The abuse of corporate asset is a offense. He accuses the fact for a leader of a company commercial or civil with responsibility limited to make, of Mauvaise faith, a use of the Crédit, goods opposite with the interest of this one, personal ends or to support another company or Entreprise in which he is interested directly or indirectly.

It is one of the forms possible of the Détournement of goods.

According to the article 4° of the Commercial law French, which accuses the infringement within the framework of limited liability company, the Infraction of abuse of corporate asset is the fact, for the managers, to make, insincerely, of the goods or the credit of the company, a use which they know contrary with the interest of this one, at personal ends or to support another company or company in which they are directly or indirectly interested

The incurred sorrow is 5 years of imprisonment and 375  000 Euro S of Fine, possibly supplied with a temporary prohibition for the Leader condemned to exert professional or social functions within the company as measurement of safety.

An infringement in question

History of the infringement

The abuse of corporate asset is presented in the form of an infringement which supplements the breach of trust. Its creation results from an Order in Council of August 8th, 1935, legislative answer to the business Stavisky. Since the Re-coding of the Code trades, one finds the texts with the articles L. 241-3 and following.

The politico-financial Affaires gave a new gloss to this infringement and directed the projectors on a particularly technical incrimination. The successive inculpations and judgments made it possible to put at the day the systems secret funding of the political parties via commissions poured companies Offshore.

Usually, stops bringing of true jurisprudential projections sound returned in the general indifférencce of the media. These businesses extremely mediatized however contributed to make evolve/move jurisprudence in a considerable way. Thus the Carignon business, which involved the setting in examination then the judgment of the former mayor of Grenoble, has leads so that jurisprudence releases the interpretation according to which " whatever the short-term advantage that it can get the use of the funds of a company having the only aim of making an offense such as corruption is contrary with the social interest in what it even exposes the moral person to the abnormal risk of penal sanctions or tax against it and its leaders and carries reached to his credit and its réputation" (Case. crim., Oct. 27, 1997: Bull. crim. n°352).

Criticisms

Certain observers could consider that it was about an infringement " catches-tout" , which is contrary with the basic principles of legality and interpretation strict of the criminal law.

Components of the abuse of corporate asset

The abuse of corporate asset is characterized by an material element, the use by the social leader of the goods, the credit, the capacities or the voices of the company and by a moral element, the bad faith of the author who acts at direct or indirect personal ends.

Prerequisites

It is the whole of the companies at the limited risk which are concerned with this infringement. On the contrary, the Partnerships, but also limited liability partnerships, civil society other than the civil society of investment in real estate, agricultural associations, groupings or groupings of economic interest.

The company victim must thus belong to one of the following forms:

• SA
• limited liability company
• limited partnership with share capitals
• cooperative society
• insurance company
• civil society of investment in real estate
• company whose object is construction
• savings bank

Jurisprudence excluded to apply the infringement whereas the victim was a company having its seat in a foreign paus (Case. crim. October 3rd, 2004; in the species it was about a company whose seat was located at Jersey). A company of foreign right can be victim only of one breach of trust.

The material element

See also: Material element in criminal law French

The material element of the social abuses good is double.

To be made up the offense must be the fact of a social leader and relate to the goods, the credit, the capacities or the voices of the company within which he exerts his functions.

The quality of leader

The abuse of corporate asset is an offense of function, only the social leaders of business firms can make it.

The courts must thus start by justifying their judgment by raising the effective exercise of the capacities of direction by the continued people and to check that they had already this quality or still had it at the time of the criminal acts.

The texts specify thus that are punishable:

• In the public limit companies: presidents of Board of directors, administrators, the managing director, the delegated general director, the president of the directory, members of the directory, members of the board of trustees;

• In the limited liability companies (limited liability company and EURL): the managers (natural persons);
• In the joint stock companies simplified: leaders and the presidents (natural persons or morals);
• leaders in fact: Those which direct a company without to be regularly invested by the social bodies of the capacity to represent the company;
• the friendly liquidator (the official liquidator who makes embezzlements will be continued on the base of the infringements specific relating to it envisaged to the articles L 620-1 and S of the Commercial law).

