THE COURT

(…..)

Given that, according to the judgement under attack (Besançon, 2 December 1998),

(i) l’Amy SA, a corporation, the leading French manufacturer of spectacle frames, whose indebtedness in November 1993 was in excess of F215 000 000, decided, as part of the non-contentious insolvency settlement procedure laid down by Law no. 84-148 of 1 March 1984, to restructure and to be taken over by Kitty Little group, a corporation incorporated in England, quoted in London, and a subsidiary of Benson Eyecare Corporation, an American corporation;

(ii) an agreement was concluded on 4 July 1994 between the majority shareholders of l’Amy, 13 creditor banks, and KLG, a corporation, in order to formalise the uinderstanding of the parties as to the reconstruction of l’Amy;

(iii) in order to carry out this agreement, an extraordinary general meeting of shareholders held on 8 August 1994, adopted, after hearing a report from the auditors, the following resolutions:

- reduction of the capital, which had been increased to 17,563,920 francs, to zero francs, in order to reduce by the same amount the carried forward losses amounting to 141,446,311 francs;

- cancellation of the existing shares and simultaneous increase of capital of 80,000,000 francs by the issue of 800,000 new shares of 100 francs each;

- cancellation of the priority right of subscription of existing shareholders in favour of Kitty Little Group;

(iv) several minority shareholders of l’Amy, among them the association known as Adam, considered that they had been wrongly excluded from the company;

(v) they brought action against l’Amy for damages for loss suffered by them by reason of this exclusion;

(vi) the court refused the claim of the shareholders of l’Amy;

(vii) in a first judgement the Court of Appeal rejected the judgement for having refused to hear the action of Adam and the other minority shareholders; (viii) in a second judgement of 2 December 1998 the Court of Appeal refused all the grounds brought forward by the minority shareholders and rejected their claims;

Concerning the only ground, in its four limbs;

Given that the judgement is criticised for having arrived at this decision while, according to the ground,

1. the common interest of the shareholders is different from the corporate interest; by deducing the absence of any harm to the common interest of the shareholders from the supposedly beneficial nature of the transaction for the corporate interest, the Court of Appeal breached Article 1833 of the Civil Code;

2. the reduction of the capital to zero and the subsequent increase reserved to a third party by the suppression of the former shareholders amounted to a dispossession of the latter which was illegal for want of benefit to the public at large (“utilité publique”) and failure to provide prior indemnification; by failing to draw the consequences the Court of Appeal breached Article 545 of the Civil Code;

3. the reduction of the capital to zero and the subsequent increase of capital, linked with the suppression of the prior right of subscription of the former shareholders, amounted to an increase in the liabilities of the latter, by refusing nevertheless to declare such a transaction illegal, the Court of Appeal breached Articles 153 and 183 of the Law of 24 July 1966;

4. by limiting itself to the abstract and general statement that the transaction had been in conformity with the legal rules, the Court of Appeal deprived its decision of reasons and breached Article 455 of the New Code of Civil Procedure

But given that

(i), contrary to what is argued in the first limb of the ground, the Court of Appeal held that the transaction under attack, carried out in order to ensure the survival of the business, and in that sense in conformity with the corporate interest, did not however harm the interest of the shareholders, even if they were a minority, since one way or another – doing the transaction or going into insolvency – they would have been in an identical situation, the majority shareholders suffering the same fate; in so holding the Court did not deduce the absence of harm to the common interest of the shareholders from considerations relating only to the corporate interest;

(ii) (….);

(iii) finally, the Court of Appeal found, for its own reasons and for reasons which do not contradict the court of first instance, that the operation under attack had been decided upon by the general meeting of shareholders in order to reconstruct the working capital (“fonds propres”) of the company so as to ensure the survival of the company (otherwise forced to go into insolvency) without harming the shareholders, even the minority shareholders, who, in one way or another – doing the transaction or going into insolvency – would have been in the same situation, the majority shareholders suffering the same fate; the Court thus showed that the reduction of the capital to zero was not a denial of the property rights of the shareholders, but rather the sanction of their obligation to contribute to corporate losses within the limits of the sums contributed by them; hence the Court was able to deduce, in a reasoned judgement, that this transaction did not amount to an illgal dispossession;

(….)

For these reasons:

REJECTS the Application for Review.

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