During the Metaleurop
case, Law 2003-699 of 30 July 2003, known as the "Bachelot Law",
tried to resolve the problem of abandoned polluted sites, but the government
authorities' inability to prevent company bankruptcies continued to feed the
public sentiment that offenders were getting off scot-free. The Grenelle Environmental
Forum (Grenelle de l’Environnement) marks
an additional step towards "eco-liability" of parent companies
and, through them, that of the group concerned. Indeed, the "Grenelle 2" Law 2010-788 of 12
July 2010 explicitly recognises, for the first time in French law, the
possibility of transferring to parent companies the rehabilitation duty in
relation to the pollution caused by the activities of their insolvent subsidiaries.
The idea of holding a
parent company liable for the acts of its subsidiary, or even of personifying
the group as a whole, is not new. But the principle of the legal autonomy of corporations precludes the
possibility of compelling a parent company to assume the obligations of its failing subsidiary, and is
protected by the courts which strictly uphold it.
As far as environmental obligations are
concerned, this situation led to abuses that were all the more shocking for the
public in that the bankrupt subsidiaries concerned were controlled by parent
companies or groups that were perfectly solvent, whereas the rehabilitation obligation
was limited in substance and duration. In the case of sites that were subject
to the authorisation regime and that ceased operations before 1 October 2005 (Env.
Code, art. R. 512-39-5), rehabilitation is limited to an industrial use. The
same solution was recently applied to sites subject to the declaratory regime (Env.
Code, art. R. 512-66-1-III). Since the important Alusuisse-Lonza France ruling returned by the Council of State on 8
July 2005 (CE, 8 juill. 2005, n° 247976), the duration of the obligation is
limited to 30 years from the date on which the cessation of activities was declared
to the authorities. Given this context, a reform of the industrial site
rehabilitation regime that took account of company insolvency was inevitable.
Initially put forward in a Resolution of the
Institute of International Law, the principle of parent company liability in
environmental matters was established by the French legislator as an objective
to be attained, with the aim of bringing it to the European level within the
framework of the "Grenelle 1" Law of 3 August 2009.
The "Grenelle 2" Law 2010-788 of 12
July 2010 (Articles 90 and 227) enshrined in French law the notion of
environmental liability of parent and grandparent companies for the insolvency
of their subsidiaries.
In fact, the "Grenelle 2" Law
reinstates article L. 512-17 of the Environmental Code which lays down a
principle of parent company liability for its subsidiaries in relation to the rehabilitation
of classified installations. Operators of classified installations are required
to rehabilitate their sites if activities are discontinued. However, if the operator
no longer exists or is insolvent, rehabilitation cannot take place, and the
site will be abandoned even though its level of contamination may be harmful to
the environment or to human health. These sites pose major redevelopment
problems owing to the sometimes exorbitant costs of the environmental debt left
to the future "acquirers", or even to the whole community.
Although it is clear that the "Grenelle 2"
Law does not establish a general principle of environmental liability on the
part of the parent company for the acts of its subsidiary, it nonetheless
constitutes a significant development in French law in this area.
More ground is broken by article 90 of the
Grenelle 2 Law relative to the new wind farm regime, which is now subject to
the legislation on classified installations. Pursuant to its new wording, article
L. 553-3 of the Environmental Code transfers in theory to parent companies the liability
for rehabilitation in case of operator failure. The legislative text does not
define the notion of parent company, nor that of failure, which suggests that
the legislator did not intend to limit the mechanism to companies placed in
compulsory liquidation, as is the case with article L. 512-17 referred to
Beyond the obvious reasons of opportuneness
which may explain this inequality of treatment, one may limit oneself to
observe that a new law of the liability of parent companies in relation to rehabilitation
has emerged in France.
Following a review of the practical difficulties
raised by the former law (I.), the challenges posed by the new mechanism for
transferring the rehabilitation obligation arising from article L 512-17 of the
Environmental Code will be addressed (II.).
I. - practical Difficulties relatING to the PREVIOUS
rehabilitation obligation REGIME FOR JUSTIFYING A GOVERNMENT action with regard
to parent companies
It is now acknowledged
that the "operator" is the sole legal subject as far as classified
installations are concerned. Ignoring, on
principle, the private law ties between companies, this concept alone does not
allow parent companies to be held liable (A.), and, at the same time, the government
is confronted by other practical difficulties relating to rehabilitation control
A. - Limits of the notion of operator when
seeking persons responsible for the rehabilitation of polluted sites and land
Under the law of classified installations, the "operator"
alone is subject to the rehabilitation obligations. But the operator is traditionally
defined by means of a material criterion relating to the operator's attachment
to the activity (operational but not economic control) which, in theory, precludes
any attempt to hold parent companies liable.
