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23 October 2009
Common law trust allows for transactions whereby one or more settlors transfer present or future assets, rights or security interests to one or more fiduciaries. These fiduciaries have a duty to maintain those assets separate from their own property and to act in the interests of one or more beneficiaries.
This transaction, called fiducie, is part of the modernization of French surety laws that began in 2005. The legislature intended the fiducie (enacted by Law 211/2007) to serve either as a surety or an asset management tool.
Since the fiducie was introduced, a number of amendments(1) have altered the applicable legal framework, both for the fiducie in general and in respect of contracts for the fiducie as security.
Since the enactment of Law 776/2008:
Certain changes apply particularly in the context of insolvency proceedings.
Nullity of fiducie contract
When a court opens insolvency proceedings, it identifies the date on which the debtor effectively became insolvent (ie, the date of suspension of payments). This date can be fixed up to 18 months before the opening judgment. The period between the date on which the debtor effectively became insolvent and the date of the opening judgment is known as the 'suspect period'. Under Law 211/2007, the fiducie contract was automatically considered null and void if it was entered into during the suspect period.
This regime was strict. Other types of security interest (eg, pledges or mortgages) were considered null and void only when they were concluded in order to guarantee a debt that was due before the date of suspension of payments.
Order 1345/2008 ended this distinction. Currently, a fiducie contract entered into during the suspect period is valid if it was concluded in order to guarantee a debt that arose at the same time.
Effects of fiducie contract
Order 1345/2008 distinguishes between a safeguard proceeding, redressement judiciaire (a proceeding similar to UK administration) and a winding-up proceeding.
As long as there is hope for the company's survival (ie, in case of safeguard or redressement judiciaire proceedings, during the observation period and as long as the continuation plan is duly executed), the order neutralizes the implementation of the fiducie.
However, even if the beneficiary's rights are limited, he or she is still in a better position than the other creditors, whose debt may be subject to rescheduling or waiver by court order.
The neutralization concerns only a surety without dispossession. The rights of the beneficiary of the fiducie are not limited in case of dispossession - the fiduciary has a possessory lien on the transferred assets. Surety in the case of dispossession thus offers increased security in case an insolvency proceeding is commenced.
Where there is no hope for the company's survival (ie, in case of a winding-up proceeding), the implementation of the security interest by the creditor is possible (even in the case of a surety without dispossession).
For further information on this topic please contact Constantin Achillas at Denton Wilde Sapte by telephone (+33 1 53 05 16 00), fax (+33 1 53 05 97 27) or email (email@example.com).
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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