PACTE Law - Three practical innovations on preference actions

Law n ° 2019-486 of May 22, 2019 relating to the growth and transformation of companies known as the “Pacte Law” has, among other novelties, modified certain characteristics of the preference share regime. In particular, the following modifications likely to have an immediate practical impact should be noted:

 

• Multiple voting rights. [1]  The Pacte Law removes the principle of proportionality of voting rights in unlisted joint-stock companies, thus authorizing them to issue preferred shares with multiple voting rights. While until now, the law only authorized in SAs and SCAs the suppression of voting rights, single voting rights or, under certain conditions, double voting rights, it is now possible to issue shares. preferably whose preference (positive or negative) will be (alone or not) the provision of multiple voting rights. The issue of preference shares with half voting rights, triple, tenfold voting rights, etc. is therefore now a tool available to all unlisted joint-stock companies. In particular, they may use it to confer strong political rights on certain shareholders while limiting their dilution to capital.

 

• Preferential subscription right (DPS). [2] All preference shares with a limited right to dividends, reserves or liquidation (negative financial preference) are now, unless otherwise stipulated in the articles of association, deprived of DPS. Until now, this removal of the preferential subscription rights was reserved only for preference shares with such a negative financial preference and deprived of voting rights. This extension constitutes a relaxation likely to put an end to incongruous situations and to facilitate the structuring of fundraising operations. It will allow the preferred actions in question to be better calibrated to the situation of the issuer and to investor requests without having to remove the voting rights of the shares meeting a particular need and not necessarily justifying the provision of a preferential subscription right.

 

• Redeemable preference shares. [3] Companies may issue redeemable preference shares, the terms of redemption of which are freely governed by their articles of association. While until now, the law only authorized the issuance of shares redeemable at the option of the issuer, in unlisted companies, the redemption option can now be stipulated, on the one hand, in companies listed on a regulated market, for the benefit of the issuer, alone or jointly with the bearer and, on the other hand, in companies not listed on a regulated market, in the hands of the bearer, the issuer, or both, separately, jointly or alternately. The terms of the option (holders, window, terms, etc.) must however be organized prior to subscription and mentioned in the articles of association of the issuer. French law thus revives the case law prior to order n ° 2014-863 of July 31, 2014 and joins the practice in force in the majority of European States.

 

The Pacte law therefore does not revolutionize preference actions.. She brings some relaxation demanded by practice and enshrines the primacy of SAS in operations with complex capital structure. Thus, multiple voting rights, already eligible for preference shares issued by SAS, also become eligible for other joint stock companies (SA and SCA).

The great novelty, however, remains the liberalization of the regime of redeemable preference shares which is harmonized with European practice. In unlisted companies, the buyback option can now be freely constructed according to the requirements of the operations carried out. Obviously it In practice, it will be necessary to condition the exercise of this option by the holder of the preferred share, in particular pto prevent the latter from exercising it to the detriment of the company's performance and, more generally, the social interest.

To go further on preferred actions, see François Devedjian, Fabienne Kerebel and Jean-Jacques Daigre, Convertible preference shares, Practical Acts & Engineering n ° 161, sept.-oct. 2018, LexisNexis.

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[1] Article L. 228-11 of the French Commercial Code.

[2] Article L. 228-11, paragraph 5 of the Commercial Code.

[3] Article L. 228-12, III, 4 ° of the French Commercial Code.