Corporate Leaders: Beware of "ut universi" and "ut singuli".

Social leaders

Beware of ut universi and ut singuili.

“Like a living organism, the enterprise is born, lives, and may be the seat of various disorders, the most serious of which are likely to cause its disappearance, by stopping credit and financial flows.” F. Perochon, R. Bonhomme, Companies in difficulty.

To lead is to take responsibility.

The management of commercial companies and the protection of their assets is one of the most important problems of the current positive law. Experience has shown that some managers of companies have not been able to resist the temptation to take advantage of their situation to identify themselves with the society they manage and to behave towards the patrimony of the moral being as if it were their own property. 

Their functions being to serve their stock exchange, they have made their individual interests prevail over that of their societies, which have been for them only an instrument of selfish satisfaction and dispossession of the wealth of others. They thus built personal fortunes in a very short time and without effort on the ruins of the companies whose management was entrusted to them.

For all these reasons, it was unthinkable that the public authorities would lose interest in the functioning of commercial companies. On the contrary, they should take all necessary measures to prevent or at least limit abuses by social leaders. In our view, these measures are an indispensable condition for the development of the national economy.

Excuse me, but on what occasion?

The leader is required to demonstrate diligence in the management of the company, meaning to lead or administer the company "as a prudent father" - Article 1131 of the Code of Obligations and Contracts - and to bring to the management of social affairs all the activity and attention that one would expect from a prudent person.

Following a violation of legislative or regulatory provisions, a breach of statutory obligations, or mismanagement, whether inadvertent or intentional, a director's civil liability can indeed be incurred.

As in common law civil liability, directors' liability towards the company or shareholders is subject to proof of a fault committed by them, damage suffered by the company or shareholders, and a causal link between the fault and the damage.

Beyond the ambiguity of the notion of social interest and mismanagement, we will focus on the modalities of implementation of civil liability outside of any collective procedure opened against the company.

By what means?

Thus, if you are a director of a company, the following developments will allow you to have a clearer understanding of the matter and to know "what kind of trouble you might be in, if any".

Indeed, this depends on the harm suffered. The implementation of directors' liability towards the company and shareholders is carried out through two distinct actions: the social action, which is open to the company, and the individual action, which is recognized for shareholders and third parties.

• The individual action

the individual action is an action for compensation for damage suffered by a third party or by a partner, where the partner suffers damage that is distinct from the damage the company may suffer, the fault committed individually or collectively by the management in the performance of their duties. This action is brought by the person who suffered the damage personally.

The admissibility of the indirect action is subject to the existence of a damage suffered personally, independent of that which may be suffered by the company having the legal personality distinct from those of its partners and officers.

For third parties, although the director of a company is not, in principle, liable to persons outside the company (suppliers, customers, partners, etc.) for acts he performs on behalf of and on behalf of the company. It is the society that is committed by these acts and who answers for them, even if it then turns against its leader.

However, in some cases, the personal responsibility of the manager may be engaged, and the cases are multiple. It is then he who may have to bear the harmful consequences of his acts in order to compensate the victim on his own money following a squandering of funds and following fraudulent practices.

Thus, his responsibility can be engaged only when the third party manages to demonstrate the existence of a fault separable from the functions of the leader that he can obtain in court the sentence of the latter to repair the damage that this fault caused him. Otherwise, he can obtain damages only by acting as a liability against the company itself as a legal entity.

However, for an associate, apart from an explicit doctrinal definition, personal harm, would be of the nature of a misappropriation of funds brought, or of civilian fruit not paid, and more generally, any infringement of the individual rights of shareholders and partners without prejudice to the social interest of the company in its integrity.

Within a limited liability company, “each partner may individually bring an action for damages for personal injury” -Art 118 SCC.

With regard to the shareholders of a public limited company, the indirect share is possible by the simple use of the code of obligations and contracts.

• Social action

Social action is intended to repair the damage that the fault of the leader has caused to society itself. The damages that are obtained in the course of this action therefore enter the company’s coffers.

Social action can have two forms, ut universi by its legal representatives, very rare in practice, or ut singuili by one or more partners for a prejudice suffered by the company acting in a common interest.

The question of determining the meaning of the common social interest arises acutely in so far as its field of application continues to expand in the field of social action. Indeed, judges resort to the social interest well beyond the hypothesis that it is expressly mentioned (the case of abuse of social property) to use it in such varied fields before engaging civil liability such as the appointment of a management expert, a provisional administrator in the event of a serious crisis or the pronouncement of a measure of receivership, the dismissal of company officers for just reasons or the tax theory of the abnormal act of management, or the existence of an abuse of majority, minority or equality. In the eyes of some authors, the social interest would thus have become the instrument of a company policy and would constitute the purpose both of the exercise of legal powers within the company and of certain social prerogatives made available to the partners. See The social interest in company law: Transatlantic perspectives -Stéphane Rousseau & Ivan Tchotourian.

Without dwelling too much on this notion that is at the heart of a lively debate, we will explain the means of implementing social action in Tunisia.

In a S.A.R.L, the social action is possible by resorting to article 118 SCC such that «The partners representing the tenth of the share capital may, by grouping, bring the social action against the manager or managers responsible for the damage.»

As for the S.A, there are two modes. An insider by decision of ordinary (or extraordinary) general meeting against the directors even if its purpose is not on the agenda, and one at the initiative of one or more shareholders holding at least five percent of the capital in the case of a public limited company not making a public offering or three percent of the capital in the case of a public limited company. -Art 220 SCC.

It should be noted that a company share decided by a general meeting may be surrendered unless one or more shareholders holding at least five per cent of the share capital of the limited company not making a public offering or three per cent of the share capital of the public limited liability company, and not being a member or a member of the board of directors, object. However, the revocation of said officers is automatic notwithstanding any waiver of the social action.

However, the social action initiated by the shareholders is not subject to renunciation by the general meeting, it is final. Also, any clause of the articles of association having the effect of making it subject to the prior notice or authorization of the meeting, of a management body, of management or of administration, or to renounce it is deemed unwritten.

At the level of a group of companies, the legislator granted, to the minority of shareholders in a company belonging to a group of companies whose participation is not less than ten percent, the possibility of exercising the social action against the partners representing the majority in the parent company (directors and non-executives)in the case of a decision affecting the interests of society with the objective of serving the interests of the majority to the detriment of the legitimate rights of the minority. -Art 477 SCC.

The solutions exist …

It can be seen that decision-making is often fraught with consequences and that a management choice may initially seem justified and subsequently prove problematic. Prevention is the best guarantee for the entrepreneur. Anticipate this risk, audit delegations of authority, surround yourself with advice upstream, and why not seek to be assured.

Today is the fashion. It is not the social managers who subscribe but the company, on behalf of and for the benefit of its managers exercising a social mandate.

In Tunisia, in the absence, of course, in the private sector of an equivalent to what was recently promoted to the benefit of state officials in the public sector, supported by a law of reconciliation in the economic and financial field, initiated by the Presidency of the Republic who reconciled the imperatives of transitional justice with the need to unblock a thorny issue that has long overwhelmed state officials and hindered economic momentum, The insurance solution against the personal civil liability of social leaders could provide them with some security, although limited in the presence of the deterrent effect of criminal law.