An improper use of the goods, credit, capacities or voices of the company

The articles L. 241-3 and L. 242-6 provide that the abuse of corporate asset is characterized since the social leader made, insincerely, an improper use of the goods, credit, capacities or voices of the company.

The improper use

The improper use is the contrary use with the social interest. It can result from positive acts, the such appropriation or the dissipation of social goods but also, like admitted it the Court of appeal, of an omission to act.

It is the case in which a social leader intentionally abstains from claiming at another company, in which it has interests, the payment of the deliveries carried out.

In a general way the contrary acts with the social interest are divided into two categories: ; The acts without any counterpart

As of this assumption the social leader makes realize by the company of the acts whose nature can be very varied (guarantee, transfer, gifts, acquisition, ready etc) but which cannot find any justification economic.

; The acts making run to the company a disproportionate risk

These acts have a foreseeable counterpart but make run to the company a disproportionate risk. A leader who concludes for his company a business exceeding his capacities or being able in a foreseeable way to call into question his existence makes the offense.

The abuse the goods or the credit of the company

An act of provision is by no means necessary step more than one act of diversion, a simple act of administration can be enough, like leasing a social building for a ridiculous amount for example.

The law thus expressly protects the heard social goods in a broad way like all its credits (funds, credits, pieces of furniture and buildings) but also its credit intended like its borrowing power.

A signature given in the name of the company by the leader can constitute the infringement when it is affixed on a commercial draft foreign to the social activity, an unjustified guarantee or, in a general way, on any act likely to make weigh on the company the risk of a loss or an impoverishment without counterpart.

The abuse the capacities or the voices

By “capacities” one must understand all the rights granted by the law or the statutes to the social leaders. This abuse is seldom sanctioned in an autonomous way and is generally absorbed by the abuse of corporate asset because it is almost always accompanied by a diversion of the functions of social leader for obtaining a material advantage.

The abuse voice punished by the law makes it possible to repress another form of abuse, while directly protecting the interests from the shareholders: It is indeed a question of preventing that, by the method of the procurations given in white by shareholders to the social agents, those do not transform the assemblies into room of recording.

Of course, the offense exists here still only if the leader used of the voices of which it laid out in a contrary way with the social interest to obtain, insincerely, a personal advantage. However, even in the event of failure, in the case or the leader would be put in minority, the infringement would not be month made up and punishable.

The moral element

See also: moral Element in criminal law French

2 elements:

• an improper use at direct or indirect personal ends

• the bad faith

An improper use at direct or indirect personal ends

The law wanted to repress the leader acting by cupidity by putting for condition of its culpability the fact that it acted “at ends personal or interested directly or indirectly”.

It is for example the academic case of the leader of a company of construction which is also owner of a brick factory and which provides those to the full price at its company.

Moreover jurisprudence the concept of personal interest widened which should not be heard in a purely patrimonial direction: political ambitions of the leader candidate with an election which uses the social structure to support its candidature, or the simple will to be pleasant with one (or one) friendly (E) can be enough to put at the day the personal interest aimed by the text.

This jurisprudence received many applications at the time of the businesses politico financial impetuses against the industrialists who financed political parties with funds of a company.

Bad faith

The law subordinates the culpability of the defendant to his “bad faith”.

The leader insincerely is that which is aware of the abusive character of the act that it makes, namely a use at personal and contrary ends with the social interest of a good of the company.

However, this element is appreciated in a severe way by the courts.

Indeed, for the judges, the social leader is supposed to appreciate the range of his decisions and the fact of pleading its inaptitude, attested by the made punishable acts, is a means of defense generally likely to fail.

The bad faith is often established starting from the acts carried out to mask the abuses: irregular behavior of accountancy, not convocation of assemblies etc

Jurisprudential illustrations

One of the most frequent assumptions is without question that where the leader is made grant by the company of excessive remunerations taking into consideration capacity of treasury of this company.

