FRANCE Law and Practice Contributed by: Fernand Arsanios, Delphine Guillotte, Guillaume Chaboureau, Houda Idaroussi and El Sayegh, King & Spalding
tion 5.1 Assets and Forms of Security ). Mortgages are handled by the notary. It should be noted that the release of an assignment of receivables by way of security is a re-transfer let- ter signed by the assignee and the assignor. If the secured obligations have been fully discharged before the transferred receivable is fully paid, the transferor automatically regains ownership of the receivable. Finally, the fiducie is released by way of a termination agreement between the grantor, the trustee and the beneficiary, and must be registered with the local tax authorities within one month of its signing. 5.7 Rules Governing the Priority of Competing Security Interests As a general rule, the order of priority is chronologi- cal; seniority over any subsequent security interest is determined by the date on which the security interest was created, unless otherwise agreed by the relevant parties. If the security interest is subject to registra- tion, its ranking is determined by the registration date. In practice, priority ranking is commonly implemented through contractual arrangements such as subordi- nation/inter-creditor agreements which determine the priority among the lender’s group or separate groups of lenders. Contractual subordination provisions will be given effect in the context of insolvency proceedings (eg, safeguard ( sauvegarde ), accelerated safeguard ( sau- vegarde accélérée ) and reorganisation proceedings ( redressement judiciaire )). If impaired creditor groups ( classes de parties affectées ) are created in such pro- ceedings for the voting of the continuation plan, the distribution of creditors among those groups must take into account subordination agreements – pro- vided that the judicial administrator has been notified of such agreements. However, in the event of liqui- dation proceedings, if the contractual subordination provisions that determine the ranking of competing security interests are in conflict with the statutory order of priority under French law (see 7.2 Waterfall of Payments ), the liquidator will likely apply the lat- ter. The contractual subordination agreement will then
be implemented through the operation of its turnover provisions. 5.8 Priming Liens Outside the context of insolvency proceedings, any security arising by operation of law should not, in practice, take precedence over a lenders’ security interests over movable assets described in 5.1 Assets and Forms of Security , except for liens securing cer- tain taxes. However, liens securing (i) court costs, (ii) certain wages and allowances due to employees, and (iii) certain taxes should supersede any mortgagee’s right on immovable assets. They are not subject to registration. Within the context of insolvency proceedings, spe- cific liens are recognised for certain creditors, with the result that the rights of these creditors take prior- ity over those of other creditors, even if secured (see section 7.2 Waterfall of Payments ). 6. Enforcement 6.1 Enforcement of Collateral by Secured Lenders Any enforcement of French law collateral requires that the secured obligations are due and payable but unpaid. Three routes of enforcement are common across most security interests described in 5.1 Assets and Forms of Security , as follows. • Judicial attribution the pledgee applies to the relevant French court for an order transferring ownership to it of the pledged asset. The value of the asset is determined by the court on the basis of a report made by an external expert appointed by the court. The pledgee must pay to the pledgor the difference (if positive) between the value of the pledged asset and the amount of the secured obli- gations (this balancing payment is referred to as the soulte ). This type of enforcement is not avail- able for security over going concern. • Contractual attribution ( pacte commissoire ) – the pledgee becomes the owner of the pledged asset and applies the value of the asset against the
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