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What Recourse to the Early Dissolution of the Company In Case Of Disagreement between the Partners?

disagreement between partners

Recent ruling on disagreement between partners as a cause of dissolution of the company

When the partners no longer agree at all in one company and can not find any way out of one of them, they may be tempted to dissolve the company with the intervention of the judge. In this case, they support their claim in principle (and if the social form in question allows it) on the Civil Code. The latter provides that the early dissolution is ” pronounced by the court at the request of a partner for just cause, in particular in the event of non-fulfillment of its obligations by a partner, or disagreement between partners paralyzing the operation of the company . Of course, judges must interpret these criteria fairly, dissolution being a serious act in the life of a society.

In a judgment rendered on February 23, 2017 , the Court of Cassation relaxed the notion of disagreement between the partners and paralysis of the company.

The disagreement between partners implies the paralysis of society

In order to better frame the texts on dissolution for misunderstanding, the jurisprudence has clarified, which the judge must take into account. Thus, it is impossible to declare a dissolution when the disagreement is attributable only to one of the partners in conflict. The judges also specified the criterion of paralysis: paralysis must result from this disagreement between partners . This is an unavoidable condition for the application for early dissolution.

If the courts always appreciate the criterion of the company’s paralysis to dissolve, the case law is not unanimous on the appreciation of paralysis conditions. It was on this question of appreciation of the notion of paralysis of society that the Court of Cassation was also examined on February 23, 2017.

Conflict between partners in a civil society

In the case submitted to the judges, two shareholders each held 50% of the shares in a real estate company (SCI). Only one of the partners had the status of manager and therefore the power to bind the company. As the sale and purchase of buildings were at the heart of the business, they were subject to the unanimous decision of the partners. For several years there has been no ordinary and extraordinary general meeting.

On April 2, 2010, the manager of SCI entered into a promise to sell the property with another company without consulting the second partner . On July 21, 2010, the co-partner objects to the sale of the property and requests the early dissolution of the company for just cause.

The Court of First Instance and the Court of Appeal found the disagreement and allowed the application for dissolution. The manager of the company and the SCI then appeal to the Court of Cassation to challenge the early dissolution. The manager considers that it has not been found ” the impossibility of continuing the social activity in accordance with its corporate purpose “. In its defense, it adopted a test adopted by the Commercial Chamber of the Court of Cassation on 28 May 2013. In this case, despite the impossibility for the partners to agree to approve the annual accounts, the judges considered that the prosecution of the social activity was possible and therefore refused to pronounce the dissolution.

The paralysis of society: the normal functioning of society prevented

In its ruling of 23 February 2017, the Court of Cassation did not adopt the criterion of continuing social activity as preventing any dissolution.

It merely notes the absence of collective decision-making in general, whether it is ‘ the allocation of profits or their allocation to previous losses or debts ‘ or the sale of the immovable and deduces therefrom other criterion than the disagreement between the partners paralyzed the functioning of society “. The continuation of the activity does not therefore prevent a paralysis Of society in comparison with normal social life. One can a priori deduce that the chances of success of a legal action to dissolve society for disagreement will be increased. Nevertheless, caution must be exercised: judges could reinterpret the criteria in a very different concrete case. In the case of SCI, the sale of real estate is at the very heart of the activity, which may have influenced the judicial solution.

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