It is the case when the leader, in spite of a purely apparent resignation, perceives his only authority a remuneration not envisaged by the statutes (Case. crim., March 7th, 1968: Bull. crim., n° 80) or, benefitting from its situation very strongly majority in the distribution of the authorized capital, make take by the assembly a deliberation allotting excessive salaries to him have regard to the resources and the financial position of the company and perceive these salaries (Case thereafter. crim., Oct. 19, 1971: Bull. crim., n° 272).

One will quote two more recent stops. First was returned in connection with the president of a company which had been allotted, with an authorization partial of the council, remunerations raised, whereas, the company having only one reduced activity, it had been necessary, to ensure their payment, to call upon generating loans of significant financial expenses and that these remunerations fixed according to a way of life which it was a question of maintaining were out of proportion with work really provided (Case. crim., Oct. 6, 1980: Rev. companies 1981, p. 133, note B. Bouloc).

Second is relating to the manager in fact of a limited liability company which, to compensate for the balance of its current account become debtor because of the payment by the company of debts which were personal for him, made carry to its credit as wages of the sums disproportionate compared to the possibilities of the company and absolutely unjustified by the rendered services to this one (Case. crim., 20 juill. 1982: BRDA n° Dec. 23,15, 1982).

In certain cases on the other hand the social abuse good is isolated with the reason that one of the components of the infringement is missing. This element is often the personal benefit of that which, failing to benefit from the diversions, facilitates them or abstains from denouncing them. In this case of figure the leader is generally condemned for complicity of abuse of corporate asset.

Is thus only guilty of complicity of abuse of corporate asset, the president of the directory of a company which prepared and facilitated the illicit intrigues of a majority associate, in addition member of the directory, by in particular granting obliging signatures of accounts to him - checks and by giving him a procuration on the bank account of the company, which caused to support a litigious operation and diversions with the profit of this associate. (Case. crim., Sept. 5, 1988).

Is pareillement only accessory, the administrator who organized and makes function a black case with the profit of other administrators without however to have personally benefitted from it (Case. crim., May 15th, 1974).

The repression of the abuse of corporate asset

Incurred sorrows

The articles L 241-3 and L242-6 of the commercial law lay down against the authors of abuse of corporate asset:

• a 5 years sorrow of imprisonment

• a fine of 375.000€

These sorrows, seemingly heavy, however did not make it possible to stop the continuous increase of the number of judgments for abuse of corporate asset these last years.

Indeed, the firm custodial sentences are rare and amends does not take into account the profits carried out as it is however frequent in right of the businesses, in particular out of stock exchange matter. It arrives thus that, in the cases the most extreme, certain leaders fund by advance the amount of the fine on their personal funds.

Moreover, one prohibition to manage cannot be marked on a purely complementary basis as it is however the case for breaches of law such as the flight, the swindle or the breach of trust.

It is only if the company is found in suspension of the payments which the diversions of credits can then be described as bankruptcy, qualification involving the application of the particularly repressive mode accompanying this infringement, which includes/understands in particular the traditional sorrows complementary that are:

• the personal bankruptcy

• prohibition to manage

Inoperative means of defense

• the final discharge

In criminal law the assent of the victim is, except exceptions, inoperative on the constitution of the infringement. Moreover, the L225-253 article of the Commercial law provides that:

No decision of the general meeting can cause to extinguish an action of responsibility against the administrators or the managing director for fault made in the achievement of their mandate.

Consequently, the final discharge given by the assembly of the shareholders is inoperative on the responsibility for the administrators.

• refunding

The restitution or the compensation does not erase the offense of abuse of corporate asset.

Jurisprudence did not accept the means of defense drawn from the compensation of the sudden damage with some advantageous operations carried out by the companies thanks to its management not more than with alleged not paid overtime.

