CMS Expert Guide for taking security in France

Yes. Under French law, there are two types of personal guarantee (sûreté personnelle) which can be provided by either legal entities or individuals, mainly: 

• a guarantee (cautionnement) – a contract by which the guarantor undertakes to pay the creditor the debt owed by the debtor in the event of the debtor’s default; this guarantee is ancillary to the secured obligation and its effects will be dependent on the secured obligation itself
• a first demand guarantee (garantie autonome, also called garantie à première demande) – an undertaking by which the guarantor undertakes to pay a sum either on first demand or on agreed terms in respect of an obligation entered into by a third party. It is a guarantee which is aimed to be independent from the principal obligation. In particular, it does not follow the secured obligation if transferred to another creditor (save specified so) and the guarantor may not raise exceptions affecting the secured obligation itself. 

These two types of personal guarantee are sometimes difficult to distinguish, but their rules and the protection offered to the guarantor are very different. Care must therefore be taken when drafting a first demand guarantee (guarantie autonome), in particular by limiting references to the secured obligation, as there is a risk that a first demand guarantee (garantie autonome) could be reclassified as a simple guarantee (cautionnement).

Yes.

Yes. The granting of a guarantee against payment constitutes a credit transaction (opération de crédit) within the meaning of the French monetary and financial code (Code Monétaire et Financier), pursuant to articles L. 313-1 and 511-5 of said code.

Under the banking monopoly (monopole bancaire), only credit institutions or finance companies may carry out credit transactions on a regular basis.

The granting of guarantee to which a holding company is interested is often subject to corporate authorisation and to a cap set by the relevant corporate body (see in particular: article L. 225-35 and article L. 225-38 of the French commercial code (Code de commerce) for sociétés anonymes).

Any granting of upstream guarantee shall generally comply with the guarantor’s corporate interest (intérêt social). See comments in section 4.

Yes. See comments in section 4.

Yes. See comments in section 4.

• Appropriateness of the corporate purpose (objet social): in principle, the powers of a company representative are limited by the corporate purpose of the company. More specifically: 
  • a partnership (société de personne) is only bound by acts that fall within its corporate purpose (see in particular: article 1849 of the French civil code (Code civil) for sociétés civiles)
  • a commercial company (société commerciale) can, under certain conditions, be bound beyond its corporate purpose. However, the director of the company may be held liable (see in particular: article L. 223-18 of the French commercial code for French limited liability partnerships (sociétés à responsabilité limitée), articles L. 225-56 and L. 225-64 of the same code for French statutory public limited liability companies (sociétés anonymes) and article L. 227-6 of the same code for French public limited liability companies (sociétés par actions simplifiées).
• Corporate interest: a company must be managed in accordance with its corporate interest (intérêt social). Therefore, the decision to grant a guarantee must be made in such company’s corporate interest (article 1833 of the French civil code).
• Financial assistance: article L. 225-216 of the French commercial code prohibits French statutory public limited liability companies (sociétés anonymes) from loaning money or granting security interests for the purpose of the subscription or purchase of its own shares by a third party (under notably criminal sanctions).
• Granting guarantee in a French statutory public limited liability company (société anonyme): the board of directors (conseil d’administration) or, if applicable, the supervisory board (conseil de surveillance) must authorise the granting of guarantees up to a limit set by such board (see articles L. 225-35 and L. 225-68 of the French commercial code).
• Regulated agreements: 
  • for French statutory public limited liability companies (sociétés anonymes), regulated agreements (conventions réglementées) are agreements entered into (directly or indirectly) between the company and any major shareholder (above 10%) or director, or to which such shareholder or director is interested, and shall be subject to prior authorisation by the board of directors (see article L. 225-38 of the French commercial code) 
  • for French limited liability partnerships (sociétés à responsabilité limitée)and French public limited liability companies (sociétés par actions simplifiées),the manager of the company, or where applicable, the auditor (commissaire aux comptes) submits a special report on regulated agreements entered by the company during the past financial year to the general meeting for approval (see articles L. 223-19 and L. 227-10 of the French commercial code).

French law does not require personal guarantees (sûretés personnelles) to be in written form if they are given by legal entities for validity purposes, but requires that the same are expressly given, pursuant to article 2298 of the French civil code.  However, it is preferable to have such guarantees in writing as this makes it easier to prove them (see article 1359 of the French civil code) and to negotiate certain clauses (in particular the benefit of division and discussion in relation to the suretyship as provided under articles 2305 and 2306-1 of the French civil code). 

It must be noted that if a guarantee is given by individuals, certain handwritten mentions are required, otherwise the guarantee is null and void, pursuant to article 2297 of the French civil code. Other specific requirements apply to guarantees granted by an individual to professionals and even by a company to a bank or other type of financial institution (initial information and/or annual information).

