Vol 11 (2014) - Issue 2

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SA Rhodia v SA Sanofi: Maternity Obligations do not Extend to Funding the Offspring in Spin-offs

1. Summary
The well-established duty imposed on parents to provide for their children in French family law does not apply to parent and subsidiary relationships in corporate groups. In a decision handed down by the Paris Court of Appeal on 17 September 2013, a subsidiary’s very unusual attempt to seek the deep pocket of her parent failed.
The main issue in the case was whether the share capital increases made and discharge of debt granted by the parent to the subsidiary to finance, as part of a spin-off, the acquisition of several other subsidiaries were also sufficient to cover the obligations and liabilities resulting from the subsequent transfers. A further issue was whether the parent had any duty to support the subsidiary in that regard. The Paris Court of Appeal, rejecting the subsidiary’s appeal, held that there is no general duty of care requiring a parent company to support its subsidiary throughout its entire corporate life and beyond commitments made by the parent. This ruling is in line with statutory law – in particular article 1836 of the Civil Code – and existing case law.
French courts generally decide cases based on provisions of Law Codes but the Paris Court of Appeal in this case essentially based its decision on the facts. This suggests that the facts in this case were overwhelmingly important. When the subsidiary filed its claim against the parent in 2005, it was neither insolvent, nor undergoing any insolvency proceeding. Nor was the subsidiary insolvent at any stage throughout the entire legal proceedings. This is an important fact which was highlighted by the Paris Court of Appeal (Page 5 of the decision). The French Commercial Code provides in article L. 651-2 for legal action against de facto or de jure directors who may include shareholders, for wrongful mismanagement of the company leading to an insufficiency of assets during liquidation of the company.
Hence, although this article did not apply in this case, the decision and surrounding facts remain particularly important.

2. The facts
The facts in the decision of the Paris Court of Appeal are particularly succinct. They are also to a degree incomplete, considering the length of the briefs presented (at least 61 pages according to page 6 of the decision). The presentation of the facts is therefore taken from a combination of the decisions3 of the Paris Court of Appeal and the Commercial Court as well as obtained information on the parties’ respective websites. In order to reflect the particular emphasis placed on the facts by the Paris Court of Appeal, these are presented hereafter in great detail and chronologically.