Background
In June 2015, M. C informed his fellow shareholders, M. and Mme R, that he would resign as co-manager and leave the limited liability company L’Huilerie véhicules occasions (LVO), effective July 10, 2015. After leaving LVO, he founded AB auto.
LVO and M. and Mme R sued M. C and AB auto, alleging unfair competition. They also sought repayment of a €2,400 year-end bonus that LVO had paid M. C for the 2014 financial year, contending that the payment had not been properly authorized.
The Angers Court of Appeal rejected the repayment claim. It inferred shareholder approval from a June 30, 2014 general-meeting record, the bonus’s inclusion in LVO’s annual accounts, and the fact that the company’s legal adviser had prepared the record, even though the document contained only one crossed-out signature. The claimants appealed to the Court of Cassation.
The Court’s Holding
The Court of Cassation held that, under Articles L. 223-18, L. 223-27, and R. 223-24 of the Commercial Code, the remuneration of a manager of a French limited liability company must be fixed by the articles of association or authorized by the shareholders. Proof of shareholder authorization may be established only through minutes satisfying the statutory requirements, including execution by the managers and, where applicable, the chair of the meeting.
The Angers court therefore erred by relying on noncompliant minutes and surrounding circumstances to infer that the shareholders had approved the bonus. Because LVO’s articles did not provide for the bonus and no qualifying minutes proved shareholder consent, the €2,400 payment was unauthorized.
The Court partially quashed the appellate judgment without remand and decided the issue itself, ordering M. C to repay €2,400 to LVO and to bear the costs. It left the remainder of the appellate judgment undisturbed; the first ground concerning the other claims was rejected without a specially reasoned decision because it was manifestly incapable of supporting cassation.
Key Takeaways
- A French limited liability company manager’s compensation must be authorized by the company’s articles or by a collective shareholder decision.
- Shareholder approval of manager compensation must be proved by meeting minutes that comply with the formal requirements of Article R. 223-24 of the Commercial Code.
- Accounting treatment, preparation of minutes by legal counsel, and inferences about shareholder relations cannot substitute for compliant minutes.
Why It Matters
The decision imposes a strict evidentiary rule for proving shareholder authorization of compensation paid to managers of French limited liability companies. Companies and managers cannot rely merely on bookkeeping entries, informal consensus, or defective corporate records when the validity of a payment is challenged.
The ruling also illustrates the Court of Cassation’s authority to resolve the merits without remand when the existing record permits only one legal outcome. Here, the absence of authorization in the articles and the lack of compliant minutes required repayment of the bonus.