Court of Cassation, 26 November 2025 (No. 24-15.730)

Introduction

On 15 April 2015, a director-shareholder (the Minority Shareholder), who held shares in a company, transferred control of the company to a company incorporated under Luxembourg law (the Majority Shareholder) through a holding company (the Company).

The Dispute

The Majority Shareholder engaged an audit firm to carry out a detailed analysis of the Company's financial situation. The firm concluded that the Company would be unable to meet the first instalments of its financial debt, due on 15 October 2015. On 20 October 2015, the Minority Shareholder was dismissed.

Under a conciliation agreement approved by the court on 4 October 2016, the Majority Shareholder and the Company, together with their creditors, restructured the financial debt. As a result, the share capital was reduced to zero and then reconstituted through three capital increases, one of which was reserved. Consequently, the Minority Shareholder's stake fell from 17.94% to 0.01%. The Minority Shareholder, alleging that the Majority Shareholder had committed an abuse of majority, brought proceedings seeking damages.

The Courts' Decisions

Paris Court of Appeal

The Court of Appeal ruled against the Majority Shareholder. The court held that the conciliation agreement had been concluded on the basis of a misrepresentation of the Company's financial situation. Consequently, notwithstanding the judicial approval of the conciliation agreement, the capital reduction followed by a partly reserved capital increase, decided with the sole aim of favouring the Majority Shareholder to the detriment of the Minority Shareholder, was contrary to the Company's interests and constituted an abuse of majority. The Majority Shareholder appealed this decision to the Court of Cassation.

Court of Cassation

The Court of Cassation dismissed the appeal. It confirmed that the Court of Appeal had assessed the evidence in its sole discretion and had validly found that there had been an abuse of the majority, since judicial approval of the agreement did not prevent such a finding.

Takeaways

Judicial approval of a conciliation agreement does not preclude a finding of abuse of majority. Where a capital reduction followed by a partly reserved capital increase is based on a misrepresentation of the company's financial situation and is decided solely to favour the majority shareholders to the detriment of the minority shareholders, such transaction remains contrary to the company's interests. Rigorous analysis of the financial situation and careful scrutiny of whether proposed transactions serve the company's interests are essential to mitigate the risk of abuse of majority in conciliation proceedings.