The refunding of diverted sums N `does not erase the offense as recalled it the Court of appeal to several recoveries. However, if the refunding of the diverted funds is not taken in theory into account to appreciate the only constitution of the infringement, the absence of damage will often make it possible to obtain, taking into account the obstruction of the courts, that is to say nona place of opportunity, would be an exemption of sorrow.

• ignorance

The Court of criminal appeal of the court of appeal already judged that the incompetence of the leader out of countable matter or its distance of the countable or administrative tasks of the company are not likely to exonerate it its responsibility.

The leader cannot more cut off himself behind the legal validation of the act by a council.

In light, being supposed diligent and suited to the performance of his duties, the leader cannot exonerate his responsibility while alleging that he was unaware of the abusive character of the services from which he profited.

• the transparency

If the fact of having acted clandestinely creates a presumption of personal interest and insincerely, the opposite, is not true: the fact of having acted in a transparent way does not exclude, de facto, that the offense of social abuses good is made up.

The leader cannot only make the point that it observed the procedure relating to regulated conventions or that it registered of accountancy the diversion which is reproached to him. The transparency however has important effects and mark in general the starting point of the regulation.

• the constraint

The defendants call upon sometimes external pressures to justify the made acts.

It is for example the case of the “paper leaders”, who, with an only aim of preserving their employment in companies where they are subjected to the will of very powerful shareholders accept with their request to grant undue advantages to them.

These elements of external pressure, sometimes quite real, if it can influence the quantum of the sorrow, do not have on the other hand any effect on the constitution of the infringement.

• the delegation of powers

In several stop of March 11th, 1993, relating to infringements other than the abuse of corporate asset, the Court of criminal appeal of the Court of appeal affirmed that:

“Out the cases where the law has which it differently, the head of undertaking, which did not take share personally with the infringement, can exonerate his criminal responsibility if it brings back the proof that it delegated his powers to a person provided with competence, authority and means necessary. ”

Since the leader takes part personally in the infringement, while not profiting example of the goods placed at his disposal of manner unjustified by the holder of the delegation of powers, the infringement is made up.

The delegation of powers can however be used to show the quality of leader in fact of her holder when this one does not form part of the people aimed by the law.

• the current practice

The Court of appeal on the occasion to recall it on several occasions that the current practice cannot constitute a justifying fact.

On a purely exceptional basis however the existence of a current practice can contribute has to draw aside the bad faith.

Such was the case in a species or the judges admitted the refunding of certain travelling expenses, nonexcessive, entered of accountancy and entering in practice current which authorized the administrators to be made deal with by the company certain entertainment expenses.

Such was also the case of payments of premiums to a leader and members of his family, since these remunerations were of use in the company for all the personnel.

Out these specific cases the defense based on the current practice is almost always dedicated to the failure.

Justifying and means of defense facts effective

As let us see we it, it exists little effective means of defense since a contrary act with the social interest was made in all full knowledge of the facts by a leader.

However, the appearance of the groups of companies had an impact on the traditional appreciation of the concept of social interest in criminal law of the businesses.

This adaptation was made necessary by the fact that within the groups of companies, certain behaviors, in spite of the existence of completely relevant economic purposes, were also likely them to fall into the fields from the abuse of corporate asset.

Thus, a gift of money carried out without counterpart between two companies members of a group can certainly, initially, harmful being with the first but later on to profit to him by improving the general situation of the group.

This reality was taken into account by jurisprudence and the Court of appeal through the concept of management of group.

• the management of group

It is in 1985 in its famous stop “Rozemblum” of February 4th, 1985 that the Court of criminal appeal of the Court of appeal devotes the rules making it possible to use the existence of a group of company like means of defense against a charge of social abuses good.

However, this means of defense is very strictly framed by the Court which formulates the very precise conditions in which she admits it:

To escape the forecasts from the articles L. 241-3 and L. 242-6 from the commercial law, the financial assistance brought by the leaders of a company, with another company of the same group in which they of which directly or indirectly interested, must be dictated by an economic interest, social or financier common, appreciated taking into consideration policy worked out for the whole of this group and should neither be stripped of counterpart or break balance between respective engagements of the various companies concerned, nor to exceed the financial possibilities of that which supports the load of it.

