Companies in difficulty: confidentiality of the conciliation procedure and the Ad Hoc mandate

Court of Cassation, Commercial Chamber, 5 October 2022, No. 21-13.108

As a matter of principle, any person who is called upon to participate in conciliation proceedings or who has knowledge of such proceedings by virtue of his or her duties is bound by confidentiality. It is therefore futile for a party to such a procedure to argue that this obligation applies only to third parties and not between members of the procedure.

I. The provisions of the Commercial Code: principle, limits and sanctions

1. An absolute principle

Article L.611-15 of the Commercial Code states that:

“Any person who is called to the conciliation procedure or to an ad hoc mandate or who, by virtue of his or her duties, has knowledge thereof is bound by confidentiality.

The confidentiality of these procedures for preventing business difficulties is strictly regulated.

2. Exceptions

The only exceptions are set out in Article R. 611-44 of the Commercial Code, which provides that :

“Subject to the proceedings initiated by the third party opposition mentioned in Article L. 611-10, and apart from the judicial authority, to whom the approved agreement and the expert report may be communicated pursuant to Article L. 621-1, the agreement may only be communicated to the parties and to the persons who can rely on it and the expert report only to the debtor and the conciliator. The agreement can only be communicated to the third party opponent once the third party opposition has been declared admissible.

The approved agreement shall be transmitted by the registrar to the debtor’s auditor.

The Court of Cassation has already ruled on the scope of the confidentiality obligation with regard to the persons who are bound by it, whether they are participants in the proceedings or third parties, in the sense of a strict application of Article L. 611-15 of the Commercial Code.

Indeed, while the confidentiality obligation originally concerned only the parties to the procedure, the Court of Cassation finally extended it to third parties (Com. 15 Dec. 2015, no. 14-11.500), considering that this obligation was absolutely essential for the success of a conciliation or ad hoc mandate procedure.

Adopting a broad approach, the Court of Cassation also considered that the principle of confidentiality had to be reconciled with the principle of freedom of the press, both absolute principles of equal value.

The high court thus considers that the principle of confidentiality may be limited in the event that the dissemination of information relating to a confidential procedure “contributes to the need to inform the public on a matter of general interest” (Com. 15 Dec. 2015, No. 14-11.500, supra).

3. Penalties

Although the sanction is not expressly provided for in Article L. 611-15 of the Commercial Code, breaching the confidentiality obligation entails several consequences.

The first is the withdrawal of contentious documents produced in violation of this principle of confidentiality.

The second sanction lies in the civil liability of the person who has violated it, and therefore in the payment of damages if the violation causes harm.

II. Confidentiality of conciliation is required in a dispute between conciliating parties

1. The facts

In this case, a bank granted a credit line of €350,000 and a loan of €800,000 to a company, for which its director stood surety.

Subsequently, the company benefits from a conciliation procedure which ends with the signing of a memorandum of understanding, approved by the commercial court.

This protocol provides in particular for the creation of new guarantees for the benefit of the lending bank, including the conclusion of new guarantee commitments by the manager.

This agreement is not finally executed to its full term.

A new conciliation procedure was then opened, this time without success. A receivership procedure is then opened, which is then converted into a judicial liquidation.

The bank filed its claim as a liability of the company and then, following its admission by the official receiver, sued the manager – joint and several guarantor – for payment.

In order to oppose this claim and request that the bank be ordered to pay damages, the manager argues that the bank was at fault during the second conciliation procedure.

In support of this misconduct, the manager produced e-mails exchanged between the bank and the conciliator – of which he was a copy during the second conciliation procedure.

Pursuant to Article L. 611-15 of the Commercial Code, the Toulouse Court of Appeal dismissed the manager’s claims after disregarding all the documents relating to the conciliation procedure that he had produced, including the above-mentioned email exchanges.

The manager then appealed to the Court of Cassation on the grounds that :

(i) the confidentiality obligation in conciliation proceedings applies only to third parties and not between the parties to such proceedings;

(ii) as a party to the conciliation proceedings and recipient of the exchanges produced, the latter could not be confidential in relation to it;

(iii) the documents relating to the conciliation were essential to the exercise of his right to evidence and proportionate to the interests at stake. Thus, by excluding them from the debate, the Court of Appeal deprived him of his right to a fair trial, as laid down in Article 6 of the European Convention for the protection of human rights and fundamental freedoms.

2. L’avis de la Cour de Cassation

The Court of Cassation dismisses the last two arguments mentioned above, and concentrates its argument on the first.

First, it recalls the letter of the provisions of Article L. 611-15 of the Commercial Code.

Indeed, contrary to what the manager argued, this article makes no distinction between the parties to the ad hoc mandate or conciliation procedure on the one hand, and third parties on the other, since it refers to any person who is called to it.

The parties to the conciliation are therefore necessarily concerned by the obligation of confidentiality, including among themselves.

In this decision, the Court of Cassation therefore confirms the decision of the trial judges to disregard certain documents produced in the debates that were in breach of the obligation of confidentiality.

This decision further reaffirms the absolute nature of the confidentiality obligation, which must be respected both during and after the ad hoc mandate or conciliation procedure.

This solution is all the more understandable given that the attractiveness of the procedures for dealing with difficulties (ad hoc mandate and conciliation) depends essentially on their confidentiality. It reassures the head of the company, the partners and creditors of the company in difficulty who do not necessarily wish to communicate on the difficulties encountered and the efforts made towards the debtor.

In conclusion, confidentiality undeniably contributes to the serenity of discussions in this type of procedure. It is therefore natural that the Court of Cassation should limit as far as possible the rules derogating from this essential principle.