What factors should be considered in determining whether a management decision constitutes an act of mismanagement during the renegotiation of a better fortune clause?
A company had waived the advances on its checking account that had been granted to its manager. This waiver was subject to a clause providing for repayment in the event of improved financial circumstances.
The company was subsequently acquired by another company, which dissolved its now-subsidiary without liquidation. The better fortune clause was then renegotiated and was now more favorable to the former manager.
The company subsequently issued refunds in accordance with the new clause.
Following a tax audit,administration that the relaxation of the better fortune clause and the resulting refunds constituted an abnormal business decision and challenged their deductibility.
In order to define an abnormal management decision,administration determined that:
the subsidiary's financial situation would have been difficult because it had taken out a loan
The acquisition of the company did not require a renegotiation of the clause
the business of the acquired company had been taken over by a new company headed by the manager's daughter
The assessment had been upheld by the Administrative Court of Appeals.
The Conseil d'Etat rule that neither the creation of the new company nor the need to take out a loan is relevant to assessing the company’s interest in renegotiating the better fortunes clause, as the Court had specifically held.
The Council will also note that, contrary to the Administrative Court of Appeal’s ruling, the figures presented—which were not contested byadministration the value of acquiring the company, as well as the fact that a financial partner had taken into account off-balance-sheet commitments, including, in particular, the better-fortune clause.
The Council thus sets aside the judgment of the Administrative Court of Appeal and remands the case to that court.
EC, 9th Chamber, Dec. 10, 2025, No. 497671, unpublished
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