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28 March 2016
Article 18 of Law 2014-856 of July 31 2014 introduced a new requirement for small and medium-sized enterprises (SMEs) to provide employees with information every three years about buying out their company. The main aim of the legislation is to improve employee awareness of the benefits and difficulties of buying out a company and to provide information about the aid packages that are available.
The new regime became fully effective when the implementing decree came into effect on January 6 2016.
Impact studies have shown that nearly 223,000 SMEs in the Paris region alone face the retirement of their owner-managers over the next 10 years. It is estimated that more than 50,000 jobs are lost each year in France because purchasers cannot be found for businesses.
The scale of the problem highlighted the need to better prepare employees for the prospect of making an offer for their business.(1)
Since the triennial information process came into force, two distinct employee information regimes have coexisted. While the triennial information process aims to provide non-specific and general information to employees regarding company buy-outs, the prior information process is designed to inform the workforce that the owner intends to sell and to alert employees of the opportunity of making an offer at least two months before the completion of the transaction.(2)
The prior information process applies to the sale of a business or part of a business, or the sale of the majority of the share capital of a company if it:
If the seller fails to inform the employees, the transaction cannot be invalidated, but the seller is liable to be prosecuted by the public authorities and potentially faces a civil fine of up to 2% of the value of the transaction.
If the transaction in question also gives rise to the obligation to consult and inform the work council and the company fails to perform this obligation, the company's corporate officers are liable for the criminal offence of obstructing the functioning of the company's representational bodies (délit d'entrave) and face a criminal fine of up to €7,500 and a civil action for damages.(3)
No additional information measures on a given sale are necessary under the prior information process if the employees have been informed of the sale in the preceding 12-month period as part of the triennial information process.
The triennial information obligation applies to all companies that have fewer than 250 employees, regardless of asset value or turnover.
The procedure applies regardless of whether the business has a works council or is required to have one. The employee headcount is calculated in accordance with Articles L 1111-2 and L 1111-3 of the Labour Code. Accordingly, certain categories of employees – such as apprentices and persons employed under government-subsidised schemes – are not counted in the total number.
The information process must cover:
The information should be provided in writing or verbally at a meeting to which all employees must be invited. A company may choose to provide its employees with the address of a website that features the required information. However, information on valuation methods and the company's share capital cannot be provided in this way. The implementing decree is silent on the deadline for setting up the triennial information process. However, it is assumed that companies must have finished the first information process by January 6 2019, which is the third anniversary of the decree becoming effective.
The triennial information process and the prior information process for SMEs now coexist with the pre-existing regime regarding informing and consulting work councils. By adding an additional layer of bureaucracy, the new measures run counter to the current trend of reducing the bureaucracy that affects the competitiveness of French companies. However, if these measures are successful in facilitating buy-out offers from employees and help to save jobs, they will be worth the additional regulatory burden that they impose on businesses.
For further information on this topic please contact Rhidian David or Cyrille Gaucher at Cabinet Hughes Hubbard & Reed by telephone (+33 1 44 05 80 00) or email (email@example.com firstname.lastname@example.org). The Cabinet Hughes Hubbard & Reed website can be accessed at www.hugheshubbard.com).
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