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20 January 2020
Law 2019-744 of 19 July 2019(1) seeks to simplify and update wide-ranging aspects of company law. Among other things, the law has introduced changes to the approval process that public limited companies (ie, sociétés anonymes) must follow in order to issue, in favour of a third party, a guarantee of the obligations of a subsidiary that they control.
Previously, a guarantee(2) granted by a public limited company (other than a banking or financial institution) in respect of the obligations of a subsidiary that it controlled had to fall under a standing authorisation of the company's board of directors or supervisory board.
However, the following limits applied to such a board authorisation:
If the amount of a guarantee alone exceeded the maximum permitted amount (cumulative total or per guarantee) set by the board, or if the guarantee was issued after the expiry of the authorisation, the guarantee was unenforceable against the issuing company.
Therefore, this situation was a source of legal insecurity, especially for creditors of foreign subsidiaries of French groups, due to potential uncertainty as to whether a given guarantee was covered by a board authorisation. If the existing authorisation was insufficient, a board meeting had to be convened in order to issue an express authorisation for the guarantee in question. This restricted companies' international activities.
Under the new regime, a guarantee issued by a public limited company, in favour of a third party, in respect of the debts of a controlled subsidiary may fall under(3):
The board of directors or the supervisory board may also authorise the general manager or the management board to grant unlimited guarantees in favour of the tax and customs authorities.
These changes aim to enable foreign subsidiaries of French companies to respond more quickly to international tender processes, which often require guarantees from parent companies to cover their subsidiaries' contractual obligations.
For further information on this topic please contact Rhidian David or Agnes Braka-Calas at Hughes Hubbard & Reed by telephone (+33 1 44 05 80 00) or email (firstname.lastname@example.org or email@example.com). The Hughes Hubbard & Reed website can be accessed at www.hugheshubbard.com).
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