In a noteworthy (and long-awaited) set of case laws issued on July 10 2023, the Conseil d’Etat delivered four rulings on the shareholding and governance rules applicable to veterinary companies (Nos. 442911 and 452448), and on the terms and conditions under which veterinarian partners carry out their activities within such companies (“practising veterinarian partners”) (Nos. 448133 and 455961).
These rulings were issued in the context of divergent interpretations of the applicable regulations between, on the one hand, veterinarian clinic groups acting for market consolidation and, on the other hand, the veterinarian professional bodies (national and local veterinarian orders) concerning (i) the entry of non-professional investors (financial and industrial) into the capital of these veterinarian groups, (ii) the rules of governance of veterinary companies where non-professional investors are present and (iii) the organizational structure of groups of veterinary clinics, as a result of the consolidation trend seen in recent years, particularly with regard to the number of veterinarian partners and the number of professional practice sites.
This opposition has led to numerous administrative and disciplinary proceedings initiated by the order of veterinarians, leading to several veterinary companies belonging to groups being removed from the register and disciplinary measures against the veterinarian partners of such groups.
Although these four recent rulings all relate to veterinary companies governed by the provisions of the Rural and Maritime Fishing Code (RMFC) and the Service Directive 2006/123/EC of December 12 2006, the reasoning within the judgements passed by the Conseil d’Etat are also applicable to other regulated professions and, in particular, to healthcare professions (radiologists, ophthalmologists, dermatologists, etc.) for which regulations regarding shareholding, governance and prohibited shareholders are similar (see table below).
Four main observations arising from the Conseil d’Etat’s rulings of July 10 2023 concerning veterinary companies are likely to apply equally to healthcare professions.
The Conseil d’Etat has provided helpful clarification, both on the activities that qualify legal or natural persons as prohibited shareholders and on the types of holdings covered by the provisions on prohibited shareholders.
After noting that the provisions of article L. 241-17 of the RMFC regarding prohibited shareholders must be interpreted and applied strictly, the Conseil d’Etat ruled that:
- the ban of “direct or indirect” shareholdings in veterinary companies on certain people given the nature of their activities (subject to conflicts of interest) only applies to companies in the vertical chain of ownership above the practice company.
The notion of prohibited shareholders therefore does not include the sister companies (a fortiori distant in the organizational chart) of the veterinary companies. In other words, the fact that a company holds subsidiaries carrying out prohibited activities does not prevent that company from acquiring an interest in a veterinary company. A shareholder may therefore hold shares in a veterinary company and in another entity carrying on a prohibited activity as long as the latter entity does not hold, directly or indirectly, shares in the veterinary company.
- The provision by a non-professional shareholder of support services, in particular “management services, including accounting, financial, legal and administrative assistance, as well as marketing and price negotiation services […] cannot be regarded as “used in the course of the veterinary profession””, so that the provision of such services does not place a shareholder within the scope of prohibited shareholders (CE, 10 July 2023, Société Oncovet n° 452448).
For Healthcare Professions
The clarifications provided by the ConseiL d’Etat on the concept of prohibited activities and shareholders for veterinarians (based on the CRPM) are enlightening, and can no doubt be transposed to the healthcare professions, for which the Public Health Code provides for similar mechanisms. As with veterinarians, the provision of support services and administrative and financial assistance are not “related” to the exercise of professional activity within the meaning of the rules on prohibited shareholding.
On the other hand, the interpretation that the notion of prohibited shareholders only covers companies in the vertical chain of ownership of the practice company obviously does not apply to medical biology laboratory companies, for which article L. 6223-5 of the Public Health Code expressly targets as prohibited shareholders persons holding stakes in companies carrying out certain prohibited activities.
According to the Conseil d’Etat, the legal obligation on veterinarians “practicing within the company” to hold more than half of the capital and voting rights “means that they must effectively control the company”, thus guaranteeing “the independence of veterinarians with regard to any commercial imperatives that may be imposed on them” (CE, 10 July 2023, Anicura AB, n° 442911).
It follows that the holding of an absolute majority of voting rights by the practising veterinarian partners amounts to a simple presumption of effective control, which may be rebutted in the presence of specific stipulations in the articles of association or any extra-statutory act which, in the context of an in concreto assessment, would render ineffective “the guarantees provided by the provisions of 1° of II of Article L. 241-17 of the French Rural and Maritime Fishing Code” (CE, 10 July 2023, Anicura AB, n° 442911).
For Healthcare Professions
The rule on the holding of more than 50 % of the voting rights of the company by professionals practicing within said company applies, under the same terms and conditions, to healthcare companies. It is therefore very likely that the Conseil d’Etat will also require that practising healthcare professionals hold the effective control of healthcare companies.
