Summary
The question of whether a Shareholders’ Agreement or side letter supersedes a company constitution remains unresolved in Mauritius due to the absence of local case law. However, a French Cour de Cassation decision of 12 October 2022 sheds light on the matter, underscoring the importance of constitutionally compliant agreements. While awaiting future local rulings on this matter, legal practitioners should be diligent in crafting SHAs and side letters, ensuring alignment with the constitution to mitigate potential conflicts and uncertainties.
Introduction
Both the Shareholders’ Agreement (SHA) and the company constitution play pivotal roles in shaping the governance and operations of businesses. In Mauritius, legal professionals have been engaged in a debate over which document should prevail in the event of inconsistencies between the two. While some hold the opinion that SHA provisions should take precedence and the constitution should be amended accordingly, others argue that the constitution, being the institutional document of the company, should be paramount, and the SHA should not contain conflicting provisions. As of date, there is no case-law in Mauritius to definitively settle the matter. However, the decision of French Cour de Cassation provides valuable insight into this issue.
Arrêt n° 596 F-B du 12 octobre 2022 Pourvoi n° D 21-15.382
In this case, the Statuts (equivalent to the constitution in Mauritius) of a Société par Actions Simplifiée (SAS) stated that the Managing Director could be dismissed without cause by a shareholders’ collective decision or a decision of the sole shareholder, without any entitlement to compensation. Nevertheless, the Managing Director of the SAS having dismissed, invoked Article 1103 (previously Article 1134) of the French Civil Code, and sought compensation based on a side letter ratified by a decision of the sole shareholder, which granted compensation equivalent to 6 months gross salary in the event of dismissal without cause.
The Cour de Cassation rejected the Managing Director’s claim and upheld the decision of the Cour d’Appel, asserting that Article L227-5 of the French Code de Commerce dictates that “Les statuts fixent les conditions dans lesquelles la société est dirigée”, encompassing the revocation of the Managing Director. The Court further emphasized that : “Si les actes extra-statutaires peuvent compléter les statuts, ils ne peuvent y déroger”.
Implications for Mauritius
Although this French decision is not binding in Mauritius, it may serve as a persuasive precedent. In light of this case law, legal practitioners in Mauritius should exercise prudence when drafting SHAs or side letters and consider the constitution’s sanctity during the amendment process.