FRANCE Law and Practice Contributed by: Fernand Arsanios, Delphine Guillotte, Guillaume Chaboureau, Houda Idaroussi and El Sayegh, King & Spalding
may require the approval of the shareholders, man- ager or board of directors of the relevant company. Security over shares issued by stock companies must be registered in the shareholders’ register of the issu- ing company. Finally, a pledge over receivables (including security over bank accounts) or assignment of receivables are enforceable against third parties upon execution of the pledge or assignment agreement. They are enforceable against the pledged or assigned debtor or against the account bank as from the date of notice of the pledge to it (or, alternatively, if the debtor account bank is party to the pledge or assignment agreement, as from the date of signing of such agreement). With the exception of mortgages and establishing a fiducie , the creation of French law security interest would not incur significant costs. 5.2 Floating Charges and/or Similar Security Interests The creation of a floating charge or other universal or similar security interest over all present and future assets of a company is not possible under French law. This explains the division between different types of security interests for different types of assets (as detailed in 5.1 Assets and Forms of Security ). Such security interests, however, may cover all existing and future assets of the relevant category of asset (except for land charges/mortgages). 5.3 Downstream, Upstream and Cross- Stream Guarantees Downstream guarantees are generally permissible. However, upstream and cross-stream guarantees by French companies may be restricted on the basis of French financial assistance rules, as explained in 5.4 Restrictions on the Target , abuse of corporate interests, or misappropriation of a company’s assets. Typically, upstream and cross-stream guarantees will only be valid if the guarantor (and/or its subsidiaries) receives a direct benefit from the secured financing proceeds. In practice, the upstream or cross-stream guarantee is limited to the amounts actually drawn under the facility agreement and directly or indirectly on-lent to the relevant guarantor or its subsidiaries. In
the case of abuse of corporate interests or misappro- priation of the company’s assets, the company’s offic- ers could be subject to criminal penalties. Lenders benefiting from the guarantees could also potentially be subject to these criminal penalties as accomplices. 5.4 Restrictions on the Target Pursuant to French financial assistance rules, a French company incorporated as a société anonyme or société par actions simplifiée cannot grant any loan, guarantee or security interest in connection with the acquisition or subscription by a third party of its own shares. According to some experts, this prohibition applies similarly to loans, guarantees or security interests intended to be granted for the acquisition of shares in any company that directly or indirectly owns shares in the target company. Any loan, guarantee or security granted in violation of such prohibition may be deemed null and void. A vio- lation of such a prohibition may also result in criminal penalties against the company’s officers, and, poten- tially, against the lenders as accomplices. 5.5 Other Restrictions A French works council consultation is required if a company has at least 50 employees and the trans- action may result in a change of control or affect its general management. In practice, a consultation regarding security interests is seldom conducted at the time of their creation, unless a separate circum- stance (such as a corporate transaction entailing a change of control) necessitates this. 5.6 Release of Typical Forms of Security As a general rule, the release of the security must take the form of a written release letter signed by the ben- eficiary of the security and identifying the security to be released as well as the assets subject to the secu- rity. If the security to be released is a mortgage, the release letter should be drawn up by a notary. Additionally, the release of a registered security inter- est must be registered on the registry on which the creation of the security was initially recorded (see sec-
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