COVID-19 - Dividends and share buyback in France

The information below are subject to change depending on the publication of decrees/ordinances and new announcements by the French government.

The French Ministry of Finance and Economy called, since the 24 March 2020, all companies, especially the large cap companies, to be exemplary in terms of moderation for dividends payment; price increases; respecting suppliers’ payment terms. On 2 April 2020, clarifications were made by the French government with respect to restrictions on dividends payments, it being understood that following the ECB’s recommendations, the French ACPR has asked to the French financial institutions not to distribute dividends irrespective of having benefited governmental measure or not it being understood that this is meant to entice them to direct their liquidity to lending to the corporates.

Prohibition material scope

Large-cap companies having benefited from postponement of tax and social charges payments or a French state guaranteed loan may not:

• pay dividends in 2020 to its French and foreign shareholders; and
• perform shares buyback in 2020.

Who is affected?

Large-cap independent or group companies which for the last financial year:

• employed at least 5,000 employees; or
• consolidated turnover was greater than €1.5bn in France.

Special note as regards to group companies: this commitment covers all the French entities and subsidiaries of the group on a consolidated basis (even if not all of them benefit from cash support measures).

Special note as regards financial institutions: if a distribution is contemplated, it will be necessary to justify the reasons to the French regulator (ACPR) which will perform an ex-ante scrutiny.

Exclusions from scope of prohibition

Companies with a legal obligation to distribute a fraction of dividends during the year 2020 as per prior to COVID-19 pertinent governance enacted decisions.

To be noted: Prior voted dividend distributions, if not compatible with liquidity potential crisis outlook may be worth caution from boards and shareholders as even if voted prior to COVID- 19 emergency, should the distribution contributes to company or companies group continuity (12 months outlook) it may be worth revisiting.

What is covered by the notion of “dividends”?

• sums to be distributed following vote of the annual general meeting (including share distributions);
• other forms of distribution in cash or shares (as advances on dividends and exceptional distributions of reserves).

The following dividends distributions are still allowed:

• distribution of shares decided prior to the 27 March 2020;
• intercompany distributions when the purpose is to financially support a French company;
• distributions made by the group's foreign entities to French entities.

To be noted: distributions of shares related to a reorganisation of the group are not equivalent to a payment of dividends in the form of shares.

The following share buyback below are allowed:

• share buyback for distribution of shares to employees;
• share buyback intended for the execution of legal commitment prior to 27 March 2020;
• share buyback within the framework of liquidity contracts concluded prior to 27 March 2020 and not subsequently amended;
• share buyback supporting an external growth operation (if (i) it is necessary and (ii) the operation was legally committed by the company prior to 27 March 2020).

Consequences of non-compliance

• will not benefit from the State's guarantee loan;
• late payment charges applicable in the event of non-payment of taxes and contributions (5% initial charge + 0.2% per month of delay);
• no agreement on extended tax payment deadlines and outstanding amounts payable immediately;
• from a general standpoint, there is a risk in the context of an ex-post control that any distribution be considered as a misuse of the governmental aids and that related sanctions may apply (eg. temporary unemployment plans, etc) as well as refund requests;
• reputational risks for companies and financial institutions which would benefit from the aids and distribute dividends in contradiction with ACPR and Government recommendations.

See our coronavirus (COVID-19) feature for more information generally on the possible legal implications of COVID-19.