on SARL managers, but damages remain tethered to proven, not hypothetical, harm.