Court Ruling on Management Fees and Director Remuneration

Extract

[...] Procedure : The Court of Appeal first rejects their request, considering that their argumentation is based on enrichment without cause, whereas they had not invoked it. The companies contest this interpretation and denounce a distortion of their conclusions, in violation of Article 4 of the Civil Procedure Code. The court then finds that the request for restitution based on enrichment without cause is inadmissible because the sums paid had a valid cause, being the counterpart of effective contractual performances. The companies argue that this reasoning is ineffective and does not legally justify the decision in light of the applicable texts. [...]

[...] Consequently, the payments made in execution of these agreements cannot be likened to the remuneration of a corporate office. The Court also rejects the second ground raised by the companies, which challenged their condemnation to damages for abuse of the right to act in justice. It approves the Court of Appeal for having held that the claims of these companies were inoperative and excessive, and that their repeated behavior on appeal presented a vexatious character for the other entity. Therefore, the Court of Cassation considers that the fault of the companies NSA and GSC is characterized and that their condemnation to pay 80,000 euros in damages is justified. [...]

[...] management fees must be distinguished from social mandate remunerations. A company can validly remunerate distinct management services from the social mandate, provided that these services are real and autonomous The need for a concrete analysis of management conventions - This ruling recalls that the existence of a service provision contract must be assessed in light of its actual content. - The Court validates the approach of the appellate court, which examined whether the billed services corresponded well to distinct services from the general management functions - This reasoning allows companies to avoid attempting to conceal a director's remuneration in the form of management fees, notably for tax or social purposes. [...]

[...] On the other hand, the court notes that it is not proven that the sums paid correspond to the remuneration of a corporate mandate, while admitting that the conventions aimed to organize the management of the companies. The companies denounce a contradiction in the reasoning, violating Article 455 of the Civil Procedure Code. Finally, the court considers that the conventions had been validated by the auditors and the board of directors, and that they could therefore not be considered as executed without power. The companies argue that the remuneration of the general manager cannot be fixed by a convention with a third party, which would violate Article L. 225-53 of the Commercial Code. [...]

[...] Solution : The Court of Cassation answers in the negative and dismisses the appeal, considering that the payments made under the service provision agreements do not constitute undue remuneration for a corporate office and therefore do not need to be refunded on the basis of the recovery of undue payments. The Court first notes that the companies are requesting the refund of the sums paid to the other signatory entity without, however, seeking the annulment of the service provision agreements. It observes that these agreements related to managerial and commercial management services, without covering the entirety of the general management functions. [...]