Misuse of corporate assets: the shareholder's guide to taking action

A minority shareholder discovers that the president of his SAS (French simplified joint-stock company) has paid for his holidays with the company's bank card, or that the manager is using the company's cash to finance another of his businesses. The temptation is to cry misuse of corporate assets (abus de biens sociaux). But between legitimate indignation and effective legal action lies a gap made up of precise legal conditions, questions of standing and procedural pitfalls. This guide explains what misuse of corporate assets really is, where the line falls between it and a mere management error, who can file a complaint and how, with practical cases in the SAS and an essential clarification on the SCI (French property holding company).

What misuse of corporate assets means in law

Misuse of corporate assets (abus de biens sociaux, ABS) is an offence defined by the French Commercial Code. For sociétés anonymes (SA, French public limited companies), it appears in Article L242-6, 3°, which punishes directors who in bad faith, make use of the company's assets or credit in a way they know to be contrary to its interests, for personal purposes or to favour another company or business in which they are directly or indirectly interested. For SARLs (French limited liability companies), the same offence appears in Article L241-3, 4°.

Four elements must be present, and the absence of any one of them defeats the criminal characterisation.

• An act of use of the company's assets, credit, powers or votes. This may be a sum of money, a vehicle or premises, but also the company's credit where it stands surety for a personal debt of the director.
• A use contrary to the corporate interest, that is, a transaction that impoverishes the company or exposes it to an abnormal risk without consideration.
• A personal purpose, direct or indirect, or the intention to favour another entity in which the director has an interest.
• Bad faith, that is, awareness of acting against the corporate interest. This is the intentional element that distinguishes the offence from a mere error.

The sensitive point is often indirect personal interest. Case law accepts that the advantage may be moral, political or family-related, and not only financial. A director who uses the company's cash to support an association he chairs or his spouse's business acts for indirect personal purposes, even without immediate enrichment for himself.

ABS or mere management error: a decisive boundary

This question determines everything, because it points either to criminal proceedings or to a simple civil liability action. Confusing the two leads to complaints being closed without further action.

A management error (faute de gestion) is a civil notion. It describes a clumsy, imprudent or unreasonable decision, but one taken in the company's interest and in good faith. A director who launches a risky investment that fails, recruits too quickly or neglects a commercial contract may commit a management error. His civil liability may be engaged, but no criminal offence is made out. On the conditions and procedure for holding a director liable for a management error, see our analysis devoted to the manager of a SARL and the president of a SAS.

Misuse of corporate assets, by contrast, presupposes a diversion for personal benefit and an awareness of harming the corporate interest. The difference does not lie in the economic seriousness of the loss, but in the purpose of the act and in intent. A bad investment of several hundred thousand euros made in good faith remains a management error. The reimbursement of modest personal expenses with the company's card, knowingly, is an ABS.

In practice, three indicators tip the case to the criminal side:

• the total absence of consideration for the company, which impoverishes it without economic justification;
• concealment, through misleading accounting entries, fictitious expense claims or accommodation invoices;
• the personal destination of the funds, revealed by a director's lifestyle bearing no relation to his declared remuneration.

This distinction has a direct consequence for the shareholder: an unfortunate but loyal transaction is not reported to the criminal courts; it is challenged by a civil liability action before the commercial court. Choosing the wrong ground exposes the shareholder to a closure without further action and to a possible complaint for false accusation.

Misuse of corporate assets: who can act

The question of who can act is more subtle than it appears, because the triggering of criminal proceedings must be distinguished from the obtaining of civil compensation.

The company, direct victim

The direct victim of misuse of corporate assets is the legal entity itself, since it is its assets that are depleted. The company may therefore join the proceedings as a civil party, but it acts through its legal representative. That representative is often the very author of the acts, which in practice neutralises this route. This is precisely why action by the shareholders becomes central.

The minority shareholder

A shareholder wishing to act encounters a legal obstacle that must be understood before any step is taken. According to settled case law of the Criminal Chamber of the Cour de cassation, a shareholder suffers only an indirect loss as a result of misuse of corporate assets, namely the depreciation of his shares, which is merely the reflection of the corporate loss. This obstacle has two consequences.

First, the shareholder cannot, in his own name, obtain damages for the mere devaluation of his shares, because that loss merges with that of the company. Second, his ability to join the proceedings individually as a civil party on that head is disputed and often rejected by the courts.

The shareholder nevertheless has real levers. The first is the simple complaint (plainte simple), open to anyone who knows of an offence, with no requirement to be a victim. The second, and the key tool of company law, is the corporate action brought individually, known as ut singuli. Provided for by Article L223-22 of the Commercial Code for SARLs and by Article L225-252 for sociétés anonymes, and transposable to the SAS, it allows one or more shareholders to bring, in the name and on behalf of the company, the action for compensation against the directors. Any compensation obtained then goes to the company, not to the shareholder, but the shareholder thereby restores the value of his shareholding. This action is civil in nature and targets the director's liability; it combines usefully with a criminal report of the ABS facts.

