FRANCE Law and Practice Contributed by: Raphaële Courtier, Sébastien de Monès, Victor Camatta and Jessica Chartier, Bredin Prat
with careful consideration made in respect of the corporate interest of the various members of the group involved in the transaction. One of the main pitfalls that must absolutely be avoided to ensure that the corporate inter- est is complied with is the risk of abus de biens sociaux (misuse of the company’s assets). To assess whether the company’s corporate interest is protected, French judges will analyse the decisions made in the name of the company by the directors or by the company itself and verify if they are prejudicial to the company. If the directors fail to act in the company’s corporate interest, they might be held liable as follows: • civil liability for damages on the basis of their alleged mismanagement ( faute de gestion ); or • criminal liability on the basis of misuse of cor- porate assets or credit. In this case, directors may be punishable by five years’ imprison- ment and a EUR375,000 fine. The French law concept of misuse of corporate assets strictly limits the possibility for directors of the target company and its subsidiaries to use the company’s assets to repay the holding com- pany’s debt. French case law has set out the conditions according to which a misuse of corporate assets is not characterised where a subsidiary company guarantees the debts of its parent company. In that case, three conditions must be strictly met: • a bona fide group exists (involving structural ties and a common group strategy); • the loan and the guarantee show a common interest for the group as a whole (and not only for the parent company); and
• there is a benefit for the subsidiary in entering the guarantee, and its commitment does not exceed its financial resources. If the above-mentioned conditions are complied with, a misuse of corporate assets will then not be characterised. However, because the satisfaction of the above conditions can, in practice, be difficult to dem- onstrate, the practice has, as indicated above, established a standard limitation of guarantee pursuant to which the secured amount (and therefore, the exposure of the guarantor) should be limited at any time to the amount borrowed under the secured financing made available to its parent company and on-lent to that company or its subsidiaries and still outstanding at the time of enforcement of the guarantee. This limitation of guarantee, which goes beyond the criteria detailed above and is set by French courts, is perceived by the French market as protecting guarantors against the risks of acting against the corporate interests of the company and of com- mitting a misuse of corporate assets. 5.7 General Principles of Enforcement French law-governed security interests can only be enforced when part or all of the secured liabil- ities become due and payable; therefore, in the absence of a payment obligation that remains outstanding, it will not be possible to enforce a French security interest.
6. Guarantees 6.1 Types of Guarantees
There are two types of personal guarantees commonly used in French acquisition finance transactions.
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