France’s highest court for commercial disputes has recognized abuse of power by a company’s board of directors as a new legal basis for voiding corporate decisions. The Cour de Cassation issued the ruling on November 26, 2025. While it did not overturn the specific decision in question, the judgment creates a precedent that may change how corporate governance is examined in the country.
Board’s casino exit sparks legal challenge
The dispute involved a publicly traded French casino operator that owned both its buildings and the gambling license. As the public service delegation agreement approached its end, the board worried the real estate could be reclassified as public-domain assets, removing the company’s ownership rights. To protect the buildings, the board decided against renewing the casino license. Instead, it leased the premises to a newly formed sister company controlled by the majority shareholder, which then obtained the new gambling contract from the municipality.
Minority shareholders filed a lawsuit, arguing the decision transferred a profitable business line to an entity controlled by the majority shareholder. They claimed the move violated corporate interests and constituted an abuse of power. The court rejected the argument, finding the restructuring preserved a strategic asset and did not damage the company’s overall interests.
Two conditions for abuse of power
The court established a two-part test for abuse of power: a board decision must be against the company’s interests and made solely for the benefit of directors or specific individuals, such as shareholders. This mirrors the existing doctrine of abuse of majority power but applies it to board decisions rather than shareholder votes.
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The court evaluates abuse based on the circumstances at the time the decision was made, not its later outcomes. This prevents later events from influencing whether a decision was abusive.
Precedent extends beyond public companies
Though the case involved a société anonyme, the court’s broad language suggests the ruling could apply more widely. The scope of the ruling extends beyond the mere board of directors of the French société anonyme. The broadened reach of the abuse-of-power doctrine therefore calls for heightened vigilance from corporate managers and their advisers, including where decision-making rules are governed by shareholder agreements or voting agreements.
Judges remain cautious
Courts have traditionally been reluctant to invalidate corporate decisions. Claims of abuse of majority power rarely succeed, and the standard for abuse of power appears similarly strict. In this case, the board’s decision clearly benefited the controlling shareholder, yet the court ruled it did not harm the company’s interests, as it preserved ownership of the casino buildings.
This caution reflects a broader judicial hesitation to interfere in corporate matters. While the ruling sets a precedent, its practical impact will depend on how lower courts apply it. One unresolved issue is how judges will calculate majorities when boards include independent directors or employee representatives. The court’s approach of counting one vote per director could make it harder to determine whether a decision truly served a narrow interest.
If a board includes both insiders and outsiders, assessing whose interests prevailed may require closer examination. The ruling acknowledges these complexities but does not resolve them.
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New legal risks under recent reforms
The decision comes as France updates its rules on corporate nullity. Order No. 2025-229, enacted in March 2025, introduced a “triple test” for voiding decisions. Judges must now consider whether invalidating a decision would disproportionately harm the company’s interests at the time of the ruling. This creates a dilemma: if a decision was abusive when made, could a judge refuse to void it later if doing so would destabilize the company?
The reform also allows judges to limit the ripple effects of invalidating a decision. If a board resolution is voided for abuse of power, a judge might preserve downstream contracts or transactions tied to it. The stakes for directors have increased, as recording risks and other legal challenges grow more complex.
The court’s message is direct: corporate decisions must prioritize the company’s interests above all else. Whether this precedent will lead to more challenges or simply make directors more cautious remains uncertain. For now, the ruling serves as a warning that the corporate veil does not protect decisions made for personal gain, even if they follow shareholder agreements or formal procedures.
A legal scholar commented in a case analysis that the decision “confirms that directors’ powers are not unlimited.” How far courts will go in enforcing this principle is still unclear.
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