Other parties who can trigger prosecution

The public prosecutor (procureur de la République) may initiate proceedings on his own initiative, notably following a report. A statutory auditor (commissaire aux comptes) who detects criminal facts is required to disclose them to the prosecutor, pursuant to Article L823-12 of the Commercial Code. A liquidator or a court-appointed creditors' representative (mandataire judiciaire), in insolvency proceedings, frequently discovers abuses and feeds prosecutions. Finally, the tax authorities and investigation services may pass information to the public prosecutor's office. The use of the criminal route by a creditor against a director who organises the company's insolvency is dealt with in our article on bankruptcy offences and management bans.

Report and complaint: the practical steps

Once the characterisation has been checked and standing established, several routes open up. The choice depends on the objective pursued and on the strength of the evidence.

The simple complaint

Addressed to the public prosecutor of the place of the offence or of the company's registered office, the simple complaint sets out the facts and the applicable articles and attaches the available documents. It is free and open to any shareholder. Its drawback is the prosecutor's discretion, who may close the case without further action. It remains useful where the file is still fragile and warrants a preliminary investigation to gather evidence.

The complaint with civil-party application

Filed before the senior investigating judge (doyen des juges d'instruction) on the basis of Article 85 of the Code of Criminal Procedure, it requires a judicial investigation to be opened and triggers an in-depth inquiry by an independent judge. It is the most powerful tool, but here the shareholder runs up against the requirement of a personal and direct loss laid down by Article 2 of the same code. Given the Cour de cassation's position on the indirect nature of a shareholder's loss, this route is uncertain on an individual basis. It is, however, fully open to the company itself, for example where a provisional administrator or a new director has been appointed.

Report to the statutory auditor and management expert appraisal

Even before the criminal route, the shareholder may use company law tools. The request for a management expert appraisal (expertise de gestion), provided for by Article L223-37 for SARLs and by Article L225-231 for SAs, allows shareholders representing a fraction of the capital to have an expert appointed to analyse one or more suspect management transactions. The expert's report then constitutes valuable evidence for characterising the abuse. This evidentiary stage, often neglected, turns a suspicion into a substantiated file.

In practice, an effective strategy combines three steps: securing the accounting and banking evidence, obtaining a management expert appraisal or a report by the statutory auditor, then triggering the criminal route and the ut singuli action in parallel.

Misuse of corporate assets in the SAS: practical cases

The SAS does fall within the regime of misuse of corporate assets. Article L244-1 of the Commercial Code makes the criminal provisions laid down for sociétés anonymes, including Article L242-6, applicable to the president and directors of an SAS. The statutory flexibility of the SAS, often presented as an advantage, in no way reduces the criminal protection of the company's assets.

Several situations arise regularly in SAS companies.

• The president who pays private expenses with the company's means: rent on his personal residence, a luxury vehicle with no real professional use, leisure trips presented as business travel.
• The fictitious employment of a relative, paid by the company without any actual work. Paying a salary to a spouse who performs no real function is a classic case of use contrary to the corporate interest.
• The unbalanced agreement with another company held by the director, under which the SAS invoices at a loss or pays for overvalued services, impoverishing the former for the benefit of the latter.
• The guarantee or cash advance granted without consideration to a personal business of the president, which commits the SAS's credit for an interest foreign to its own.

In an SAS held by a few shareholders, the minority shareholder excluded from management is particularly exposed, because the president concentrates the powers. The statutory freedom specific to the SAS cannot exclude the ABS offence, which is a matter of public policy. It can, however, put safeguards in place in advance, such as a supervisory committee or authorisation thresholds, the absence of which makes abuse easier.

SCI and misuse of corporate assets: the confusion to avoid

This is one of the most frequent misunderstandings. Misuse of corporate assets does not apply to the société civile immobilière (SCI). The offence in the Commercial Code exhaustively targets certain commercial forms, mainly the SARL, the SA, the SAS and the limited partnership (société en commandite). The SCI, a civil company, falls outside that text. An SCI manager who diverts rents or draws on the company's cash therefore does not, technically, commit misuse of corporate assets.

This does not mean in any way that he goes unpunished. The conduct then falls under breach of trust (abus de confiance), punished by Article 314-1 of the Criminal Code, which punishes the diversion of property handed over on condition that it be returned or put to a specified use. The penalties are in fact identical to those for ABS, namely five years' imprisonment and a fine of €375,000. Depending on the facts, breach of trust may be combined with forgery, fraud or abuse of weakness.

In concrete terms, the manager of a family SCI who pays into his personal account the rents of a building held by the company, or who has the SCI bear the cost of works on his private residence, is liable to prosecution for breach of trust. An SCI shareholder wishing to act must therefore target the right criminal basis, failing which the complaint may be rejected for an error of characterisation. He also retains the civil remedies specific to civil companies, including the liability action against the manager. The abuses of power by an SCI manager and the proceedings open to shareholders are dealt with separately in our article on sanctions against an abusive SCI manager.

The penalties incurred

Misuse of corporate assets is an offence punished by five years' imprisonment and a fine of €375,000, pursuant to Article L242-6 of the Commercial Code. The same maximum applies to breach of trust committed by an SCI manager.