In this stop, the Court of appeal releases three criteria allowing to propose the justifying fact of group since the leader makes carry out by the company an act which can appear contrary with his interest.

• That one is in the presence of a strongly structured economic grouping not resting on artificial bases

• That the sacrifices requested from the one of the companies were indeed carried out in the interest of the group and has a counterpart. This condition is essential and the counterpart must always exist even if it is long-term. The absence of counterpart cannot be justified even if it is a question of saving the parent company of the failure.
• That the sacrifices do not make run to the company concerned too important risks being able to burden its future.

Thus, a policy of group consisting in driving back with the bankruptcy a subsidiary company with an only aim of helping his/her mother could not make obstacle with the offense of social abuses good.

Indeed, the justifying fact of group only makes it possible to soften the appreciation of the social interest of the company which accepts to make the sacrifice, while admitting that it can profit in the long run from the general good health of the group, but to in no case to be unaware of its interest or, worse, to undervalue them by making them pass behind those of the parent company or other subsidiary companies.

Close infringements not to confuse

The breach of trust

The breach of trust, punished by article 314-1 of the Penal code, supposes that the delinquent, who legitimately obtained the thing between his hand, deceives the confidence of that which had given to him while not making what was agreed.

The infringement supposes

• a diversion of the thing

• a damage
• the bad faith

The breach of trust is punished

• 3 years of prison

• of 375.000€ of fine

The judge can moreover pronounce one or more complementary sorrows envisaged by the penal code

The field of application of the breach of trust is thus much broader than that of the social abuses good, which can be only the fact of leaders in activity within business firms.

A former leader who would make a diversion after the end of his social mandate could not thus be continued for abuse of corporate asset, but could on the other hand the being for breach of trust.

It is for example the case of a former administrator who is made lend a car of the company and which does not restore it.

The breach of trust is the alternative infringement which will be able to apply when the essential conditions of the abuse of corporate asset are not met.

Thus the same diversion of the goods of the company will be qualified abuse of corporate asset if it is the fact of a leader and breach of trust if it is the fact of an employee, a supplier or any other person.

Bankruptcy by diversion of credit

Infringement envisaged by the article L. 626-6 of the Commercial law, the bankruptcy by diversion of credit is characterized by the fact, in a company in rectification or compulsory liquidation, “to have diverted or have dissimulated whole or part of the credit of the debtor”.

The offense of bankruptcy applies exclusively in the companies in difficulties, it can be continued only after the opening of a collective procedure.

Although jurisprudence is not fixed on the matter, of many authors apply the chronological criterion to determine the qualification to bring to the facts:

before the suspension of the payments: Majority jurisprudence considers that before the suspension of the payments only the abuse of corporate asset can repress the diversions carried out by the leaders. Some isolated stops however admitted that diversions being directly at the origin of the suspension of the payments could be constitutive of the offense of bankruptcy.

After the suspension of the payments: for any diversion insincerely of the credits of the company by its leaders, the special infringement of bankruptcy is the qualification which must be retained.

The article L 626-3 of the Commercial law punishes the offense of bankruptcy of

• 5 years of imprisonment

• 75.000€ of fine
• complementary Sorrows such as the personal bankruptcy or prohibition to manage can be marked against the delinquent.

Topicality of the abuse of corporate asset

The abuse of corporate asset is an infringement which goes well.

In 1999 the last statistics of the ministry for justice as regards economic and financial delinquency that we have thus reveal an continuous increase of the number of judgments for abuse of corporate asset which passes from 355 in 1995 to 429 in 1999.

In 59% of the cases the infringement is made by a leader of limited liability company and in 40% by a leader of joint stock company.

During the same period 53% of the guilty leaders recognized were condemned to suspended sentence, 26% with a fine and only 15% at imprisonment, which put in prospect with the growing number of infringement makes say to some that the abuse of corporate asset is not punished in a sufficiently dissuasive way.

