Vol 12 (2015) - Issue 5

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Should We Really Be Afraid of Co-employment in Groups of Companies from a French Legal Perspective?

Managing the restructuring of corporate groups can easily lead to practices emanating mostly from the parent company, whether French or foreign, to its subsidiaries. In such cases, the organisation of group companies is often reached by a management bias and by the financial management of the group. In France, these practices can lead to financial consequences for the parent company, particularly when its French subsidiary is in economic difficulty or is forced to declare bankruptcy. This is particularly, but not exclusively, analysed when the restructuring or liquidation of the French subsidiary leads to redundancy plans.
In this context, if the French subsidiary is not able to pay the statutory redundancy indemnities to employees and, if shareholders (often solicited) cannot or will not help to contribute, the bankruptcy procedure bodies may question the possibility of forcing the parent company to finance all or part of those payments out of Court or through Court proceedings. This is also true in the current economic climate where Courts seek to protect the French workforce.
To this end, the liquidator of the subsidiary can, in case of deficiency on his part, be directed by the controller of the procedure. Upon request, the insolvency judge ('juge commissaire') in charge of controlling the bankruptcy process on behalf of the Commercial Court may appoint up to five controllers who are usually the main creditors. If the liquidator does not uphold his various responsibilities, the controller can require him to take action to recover money on behalf of all creditors who will be paid according to their respective rank. As is often the case in France, the French insolvency fund, the Association for the management of employee claims ('AGS'), which is an employer organisation founded on solidarity with companies and financed by their contributions, or the URSSAF (collecting and distributing the social security contributions, sources of financing of the general social security scheme), will be appointed as a controller. Both of these organisations benefit from a privileged rank for any payment done by the judicial liquidator. After paying the employees, AGS can order reimbursement of advances, following the declaration of his claim in the bankruptcy proceedings.
In principle, when a subsidiary is bankrupted, the obligation to reclassify employees and establish a back-up plan of employment ('Plan de Sauvegarde de l’Emploi – PSE') is the responsibility of such subsidiary, which finances it alone. This back-up plan is usually minimalist; measurements of reclassification are limited to the National Employment Fund, accompanied by a minor allowance. Some employees may challenge the validity of the redundancy plan or the cause of their dismissal before the Labour Courts. This may result in additional compensation with an advance payment from the AGS. The parent company of the bankrupted subsidiary may be requested to pay back such indemnities (or more) on the ground of French Company law or Insolvency law.