In addition to the principal penalties there are additional penalties with serious consequences for the director's professional life, notably a ban on managing, directing or administering a business, deprivation of civic rights in certain cases, or publication of the decision. The legal entity itself may be held criminally liable where the abuse was committed on its behalf.

The civil aspect is just as important for the shareholder. A criminal conviction opens the way to restitution of the sums diverted and to an award of damages to the company, compensation that benefits all the shareholders indirectly. Third parties who knowingly benefited from the proceeds of the abuse, such as a person who receives diverted funds knowing their origin, are liable to prosecution for handling stolen goods (recel).

Limitation and burden of proof

The limitation period for public prosecution of offences (délits) is six years since Law No. 2017-242 of 27 February 2017 reforming limitation in criminal matters. The difficulty specific to ABS lies in its often concealed nature. Case law has long held that the starting point of the period is postponed to the day on which the offence appeared and could be established in conditions allowing public prosecution to be brought. The 2017 reform framed this postponement with a long-stop period of twelve years from the commission of the acts for offences, codified in Article 9-1 of the Code of Criminal Procedure.

As to evidence, the shareholder must gather objective material: the company's bank statements, general ledger, expense claims, disputed contracts, minutes of meetings. The management expert appraisal and the statutory auditor's report often help to structure the case. Bad faith is rarely deduced from an admission; it is established by a body of indications, notably accounting concealment and the absence of consideration.

Conclusion

A shareholder wishing to act against misuse of corporate assets must resist two opposite reflexes. The first is to characterise too quickly as ABS any decision he dislikes, whereas poor management in good faith belongs to the civil ground alone. The second is to give up for fear of the obstacle of indirect loss, whereas the ut singuli corporate action and the simple complaint remain effective levers. The right strategy is almost always a combined one: consolidate the evidence through a management expert appraisal, bring the liability action in the name of the company, and report the facts to the public prosecutor's office where fraudulent intent is established.

Two checks condition the whole approach. First, the corporate form must be identified, because ABS applies to the SAS but not to the SCI, where the relevant basis is breach of trust. Second, management error must be distinguished from abuse, because a mistake of ground leads to closure. Before filing any complaint, have the facts characterised by a lawyer against those two criteria and first secure your accounting and banking evidence.

Frequently asked questions

Can a minority shareholder file a complaint for misuse of corporate assets?

Yes, any shareholder may file a simple complaint with the public prosecutor, with no requirement to be a victim. However, joining the proceedings as a civil party in a personal capacity is uncertain, because the Cour de cassation considers that a shareholder suffers only an indirect loss, namely the depreciation of his shares. The most suitable tool remains the ut singuli corporate action, brought in the name of the company on the basis of Articles L223-22 or L225-252 of the Commercial Code.

Does misuse of corporate assets apply to an SCI?

No. ABS concerns only certain commercial companies, mainly SARLs, SAs and SAS. The SCI, a civil company, is excluded. Diversion by an SCI manager falls under breach of trust, provided for by Article 314-1 of the Criminal Code, with identical penalties, namely five years' imprisonment and a fine of €375,000. That basis must therefore be targeted to avoid rejection for an error of characterisation.

Can the director of an SAS be prosecuted for misuse of corporate assets?

Yes. Article L244-1 of the Commercial Code makes the criminal provisions applicable to sociétés anonymes, including Article L242-6, applicable to the president and directors of an SAS. Typical cases are private expenses paid by the company, the fictitious employment of a relative or unbalanced agreements with another entity of the director. The statutory flexibility of the SAS does not remove this protection, which is a matter of public policy.

What is the difference between misuse of corporate assets and a management error?

A management error is a clumsy or imprudent decision, taken in good faith in the company's interest, which engages only the director's civil liability. Misuse of corporate assets presupposes a use contrary to the corporate interest, for personal purposes, committed in bad faith. The difference lies in the purpose of the act and in intent, not in the scale of the loss.

What are the penalties for misuse of corporate assets?

The offence is punished by five years' imprisonment and a fine of €375,000 under Article L242-6 of the Commercial Code. Additional penalties may be added, notably a ban on managing and publication of the decision. On the civil side, the director must return the sums diverted and compensate the company, and third parties who profited from the funds may be prosecuted for handling stolen goods.

Within what time limit must action be taken against misuse of corporate assets?

The limitation period for public prosecution is six years since the Law of 27 February 2017. For ABS, which is often concealed, the starting point is postponed to the day the facts appeared and could be established, within a long-stop period of twelve years from their commission, provided for by Article 9-1 of the Code of Criminal Procedure.

How can a shareholder prove misuse of corporate assets?

Proof rests on accounting and banking material: general ledger, the company's statements, expense claims, suspect contracts and minutes of meetings. The management expert appraisal, provided for by Articles L223-37 and L225-231 of the Commercial Code, allows transactions to be analysed by an expert appointed by the court. The statutory auditor's report usefully complements this file, bad faith being established by a body of indications rather than by an admission.