The abuse of corporate asset is an alive infringement but which did not know these last years of major changes.

The topicality of the offense is thus mainly jurisprudential and the Court of appeal was brought has to bring, these last months, a whole series of essential precise details on its mode.

Regulation of the abuse of corporate asset

The debate on the starting point of the regulation of the abuse of corporate asset is the object of a true serial which has lasted for more than fifteen years and was the subject of important bounces during the last years.

Which are the terms of the problem?

The social abuse good is, by nature, an instantaneous infringement which is made up with each faith that a leader uses at personal ends the means of the company in a contrary way to his social interest.

For this offense it is the triennial regulation of common right which applies. In theory, this one starts to run at the day of the material manufacture of the offense, i.e. day at the day of the achievement of the punishable act.

However, because the abuse of corporate asset is generally accompanied by operations aiming at masking the diversions, the Court of criminal appeal in its famous stop of August 10th, 1981, being based on the solutions adopted as regards breach of trust, pushed back, in manner countered legem, the starting point of the regulation, at the day when the offense appeared and could be noted under conditions allowing the exercise of the public action

Since, a stop of the Court of criminal appeal of May 5th, 1997 came to specify that regulation of the public action of the chief of short abuse of corporate asset, except dissimulation, as from the presentation of the annual accounts by which the litigious expenditure is put at the load of the company .

For a long time, the Court of appeal left to the courts dealing with the substance of a case the care to appreciate the existence or not dissimulation, thus giving them the possibility of fixing, with their own way, the concrete starting point of the regulation.

Because of the legal insecurity produced by this faculty, making impossible the objective fixing of the starting point of the regulation, the Court of appeal has to decide to control the elements allowing to appreciate the existence of a dissimulation.

In two stops dated June 14th, 2006, the Court of criminal appeal of the Court of appeal thus censured two stops of course of call in their reproaching for having badly appreciated the elements making it possible to exclude or, on the contrary, to reveal the existence of a dissimulation.

The court of criminal appeal specifies thus that the dissimulation exists, and persists, as a long time as the shareholders do not receive complete information, or at least sufficient, to be able to discover by them even the acts having attacked the social interest.

By requiring judges of call whom they motivate their stops by specifying the objective elements enabling them to retain or draw aside the existence of a dissimulation, the Court of appeal takes again the control of this essential concept which makes it possible to mark the starting point of the regulation of the public action.

The moral criminal responsibility of the people for abuse of corporate asset.

The law of March 9th, 2004 devoted to the adaptation of justice to the evolutions of criminality (L. n° 2004-204, March 9th, 2004: Official journal March 10th, 2004) put an end to the special character of the criminal responsibility of the moral persons. Starting from December 31st, 2005, the criminal responsibility of those, except for that of the State, the territorial collectivities and their groupings in the exercise of activities likely to be the subject of public service delegations, can be committed for all the infringements envisaged by the various repressive texts.

It is thus from now on always possible to act against the moral person when an individual estimates victim of an infringement. However, in accordance with article 121-2 of the Penal code, it always should be shown that the infringement was made for the account, by the bodies or representatives of the aforesaid the moral person. The responsibility will continue to require beforehand the demonstration of a criminal offense made by a natural person. The reform thus attenuates by no means the criminal responsibility of the natural persons.

A moral person could not however be condemned for an abuse quite social clerks to its depend, since it is victim.

On the other hand, it is possible to imagine that a moral person is itself social agent of another company (with an permanent representative), which is possible for example for the presidents of SAS, and that its permanent representative makes guilty of ABS to the profit of the company which is the social agent.

In this case the author of ABS is the moral person/social agent acting by his permanent representative.

Who more is, one can always consider that a company is guilty of concealment of abuse of corporate asset (for example the leader of a company makes transfer to the profit from an other of which he is shareholder of the goods by selling them at cheap price. The purchasing company would be then receleuse of ABS).

Appendices

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