Notwithstanding constructive jurisprudential developments,
the concept of operator comes up against a concept of economic control, which
it does not take into account, with the result that parent companies and company
groups cannot be compelled by the government to assume the financial cost of rehabilitation
(CAA, Paris, 17 oct. 2003, n° 99PA03797, Société Fayolles et fils, Env.
2004, comm. 8, note Trouilly P.; Env. 2004, CCT 12, II,
Deharbe D. ; RDI 2004, p. 433, comm. Trébulle F.- G0.). This represents a dead
end for the administration, which has no choice but to turn to the liquidator,
but the latter is often helpless when faced with a multitude of creditors.
For his part, the judge
in the "Metaleurop
Nord" case dismissed, citing the principle of corporate autonomy, the "extension
of proceedings" action whereby the search for liability moves up vertically
towards the parent company by the effect of the pooling of assets and
liabilities (Cass. Com, 19 avr. 2005, n° 05-10.094, Bull. Civ. IV, n° 92 ;
D. 2005, p. 216, obs. Lienhard A.; JCP E, n° 20, p. 796, note Rolland
B. ; JCP G, 2005, II, 10088, note Bouru O., Menjucq M.).
Similarly, in the Montchanin Landfill case, the
Court of Cassation found that the shareholder could not be held liable insofar
as it had not committed a fault, and considered that "a parent company is not obliged to finance its subsidiary to
allow the latter to fulfil its obligations even if that subsidiary is
responsible for a public service which could constitute a risk for the general public"
(Cass. Com., 26 mars 2008, n° 07-11.619 ; Env., août 2009, n° 8, chron. 2, Trébulle F.- G., n° 19 ; Act.
Proc. Coll. 2008, comm. 231, note Fraimout J.-J; Rev. proc. coll., 2009,
n° 6, comm. 183, Ruffié J.- Ph).
B. - Other practical difficulties arising from
the rehabilitation regime
Other difficulties revolve around the debate on
the concept of operator. The government is often too poorly informed or unqualified
to involve itself in the running of companies in order to anticipate problems,
and financial problems in particular.
Its control over operators' financial health is
limited, even if notable developments can be seen in the texts in recent years,
including via the mechanism of financial guarantees (Env. Code, art.
L. 516-1 et seq.; Env. Code,
art. R. 516-1 et seq.), which, in
practice, are rendered partially ineffective in certain cases where they would
have been particularly useful.
Other tools have led to progress, such as the
control of operators' technical and financial capabilities, which prefectural
authorities are required to exercise when examining every request for
authorisation, the obligation to update the site pollution status whenever
there is a significant change in the operating conditions of the most dangerous
installations (Env. Code, Article L. 512-18), or the shareholder information mechanism
in relation to the social and environmental consequences of listed companies contained
in article L. 225-102-1 of the Commercial Code. But the effectiveness of these
tools requires careful examination of each file by the authorities and relies,
above all, on limited structural capacities which make it impossible to closely
monitor operators over the life of the facility.
The administrative rehabilitation procedure can
take a long time to implement. If a site closes down suddenly owing to operator
bankruptcy, the outcome of the administrative procedure will be uncertain and,
in any event, will only be effective if the land is not vacated and if the
future use of the site is unknown.
The administration constantly has to reconcile conflicting
interests which do not facilitate its action, if only by the social and
economic consequences of each case. This is a significant factor, which can
prove as vital as the protection of the environment.
II.- New ISSUES IN RELATION TO PARENT COMPANY LIABILITY
ARISING from the new article L. 512-17 of the Environmental Code
Article L. 512-17 of the Environmental Code provides
for a case where parent companies are liable for their subsidiaries, the aim of
which is to reduce the practical difficulties of the administrative action. In
a new step, the legislator has established a new legal action under commercial
law in relation to the rehabilitation obligation, which supplements the sources
of the law of classified installations.
While respecting the principle of corporate
autonomy, the abovementioned article L. 512-17 provides for a new case of parent
company liability for its subsidiary (A.), whose practical application raises
some uncertainty (B.).
