Accordion Strike: Social Interest Justifies Capital Reduction

Extract

[...] From then on, shareholders must renounce their preferential right of subscription. In a ruling of June case number: 99-11999, the Commercial Chamber of the Court of Cassation recognizes the validity of such a practice. While the applicant, a minority shareholder, complained of suffering an illegal form of expropriation as not justified by a public utility cause nor preceded by compensation for having lost their preferential right of subscription and having to pay in proportion to their shares the debt of the company. [...]

[...] The purpose of such an operation being above all to ensure the survival of the company, from the moment when the reduction of the capital to zero and its subsequent increase take place for this purpose, then the operation is valid. Only an abuse of majority that harms the personal interest of minority associates, which would not be justified by the interest of the company. B. Abuse of majority, obstacle to the validity of an accordion coup In a few rare cases, the interest of the associates may meet the interest of the company and thus justify the non-validity of an accordion coup. [...]

[...] An operation subject to the effective subsequent increase in Capital The necessary condition for the validity of such an operation is the correlative and effective injection of funds into the company's assets. The ruling of the Commercial Chamber of the Court of Cassation of May No. 91-21.364 recalls the indivisibility of the actions of cleaning up the accounts and the subsequent increase in the company's capital. One without the other would render the action null. In a recent ruling, the Court of Cassation recalled that the reduction of capital to 0 does not take full legal effect until the capital increase is effective. [...]

[...] In fact, in the Commercial Chamber's ruling of May No. 17-18.785, the Court of Cassation has reminded that it is a fraud against the law to carry out an accordion strike for a purpose other than settling the company's debts. In this case, the purpose of this accordion strike was to oust minority shareholders. The Court of Cassation in this ruling recalls that only the social interest of the company can justify such an operation, and not the individual interest of certain associates to see a minority associate leave. [...]

[...] The social interest of the company in danger, driving force of the accordion strike The accordion strike is an operation that is made necessary when the economic survival of the company is at stake but which must be immediately followed by a subsequent increase in the company's social capital A. An operation made necessary for the economic survival of the company Since its ruling of May No. 91-21.364, the Commercial Chamber of the Court of Cassation recalls that it is the survival of the company that justifies such an operation. [...]