When the provision of a liability guarantee constitutes an irregular act of management

A partner in a law firm had transferred his shares in a SCP to an SAS in which he and his wife were shareholders in 2010. Two months later, the SAS transferred the shares back to the SCP, including a commitment to provide a liability guarantee with no conditions regarding the amount or duration.

The liability guarantee specifically covered a claim for back rent made against the SCP following a dispute over the validity of a notice of termination served on the landlord.

Following a ruling by the Court of Cassation and a settlement agreement under which the SCP agreed to pay the back rent, the liability guarantee was triggered, and the SAS compensated the SCP.

The SAS then deducted the amount paid.

Following a tax audit,administration that this payment constituted an irregular business transaction. They found that the SAS had no reason to provide a liability guarantee to the SCP, given that it had acquired the securities in question only two months prior to their sale and that the SAS was not liable for the rent debt.

The SAS argued that it was urgent for the attorney to leave the firm to set up his own practice, which offered the prospect of substantial earnings. Furthermore, the risk associated with the liability guarantee would have been very limited, as a legal consultation regarding the dispute would demonstrate.

The Administrative Court of Appeal, in ruling on the validity of the tax assessment, noted, however, that the evidence presented did not demonstrate the existence of prospects for significant profits, and further noted that the SAS failed to explain why the actual profits were significantly lower than the estimated amounts.

On the issue of the risk associated with the litigation, the Court will conclude, after analyzing the legal arguments regarding it, that the legal risk "could not be considered low as of the date the liability guarantee was granted."

Finally, the Court notes that SAS does not explain why it acquired the shares in SCP from the attorney without a liability guarantee, only to agree, two months later, to sell those shares while providing such a guarantee.

The tax assessment is therefore confirmed.

CAA Paris, Jan. 7, 2026, No. 24PA02170

This legal watch provided by Mispelon Avocat, a law firm specializing in French tax audit and French tax litigation. You can stay legal watch subscribing to the newsletter via this link.