A. – Provision for a new case of parent
company liability for its subsidiary
Article L. 512-17 para. 1 of the Environmental
Code deriving from the law of 12 July 2010 states "where the operator is a
subsidiary within the meaning of article L. 233-1 of the Commercial Code and where
a compulsory liquidation procedure was opened or pronounced in its regard, the
liquidator, the public prosecutor or the representative of the State in the
department may petition the court that opened or pronounced the compulsory
liquidation to recognise the existence of an established fault committed by the
parent company which contributed to the subsidiary's insufficiency of assets requesting,
when such a fault is established, that the parent company be compelled to
partially or totally finance the measures to rehabilitate the site or sites when
This new case of liability, which is based on
the liability action against managers for insufficiency of assets contained in
article L. 651-2 of the Commercial Code, differs from liability actions under
ordinary law in its implementation and effects. Moreover, its scope is limited
to a transfer of the financial burden of the obligation to rehabilitate sites where
a classified installation was operated.
1) Prerequisites for
The first prerequisite for bringing the action concerns
the nature of the bond between the parent company and the operator. The parent
company must hold an equity interest in the operator of more than 50%. This relationship
of subordination, which is the strictest provided for in the Commercial Code,
constitutes an important limit of the liability mechanism.
The legislator, concerned with observing the
principle of corporate autonomy, did not wish to extend the action to cases
where the parent company merely holds an interest in or exercises a dominant
influence on the operator of the classified site.
The second condition relates to whether
compulsory liquidation proceedings have been opened or pronounced
against the subsidiary.
Consequently, if the operating company ceases
to exist following a voluntary liquidation procedure, the proceedings provided
for in article L. 512-17 of the Environmental Code cannot be implemented (Cass.
Com., 26 mars 2008, n° 07-11.619, cited above.).
Similarly, if the compulsory liquidation procedure
is closed owing to insufficiency of assets, it appears that the action contemplated
by article L. 512-17 of the Environmental Code does not allow to the compulsory
liquidation procedure to resume if it emerges that assets were not realised or
that actions in the interests of creditors were not initiated.
Concerning the parties entitled to bring the action,
article L. 512-17 of the Environmental Code introduces an action which may only
be initiated by the prefect, the public prosecutor or the liquidator. The prefectural
authority is thus attributed new power.
Since the action merely constitutes an option, as
far as the prefect is concerned, it will doubtless represent a solution to used
as a last resort.
On the procedural level, the action will be
heard in the commercial court that opened or pronounced the compulsory
liquidation in respect of the subsidiary. No limitation period is specified,
and the provisions of article L. 152-1 of the Environmental Code could apply,
which provide for a thirty year period in respect of "financial obligations relating to the remedying of damage to the
2) Components of the parent
In order for the parent company to be found
liable, the applicant must prove that a causal relationship existed between a fault
and the damage: in this case, an established fault that contributed to the
subsidiary's asset deficiency.
The notion of established fault, which stems
from a parliamentary compromise,
is not defined.
Insofar as it is a qualified fault, it is more
serious than a simple fault. Less serious than fraud, gross negligence,
inexcusable error or deliberate misconduct, it does not imply the intent to cause
In theory, a minor offence, simple carelessness
or negligence should not lead to liability on the part of the parent company.
On the other hand, a series of simple faults could be regarded as constituting an
established fault, as case law has held in relation to unintentional offences.
The common point with managers' liability for insufficiency
of assets is that the established fault merely has to have "contributed"
to the subsidiary's insufficiency of assets, with moreover no direct connection
being made by the text with the rehabilitation obligation. It is therefore not
necessary to prove that the established fault is the sole direct cause of the
insufficiency of assets.
The insufficiency of assets, which constitutes
the damage, corresponds to the fraction of debts not covered by company assets,
and the liabilities resulting from verified and permitted claims. Assets consist
of the proceeds of their realisation.
Inspired by the manager liability action, the
rules established by case law for this action should apply to the action of
article L. 512-17 of the Environmental Code. Thus, the insufficiency of assets
is evaluated on the day on which the court issues a ruling, and a provisional sentence
can be pronounced, to be adjusted when the total liabilities have been
In addition, still in connection with the liability
action against managers, the amount of the sentence is determined at the
sovereign discretion of the judge, who is not obliged to order full reparation
of the damage and can even decide not to pass sentence. Conversely, he can
order that the offender bear the entire asset deficiency, even if the fault
only caused part of the company debts. The amount of the sentence cannot,
however, exceed the asset insufficiency, which the judge must specify on the
day of judgement. Finally, when several management faults are recognised, the
judge must legally justify each of them.
