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31 May 2017
The Macron Law of August 6 2015 and its implementation decree of April 22 2016 constituted breakthrough legislation for intercompany loans as they provide new exemptions to the French banking monopoly, allowing a company to grant loans, under specific conditions, to another company which qualifies as a micro-enterprise, a small and medium-sized enterprise or an intermediate-sized company with which it does not necessarily have an ownership relation.
In the past, lending between companies was available without involving banks and credit institutions, solely through intra-group arrangements or favourable payment terms in the context of sales agreements relating to goods and services.
The reform provided by the Macron Law allows companies to overcome the difficulties faced when trying to secure a loan from banks and credit institutions. However, because lending is a risk activity, the newly authorised intercompany loans remain subject to several conditions that may significantly narrow the impact of this reform.
The lender must be a stock company or a limited liability company whose accounts are certified by statutory auditors. Specific conditions relating to the lender's financial capacity and ability to grant such loans must also be met for a period of two financial years preceding the date on which the loan was granted. More specifically, during such period, the lender must have equity higher than its share capital, a positive accounting and finance, earnings before interest and taxes and a positive net cash position. In practice, such conditions are likely to be met mainly by large companies. Moreover, smaller entities usually do not have the financial capacity or technical means in terms of credit analysis in order to offer this kind of loan.
Additionally, the Macron Law specifies that the granting of new intercompany loans may not constitute the lender's core business. Difficulties in assessing the ancillary nature of such activity may therefore arise, especially for holding companies which normally have no commercial or industrial activity.
In order to protect lending companies, the newly authorised intercompany loans must be approved by the shareholders under a specific authorisation procedure.
Intercompany loans may be concluded only between companies maintaining economic relationships which justify the loan. Such economic relationships are considered to exist in limited circumstances – for example, when:
Economic relationships may also exist where the lender:
Economic relationships may be assessed at the level of the lender or the borrower or at the level of any of their respective affiliates. Whether the economic relationships must be maintained for the whole duration of the loan remains uncertain and a clarification from the courts is necessary.
In any event, the conclusion of such loans must not place the borrower in a position of economic dependence on the lender, nor result in payment delays exceeding the legal maximum. In order to protect the borrower, the securitisation of new intercompany loans is prohibited.
The new intercompany loans constitute short-term financings and thus may not exceed two years. However, as there is no explicit prohibition, it may be possible to renew the loan on its initial maturity as long as all of the conditions continue to be fulfilled.
The amount of new intercompany loans is subject to:
Further, intercompany loans must be formalised in a written agreement, although the Macron Law specifies no penalty in the absence of such written agreement. However, a non-written agreement would prevent the statutory auditor from providing its mandatory certification of the loan amount, which serves to inform and protect shareholders.
Whereas the new provisions seem to meet the intent to multiply financing solutions for companies in need of liquidity, the complexity and stringent conditions of the new intercompany loans may harm its development.
For further information please contact Alain Levy, Gwenaëlle de Kerviler or Linda Erlandsson at AyacheSalama by telephone (+33 1 58 05 38 05) or email (firstname.lastname@example.org, email@example.com or firstname.lastname@example.org). The AyacheSalama website can be accessed at www.ayachesalama.com.
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