In order to rebut the simple presumption of “effective control” resulting from the holding of an absolute majority of voting rights by the veterinarian partners practicing within the company, the Conseil d’Etat uses the “group of evidence” approach to check that the statutory and extra-statutory provisions, taken as a whole, do not result in “the veterinarians, despite holding a majority of the capital and voting rights, not being in a position to effectively control the company”. (CE, July 10 2023, Société Oncovet n° 452448).
In its rulings on July 10 2023, the Conseil d’Etat referred to the following evidence:
- The qualified majority and quorum rules for shareholders’ meetings, which, given the distribution of share capital and voting rights, mean that no decision can be adopted without the approval of the non-professional shareholder[s]. The Conseil d’Etat gives the example of a two-thirds majority rule for the adoption of decisions at the shareholders’ meeting of a practice company in which 49.9% of the voting rights are held by [a] non-professional shareholder[s].
- Voting agreements by which the practising veterinarian partners undertake in advance to vote in a manner determined by the non-professional shareholder[s], in particular regarding the entry or exclusion of professional shareholders or the distribution of dividends.
- Unilateral undertakings to sell in which the veterinarian partners undertake to sell their shares to the non-professional shareholder[s], these promises being exercisable at any time by the non-professional shareholder[s], with the latter being responsible for designating the veterinarian[s] who will take their place on the date on which said undertakings are exercised.
- The rules governing the composition, appointment and power of the company’s management bodies and committees. For the Conseil d’Etat, the existence of a supervisory committee of three members, two of whom are appointed by the investor[s] and responsible for approving draft resolutions prior to their submission to the general meeting, is an indication of the absence of effective control by the veterinarian partners. Therefore, to ensure the effective control by the practising veterinarian partners, the latter must appoint at least the majority of the members of the management bodies (strategy committee, supervisory board or others).
For Healthcare Professions
Given that healthcare private practice companies must also be subject to the effective control of the practising professionals, the Conseil d’Etat could follow the same analysis and use the group of evidence approach to ensure the effective control of a private practice company by the practising doctors partners.
Although mentioned in the list of evidence, any decoupling between the capital/voting rights and economic rights does not in itself appear to constitute an indication of the absence of effective control. On the other hand, allocating the majority (or even the essential part) of the economic rights to [a] non-professional shareholder[s] makes it all the more serious, in terms of its effects, that the practising shareholders do not have effective control over the company.
In this respect, the Conseil d’Etat did not reconsider its own ruling on the decoupling between the capital/voting rights and economic rights, as set out in two rulings handed down on December 2 2019, one of which concerned a veterinary practice company (no. 410693).
In this ruling the Conseil d’Etat considered that the existence of preferred shares granting to the non-professional shareholder a preferential financial right entitling the latter to receive most of the company’s profits complies with the ethical rules of the profession. To reach this conclusion, the Conseil d’État considered that the veterinarian shareholders still held the majority of the voting rights and therefore retained control over the decision as to whether or not to distribute dividends.
The distribution of profits to a non-professional shareholder must therefore remain subject to the prior agreement of the veterinary shareholders, which ensures a reasonable balance of power and the independence of the latter.
For Healthcare Professions
The Conseil d’Etat has also acknowledged the ability to provide for the decoupling between ownership of capital/voting rights and economic rights for a private practice company operating a private medical biology laboratory (CE, December 2 2019, no. 404973).
Three further observations are worth mentioning.
Firstly, although not mentioned by the Conseil d’Etat in its rulings of July 10 2023, the requirement for the veterinary partners to have effective control over the company hinders the conclusion of a cash management agreement (or cash pooling) with the non-professional shareholder, insofar as Article L. 511-7 of the French Monetary and Financial Code provides that such agreements may only be entered into if there are “direct or indirect capital links between companies giving one of the associated undertakings effective control over the others”.
Secondly, the Conseil d’Etat considered that practising veterinarian partners in a veterinary practice company must be “veterinarians who practise animal medicine and surgery within the company” (CE, July 10 2023, Société Univetis, no. 455961). On the contrary, the Conseil d’Etat has ruled that the mere fact that a veterinarian partner is involved in the management of a veterinary company is not in itself sufficient to consider him or her to be a “practising” veterinarian.
This reasoning is in line with the provisions of the Ordinance no. 2023-77 of February 8 2023, which states that “the mere performance of acts of management does not confer the status of practising professional”, regardless of the sector of activity concerned.
Thirdly, regarding the possibility for veterinary companies to have several places of practice, the Conseil d’Etat has ruled that although the regulations do not require at least one of the practising veterinarian partners to work full-time in each place of practice, it is nevertheless essential that “one of the partners works, at least part-time, in each of the places of practice” (CE, July 10 2023, Mon Véto, 448133).
The Conseil d’Etat does not set a minimum duration or number of acts that would allow this obligation to be satisfied, nor does it specify the period over which compliance with this rule should be verified. In light of the reasons for adopting this solution, it would seem quite reasonable to assume that it requires, at least, a monthly presence of a professional partner for 20 or 30% of the opening time of each place of practice.