These same capacities of the judge and their
limits could apply to the action provided for in article L. 512-17 of the Environmental
3) Result of the
The purpose of the action against the parent
company is for the latter to be held liable, not for all or part of the asset
insufficiency, nor even the entire environmental debt, but merely for all or
part of the financing of the measure to rehabilitate the sites operated by its subsidiary
when activities cease.
The assessment of the cost of rehabilitating
the site when activities cease, which is possible only when the cessation of
activities procedure ends, should lead the judges to issue, as with managers' liability,
If the parent company is found liable, it will
bear all or part of the financing of the site's rehabilitation. How the sums
paid in connection with this site rehabilitation are to be appropriated is
however not specified by article L. 512-17 of the Environmental Code.
A compensation mechanism is, moreover, provided
for if sums were consigned at the request of the prefectural authority, to
avoid exceeding the final cost of the rehabilitation work. The effectiveness of
this deduction is however related to the decision issued by the Court of
Cassation concerning the privileged character of the claim arising from the
consignment order, when it rules on this point.
Lastly, to prevent the creation of shell parent
companies intended to elude the mechanism, article L. 512-17 of the Environmental
Code provides for the possibility, in the event the liable parent company cannot
pay what it is ordered to pay, of suing, under the same conditions, the "grandparent"
company (of which it itself is a subsidiary).
B. - Practical uncertainties associated with
the implementation of the new mechanism
It is difficult to evaluate the scope of the
new mechanism that has not yet been tested in the commercial courts, but already,
several uncertainties about its practical application arise.
First of all, the prefectural authority, which
has a central role in connection with this new action, is not familiar with the
legal system and will not necessarily be informed of the situation of the
company operating the site.
Next, one of the major difficulties of the
procedure will be to evaluate the amount of the claim, which will depend to a
great extent on the future of the site as far as its use is concerned. The
quantum of the rehabilitation obligation
can only be determined at the end of the rehabilitation procedure, when the
future use of the site has been defined and the prefectural requirements established.
If the procedure is still at an early stage, the evaluation will be very
approximate and will only provide a partial financial solution. In any event,
no evaluation will be possible without a study by a specialised firm, whose
cost would then imply an additional provision, as the case may be.
In addition, questions arise about the
effectiveness of the mechanism if the parent company is constituted under a foreign
law, which the administration, and then the judge, will have to deal with.
Since the mechanism of article L. 512-17 of the
Environmental Code only targets parent companies holding a stake of at least
50% in a subsidiary, it will be very easy to circumvent.
The action of article L. 512-17 referred to
above does not prohibit the attempt to hold the parent company liable for the
asset insufficiency of the subsidiary operating the site, on the basis of
article L. 651-2 of the Commercial Code, on condition that it can be proved
that it acts as a manager with respect to its subsidiary. It is also possible
to request an extension of the collective insolvency proceedings opened against
the operator, on the basis of fictitiousness or the pooling of assets and
Given the difficulties with implementing these actions, one can however only be sceptical
as to the utility of these parallel routes.
In conclusion, there is no denying that the mechanism
introduced by article L. 512-17 of the Environmental Code is the result of a
compromise which proponents of "active ecology" may find too timid. The
safeguarding of the collective interests referred to in article L. 511-1 of the
Environmental Code (which include the environment and public health) will
undoubtedly prompt the commercial courts, which are not familiar with the subtleties
of the rehabilitation obligation regime in relation to the law of classified
installations, to find innovative solutions. For this reason, the intervention
of the administrative courts within the framework of preliminary questions could
prove invaluable, should the question of the legality of an administrative instrument
imposing rehabilitation measures arise.
The new mechanism created by article L. 512-17
of the Environmental Code, which is applicable immediately, is already having
an effect on company cessations and acquisitions and on the liability of
shareholders. It follows that the company that acquires the "target"
company will henceforth have to redouble its vigilance, monitoring the changing
contours of the rehabilitation obligation and its consequences on the reciprocal
contractual undertakings of each party. From this angle, the evaluation of the
risks taken by the acquirer will require an intimate knowledge of the rehabilitation
obligation at the legal, technical and financial levels.
All in all, rather than posing a genuine
immediate threat to industry groups, parent companies and their subsidiaries,
the new article L. 512-17 of the Environmental Code is nonetheless a strong
incentive for industrial players to act more responsibly in the management of