FRANCE Law and Practice Contributed by: Raphaële Courtier, Sébastien de Monès, Victor Camatta and Jessica Chartier, Bredin Prat
still outstanding at the time of enforcement of the security. 5.5 Financial Assistance Under French law, a joint-stock company, in the form of a société anonyme , a société par actions simplifiée or a société en commandite par actions is prohibited from lending money, giving guarantees or granting security interests over its assets with a view to the subscription for, or purchase of, its own shares by a third party. This restriction on financial assistance also applies in the event of an acquisition of shares in the target which (directly or indirectly) holds shares in the company (its subsidiary) that has provided loans/securities. However, it is not clear whether this restriction applies to non- French subsidiaries of the target. Nevertheless, where “French connection” exists between the companies, it is safer to consider that the non- French subsidiaries are subject to the prohibi- tions previously mentioned. However, if the advance of funds or the loan/ security interest is granted after the shares are acquired by the third party, this will not be con- sidered as illicit, unless it can be demonstrated that the cause of the transaction is anterior to the shares’ acquisition. Any infringement of this prohibition is a criminal offence punishable by a fine for the manager/ director who has violated the rule and carried out that transaction on behalf of the company. Moreover, the advance of funds, loan, or secu- rity granted in violation of these provisions may be cancelled and held null and void by French courts, as contrary to a mandatory provision of the law. However, the prohibition will not apply to:
• transactions carried out by credit institutions and finance companies in the normal course of their business; and • transactions carried out for the purpose of acquisition of shares by the employees of the company, by employees of one of the com- pany’s subsidiaries or by the employees of a company included in the scope of a group savings plan. The financial assistance prohibition can apply when the following situations occur immediately or shortly after the acquisition: • refinancing of the acquisition debt; • merger of the acquisition vehicle and the target; and • implementation of other forms of debt push- down (however, the distribution of dividends by the target group which the acquisition vehicle will use to repay the initial acquisition indebtedness does not fall within the scope of financial assistance, even if the distribution of dividends is financed by a new indebtedness raised by the target, provided the target can justify that raising such indebtedness to pay a dividend falls within its corporate interest). 5.6 Other Restrictions A French company which is a party to an acqui- sition finance transaction must always act in accordance with its corporate interest ( intérêt social ). Therefore, when granting guarantees or security interests, the company will constantly have to take into consideration financial assis- tance rules (see 5.5 Financial Assistance ) and corporate benefit rules. The security interests that may be granted in an acquisition finance transaction, as well as the extent of the obligations that these security inter- ests may guarantee, will have to be determined
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