Publicly Limited Companies and important losses

Directors of Publicly Limited Companies¹ that bear important losses must enact a special procedure² (called "article 100 procedure"), or risk having their personal liability engaged.

First step: recognition of losses

Directors of publicly limited companies must first make sure that the accounting books of the company they run are up-to-date so as to enable them (among others things)³, to uncover losses that may exist.

When it is discovered that a publicly limited compny's net asset has been reduced to less than half its capital, the directors must enact the special procedures dictated by article 100 on Company Law.

Second step: production of a special report

Directors must produce a report on the causes of the losses and, if they plan on continuing the activities of the companies, a report on the measures they intend to take in order to remedy to the situation.

Third step: convening the General Assembly

Directors must convene the General Assembly to consider the possible dissolution of the company or the pursuit of the activities. The General Assembly must be convened in the two months following the uncovering of the loss.

Fourth step: holding the General Assembly

The General Assembly must take a decision on the possible early dissolution of the company.

When net asset has been reduced to less than half of the capital, the decision to dissolve the company is taken with a simple majority.

When net asses has been reduced to less than a quarter of the capital, the decision to dissolve the company can be taken with only a quarter of the votes in favor.

Nevertheless, the law does not impose any obligation of a capital increase on companies that have decided to continue their activities.

Conclusion

Directors must meticulously abide by these obligations, notably, by presenting a relevant special report on the causes of the losses and on the measures to be taken, or risk having their personal liability engaged if a bankruptcy procedure is undertaken.

(1) The procedure also applies to partnerships limited by shares (SCA) but does not apply to LLCs.
(2) Article 100 on the law on Commercial Companies
(3) Accounting books are also required to conform to the requirements of article 9 of the Commerce Code: "any company must produce accounting books that suit the nature and size of its activities and in compliance with regulations that apply to them".