Generally yes: 

• with respect to a guarantee (cautionnement), it may secure future obligations; however, in case the guarantee (cautionnement) is granted for an undetermined duration and secures future obligations, it may be terminated at any time by the guarantor, subject to prior notice and the latter remaining liable for securing the claims which rose before such termination (see article 2315 of the French civil code)
• with respect to a pledge (nantissement), the deed must sufficiently enable the identification of such future obligations individually, or contain information enabling this to be done, such as the name of the debtor, the place of payment, the amount of the receivables or their valuation and, where applicable, their due date (see article 2356 of the French civil code)
• with respect to a French law trust (fiducie), the secured future obligations shall be determinable (see article 2372-2 of the French civil code)
• with respect to an assignment of future receivables for security purpose (cession de creance à titre de garantie), it shall be possible to identify the secured future obligations individually (see article 2373-1 of the French civil code)
• with respect to an assignment of sums of money as security (which might be seen as a security cash deposit or cession de somme d’argent à titre de garantie), it shall be possible to identify the secured future obligations individually (see article 2374 of the French civil code)
• with respect to a mortgage (hypothèque), the future secured obligations shall be determinable (see article 2415 of the French civil code).

It depends:

• as it is ancillary and dependent to it, a guarantee (cautionnement) is valid if it secures a valid obligation (see article 2293 of the French civil code)
• this principle applies more generally to security as it is an ancillary and related right to the secured obligations (ancillary principle)
• a first demand guarantee (garantie autonome) is independent and not subject to exceptions linked to the secured obligations, save for fraud or collusion of the creditor.

There is no such general concept of indemnity.

Generally yes:

• as a general principle, in accordance with the ancillary principle, the security follows the path of the secured obligation
• as mentioned above, if a guarantee (cautionnement) is granted for an undetermined duration and secures future obligations, it may be terminated at any time by the guarantor, subject to prior notice and the latter remaining liable for securing the claims which rose before such termination (see article 2315 of the French civil code)
• with respect to a French law trust (fiducie), duration is limited to 99 years (see article 2018 of the French civil code)
• with respect to a mortgage (hypothèque), if granted for an indefinite period, the grantor may terminate it at any time subject to a 3-month prior notice (see article 2417 of the French civil code).

Generally yes: there are no major restrictions pertaining to the creditor’s jurisdiction.

• A kind of parallel debt structure is possible with the security agent (agent des sûretés) legal regime (see article 2488-6 et seq. of the French civil code).
• A French law trust may be constituted for security purposes (fiducie-sûreté), the assets of which can be of various kinds (shares, real estate, receivables etc.); and the task of the fiduciary (fiduciaire) may be to keep and manage those assets in the creditor’s interest (see article 2372-1 et seq. of the French civil code).

As a general principle, the ancillary effect implies that the security/guarantee follows the secured obligations, if transferred (subject to specific provisions to be inserted in the security document when it comes to transfer by way of novation).

This being said:

• with respect to a first demand guarantee (garantie autonome), this shall be specified
• with respect to a mortgage (hypothèque), such a transfer implies a new registration 
• with respect to a French law trust (fiducie), such a transfer implies an amendment to the fiduciary agreement and a new registration.

As a general principle, change to a guaranteed/secured obligation will require analysis of the guarantee/security document to assess whether the definition of the secured obligations under such guarantee/security document is still accurate. Depending on the outcome of the analysis, a confirmation by the pledgor or a new security (second ranking or otherwise) may be required.

Pursuant to article 3 of Rome I Regulation, the choice of law is generally free for guarantees and shall generally correspond to the jurisdiction in which the assets are located for security.

Pursuant to Regulation Brussels I bis, the choice of jurisdiction is generally free. 

Submission to arbitration is valid and enforceable except for non-professionals. 

No major restrictions linked to currency control or capital movements.

Certain transactions (including, under certain circumstances, the granting of security by the debtor over its assets) are null and void if entered into when the debtor was already bankrupted (en cessation des paiements); and certain transactions may also be ruled null and void by a judge if entered into less than 6 months before such bankruptcy (see article L. 632-1 of the French commercial code).

A French law trust may be constituted for security purposes (fiducie-sûreté), the assets of which can be of various kind (shares, real estate, receivables etc.); and the task of the fiduciary (fiduciaire) may be to keep and manage those assets in the creditor’s interest (see article 2372-1 et seq. of the French civil code).

Given that each kind of asset often has a dedicated security regime (see items above), a pledge often relates to one kind of asset at a time. However, in exceptional cases, several different assets may be the subject of a single pledge. For example, a pledge over shares may include a pledge over receivables relating to such shares (e.g. shareholder loans, dividends to be paid).

This would be subject to certain restrictions or prohibitions (see item 4 above). In particular:

• some requirements must be complied with, such as the company’s corporate interest (intérêt social) (see article 1833 of the French civil code)
• a company shall not advance funds, grant loans or provide security for the subscription or purchase of its own shares by a third party (see article L. 225-216 of the French commercial code).

Most security documents do not require notarisation. This being said, it must mainly be noted that a conventional mortgage (hypothèque conventionnelle) shall be granted by notarial deed, and the notarial deed shall specify the nature and location of each of the properties, failing which it shall be null and void (see articles 2409 and 2414 of the French civil code).

