The treatment of French law fiducie in insolvency proceedings

21 May 2024

When looking at the treatment of secured creditors in French insolvency proceedings, lenders sometimes come to the conclusion that they would be better off circumventing the issue, by creating so-called “double Luxco” structures, i.e. two holding companies located in Luxembourg, the lender being granted a pledge over their shares.

That is because security enforcement proves very challenging in France, any such enforcement being automatically stayed in insolvency proceedings (subject to limited exceptions) : for example, in an LBO structure, the lenders cannot enforce their French law pledge over the shares of the French target company if the French holding company has filed for safeguard proceedings or insolvency proceedings.

Since 2007, however, it is possible for creditors to benefit from a fiducie over any type of assets. The key difference with “traditional” security interest is that fiducie entails an immediate transfer of the ownership of the assets to a third party (the fiduciaire). As a result, those assets do not belong to the insolvency estate if the borrower is subsequently placed into insolvency proceedings.

Interestingly, the efficiency of fiducie was recently put to the test in a case where bondholders were trying to enforce while the issuer was subject to insolvency proceedings. Those bondholders benefitted from a fiducie over real estate assets. The debts had been accelerated shortly before the commencement of the insolvency proceedings. Thereafter, the bondholders had started the enforcement process, by requesting the fiduciaire to sell the assets. The issuer was trying to obtain a freeze of such enforcement, in summary proceedings.

The issuer tried to convince the court that it should benefit from a specific regime protecting the debtor against the enforcement of a fiducie if such debtor retained the right to use or to enjoy the assets transferred to the fiducie. In fact, the issuer had indeed kept receiving the rents paid by the tenants occupying the real estate assets, although the ownership of such assets had been transferred to the fiduciaire. However, this argument was rejected by the Court of Appeal of Bordeaux in a judgment dated 18 December 2023, because in reality the issuer was entitled to receive the rents only on behalf of the bonholders, as their agent. This decision confirms that fiducie is an efficient security interest to consider when it comes to granting loans in France.