Crises and Difficulties in SAS: Prevention, Management, and Resolution

Like any business, a Société par Actions Simplifiée (SAS) can face crises that threaten its governance, its financial health, or even its survival. Internal conflicts, deadlock between shareholders, management failures, or external financial pressures can all disrupt operations.

The SAS is, however, better equipped than many other corporate forms to anticipate and manage crises. Thanks to its flexible bylaws, it allows tailored governance mechanisms and preventive measures. When those fail, French law also provides judicial tools to resolve crises and protect the company’s future.

This article examines how crises arise in an SAS, the internal and external mechanisms available to prevent or resolve them, and the consequences when judicial intervention becomes unavoidable.

1. Internal Crises and Deadlocks: Causes and Resolution Mechanisms

1.1 Management Crisis: Vacancy, Mismanagement, or Conflict

Leadership crises are a common source of instability in an SAS. These can arise from:

• Vacancy of office (death, resignation, or disqualification from managing).

• Mismanagement or failure to act (e.g., refusing to convene a meeting).

• Conflicts between leaders, especially when each represents different shareholder blocs.

Bylaw solutions. Well-drafted bylaws can provide for continuity—for example, automatic appointment of a vice-president or deputy general manager if the president is unable to act. They may also grant certain shareholders or committees the right to convene meetings if the president fails to do so within a defined timeframe.

Judicial remedies. If the bylaws are silent, courts can intervene. The president of the commercial court may appoint an ad hoc representative to convene a meeting. In extreme cases, the court may appoint a temporary administrator if normal functioning is at imminent risk.

Group-related conflicts. In SAS structures formed between corporate groups, conflicts between executives may paralyze operations. Here, escalation clauses can help: disputes may be referred to higher group management or to an internal conciliation committee empowered to issue non-binding recommendations.

1.2 Shareholder Deadlocks: Voting Stalemates and Conciliation

Deadlocks often occur when required majorities for certain shareholder decisions cannot be reached. This may stem from conflicting interests or strategic blocking.

Case law clarifies that blocking minorities are not abusive per se (Cass. com., 4 Dec. 2012, Compagnie du vent). Abuse arises only when voting rights are exercised in bad faith or against the corporate interest.

Preventive clauses. The bylaws may include:

• Mandatory conciliation procedures before litigation.

• Buy-or-sell clauses, obliging one shareholder to either sell their shares or buy out the other’s.

• Preemption or withdrawal rights, providing orderly exit options.

Court-appointed representative. In exceptional cases, a court may appoint a representative solely to exercise specific blocked decision-making powers, but only as a last resort to avoid confusion with a de facto manager.

1.3 Appointment of a Temporary Administrator

Courts may appoint a temporary administrator when the SAS’s normal functioning is seriously compromised and there is an imminent threat to its survival. This remedy remains rare, as courts prefer internal or lighter solutions unless the crisis is acute.

1.4 Management Audits (Expertise de gestion)

Even minority shareholders may request a management audit (expertise de gestion) to investigate specific facts that jeopardize the company’s interest. The court does not assess the wisdom of business choices but verifies whether the request is legitimate.

2. Preventing Financial Difficulties

2.1 Loss of Half of Share Capital

If losses reduce net equity below half of the company’s share capital, Article L. 225-248 of the Commercial Code requires shareholders to decide within four months whether to continue operations.

Failing to act exposes the company and its directors to liability.

2.2 Auditor’s Early Warning Procedure

If the SAS has a statutory auditor, Article L. 234-2 of the Commercial Code triggers a formal warning procedure:

1. The auditor alerts management of financial concerns.

2. Management must respond within 15 days.

3. The response is communicated to the works council (CSE) and the court.

4. If no satisfactory response is given, a shareholder meeting must be convened.

This process is stricter for the SAS than for the SA, which some view as a relative weakness.

2.3 Alerts by Works Council or Court

The works council (CSE) may also issue an alert (Article L. 2312-63 of the Labour Code). Likewise, the president of the commercial court may open an alert procedure on their own initiative (Article L. 611-2).

2.4 Internal Bylaw Alerts

Bylaws can strengthen internal controls by linking financial indicators (such as debt ratios, missed payments, or major disputes) to mandatory alerts. A statutory auditor may be required to oversee these triggers.

3. Judicial Treatment of Difficulties: SAS Under Insolvency Proceedings

When difficulties escalate, SAS companies may resort to the full range of French collective proceedings: ad hoc mandate, conciliation, safeguard, reorganization (redressement judiciaire), or liquidation.

3.1 Applicable Procedures

• Mandat ad hoc and conciliation: confidential tools to negotiate with creditors.

• Safeguard (sauvegarde): available before insolvency, designed to restructure debt while continuing business.

• Reorganization: imposed once insolvency is established, with court supervision.

• Liquidation: last resort, where business cannot be saved.

These procedures apply to all commercial companies, SAS included.

3.2 Liability of Directors

SAS directors can face liability if their actions worsen insolvency:

• Liability for shortfall in assets (Article L. 651-2) if mismanagement contributed to insolvency.

• Personal bankruptcy or disqualification (Articles L. 653-4 et seq.).

• Bankruptcy offences (banqueroute, Article L. 654-2).

Courts may also target de facto directors or representatives of corporate shareholders acting as directors.

3.3 Non-Transferability and Forced Sale of Shares

From the opening of reorganization proceedings, directors’ shares become non-transferable (Article L. 631-10).

The court may also impose a forced sale of shares (Article L. 653-9) to third parties participating in the recovery plan, with the price determined by an independent expert.

3.4 Capital Reorganization: Dilution and Exclusion of Shareholders

For companies with over 150 employees, the court may:

• Order a capital increase subscribed by third parties, diluting existing shareholders.

• Force the sale of dissenting shareholders’ shares (Article L. 631-19-2).

In such cases, bylaw clauses restricting transfers (e.g., approval or preemption clauses) cannot block the transaction. Shareholders may, however, require that all of their shares be bought out if partial exits are imposed.

3.5 Conflicts Between Bylaws and Judicial Plans

Clauses in the bylaws—such as inalienability or preemption rights—are set aside during a court-ordered recovery plan (Articles L. 631-19 et seq.). This does not apply to safeguard proceedings, unless explicitly provided by law.

Conclusion

The SAS combines contractual flexibility with access to the same judicial protections as other commercial companies. This makes it particularly well-suited to navigating crises.

• Internally, well-drafted bylaws can prevent leadership vacuums, shareholder deadlocks, and destructive conflicts.

• Financially, alert mechanisms—whether legal, auditor-driven, or internal—allow early detection of risks.

• Judicially, the SAS can benefit from the full spectrum of insolvency proceedings, though these come with consequences such as shareholder dilution, forced transfers, or loss of bylaw protections.

Ultimately, the resilience of an SAS in times of crisis depends largely on how carefully its bylaws are drafted and how responsibly its shareholders and directors exercise their powers. Anticipation and transparency are the keys to avoiding judicial intervention and safeguarding the long-term survival of the business.