Clarification en matière de modification des droits attachés aux actions de préférence

A Lyon Court of Appeal judgement of 17 February 2022 has provided interesting clarification regarding preference shares. Our Corporate team reviews this decision.

A société par actions simplifiée (joint-stock company) had decided to reduce the preferred dividend right attached to preference shares held by some of its associates. Two holders of preference shares who consider themselves prejudiced by this decision decided to make a legal claim for the invalidation of this modification of their rights.

As the Lyon Commercial Court upheld the associates’ request, the company filed an appeal.

The Lyon Court of Appeal dismissed the associates’ request, validating the decision made by the company by setting out the following three principles.

1. The individual consent of the associates whose rights are modified is not necessary.

One of the arguments the claimants put forward was that the company had illegally modified their rights based on a decision made by a majority vote at the general assembly. Whereas, they upheld that each associate concerned should have given his individual consent.

The Court of Appeal dismissed this argument, indicating that no legal provision required such individual consent. It recalled, however, that individual consent is necessary when the modification decision entails an increase in the commitments of the associates concerned.

2. The modification of rights attached to shares must not be considered a conversion into another share category.

The Court of Appeal ruling then specified that excluding holders of shares to be converted into preference shares from creating or taking part in a vote on the creation of such share category (article L.228-15 paragraph 3 of the French Commercial Code) is not applicable in the case of decisions relative to the modification of rights attached to a pre-existing share category.

Therefore, any modification to individual rights attached to shares of one category may not be considered as the conversion of such shares into shares of another category.

3. The ratification by a special assembly is not required within a société par actions simplifiée in the absence of statutory requirements to that effect.

The Court of Appeal then specified that the rule according to which “a general assembly’s decision to modify the rights relative to a category of shares is only final after ratification by the special assembly of the shareholders of that category of shares” (Article L. 225-99 of the French Commercial Code) does not apply to a société par actions simplifiée.

Hence, in the absence of statutory requirements providing for this rule, the prior approval by a special assembly of holders of preference shares issued by a société par actions simplifiée is not required to modify the rights attached thereto.

For the secure creation of a category of preference shares in your company or for any modification of the rights attached to currently existing shares, please don’t hesitate to contact our Corporate team.

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