• A pledge (gage) must be published by an entry in a dedicated register (see article 2338 of the French civil code).
• A pledge (gage) relating to a vehicle is published by an entry in a dedicated register (see article 2338 of the French civil code).
• A fiduciary agreement (contrat de fiducie) in relation to a French law trust (fiducie) and its amendments must be registered within 1 month of their date with the tax department of the trustee’s registered office, or with the non-resident tax department if the trustee is not domiciled in France (see article 2019 of the French civil code).
• The priority right resulting from the pledge over business (nantissement de fonds de commerce) is enforceable against third parties as from its registration on the dedicated registry kept by the competent commercial court (see article L. 142-3 of the French commercial code).

Generally speaking, security documents which need to be registered will have to be in French.

Notifications:

In most cases, registration would rather create a ranking among creditors than make the collateral asset unavailable for subsequent security. 

It may be noted that the security document itself often provides for a negative pledge binding upon the pledgor, not to assign or encumber the asset subject to security.

Generally, ranking will be determined by the date of execution of the security agreement or by the date of its registration where a registration is required:

• with respect to a French law trust for security purposes (fiducie-sûreté), the date of registration determines creditors’ rankings (see article 2372-5 of the French civil code)
• with respect to a mortgage (hypothèque), such ranking depends on the date of respective registration in the real estate register (see article 2418 of the French civil code)
• with respect to a security with a retention title (droit de rétention), it is enforceable against the collective proceedings (see article L. 643-8 of the French commercial code)
• with respect to a non-possessory security, creditors’ rankings will be determined by the order of their registration (see article 2340 of the French civil code).

Establishment of security and level of security regulation is generally:

Medium complexity

Yes. Some local courts could be reluctant to register pledges that are electronically signed. Depending on the competent court, it is advisable to ensure that courts accept such an execution process.

Deeds that require notarisation, i.e. conventional mortgage and property pledges, can also be drawn up and signed electronically.

Generally yes.

Generally feasible by any party, it being provided that for mortgages (hypothèques), such registration will be done by a notary (notaire).

Generally, it must be noted that certain registers may be reluctant to proceed with electronically signed deeds and may require wet-ink signed versions. It is advised to clarify this with the relevant register keeper before applying for registration.

• Pledges: generally quite immediate (accessible online), and less than EUR 20 per pledge. 
• Mortgage extract: about a week; fees to be clarified with relevant notary (notaire).

Generally a few days (process similar to registration).

Generally, it must be noted that certain registers may be reluctant to deregister an encumbrance if the release document (mainlevée) states that the encumbrance is released subject to certain conditions (e.g. full payment of remaining sums or fees).

To be clarified with relevant notary (notaire).

N/A. 

Yes. It must be noted that certain security agreements or deeds may provide for intermediary steps in anticipation of an actual event of default and enforcement (e.g. certain blocking rights)

Generally not. Actual enforcement of security generally requires that secured obligations became due and payable, but that the debtor is in default. It must be noted however that certain agreements or deeds may provide for intermediary steps in anticipation of an event of default and enforcement (e.g. certain preventive blocking measures, different from an actual enforcement). In this respect, French law trust for security purposes (fiducie-sûreté) in particular can be highly adaptable.

Generally not (see above): actual enforcement of security generally requires that secured obligations became due and payable, but that the debtor is in default.

Generally not (see above): actual enforcement of security generally requires that secured obligations became due and payable, but that the debtor is in default.

N/A

Generally not.

It may be noted that for enforcing a pledge over securities accounts (nantissement de comptes-titres), an 8-day period from the date of notice to a debtor shall be observed. 

Yes, it is generally possible to enforce the guarantee out of court before litigation.

There is no additional instrument for direct enforcement required, except if agreed by the parties. 

Generally available if provided so under the security agreement.

In case of a pledge (gage), a creditor may also apply to the court for an order that the property be granted to the creditor as payment (see article 2347 of the French civil code).

• With respect to a French law trust for security purposes (fiducie-sûreté), in the case of enforcement at the creditor’s request, the price shall be set by an expert. However, if no buyer is found at such price, the fiduciary (fiduciaire) may sell it at a price which it considers, under its responsibility, as corresponding to the value (see articles 2372-3 and 2488-3 of the French civil code).
• With respect to a pledge, a creditor may proceed with the sale of the pledged asset(s) (see article 2346 of the French civil code).
• With respect to a pledge over securities accounts (nantissement de comptes-titres), a creditor may enforce the pledge 8 days after the debtor has been given formal notice. The pledge may be enforced, among other methods, by public sale (vente publique) (see article L. 211-20 of the French commercial code).

Generally required for security over real estate assets or rights.

N/A.

Generally not mandatory, but granting a Power of Attorney to the security agent (where applicable) or creditor to such end may be advisable to facilitate the process.

No major difficulty to raise.

Fairly easy

Balanced

Average

Not to our knowledge.