Author: | Published: 2 Aug 2000
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There have been a number of legal reforms in France over the past 12 months which have had a profound impact on the French market place.


Law no. 99-532 of June 25 1999 (the Law of June 1999) relating to savings and financial security has significantly amended the French Banking Law no.84-46 of January 24 1984 (the French Banking Law). In particular, the Law of June 1999, together with the implementing decrees and regulations (the regulations) issued by the Banking and Financial Regulatory Committee has resulted in far-reaching reforms to the protection afforded to depositors of cash and securities with recognized credit institutions (établissements de crédit) in France, and provided the legal framework for the issue and development of the French mortgage-backed securities (obligations foncières), comparable to the German Pfandbriefe. The Law of June 1999 also laid the foundations to enable a change in legal status of the French savings banks.

The Law of June 1999 constitutes a radical step forward in providing financial security to depositors of recognized credit institutions in France. Article 65 of the Law of June 1999, which replaced Article 52-1 and following of the French Banking Law, provides for recognized credit institutions in France to adhere to a deposit guarantee fund (the Fund) the purpose of which is to indemnify eligible depositors in circumstances where a credit institution is unable to repay deposits. The Law of June 1999 marks a new approach in the French financial market for a number of reasons.

Firstly, it provides for the establishment of a deposit guarantee fund to which, subject to a limited number of exceptions, all recognized credit institutions in France must adhere. This contrasts with the position prior to the Law of June 1999 where different deposit guarantee mechanisms co-existed depending on the type and legal form of the relevant credit institution; this tended to lead to disparities between the various types of credit institution.

Secondly, the Law of June 1999 is especially innovative as regards the purposes for which the Fund may intervene. The French Banking Commission (FCB) may request the Fund to intervene where the FCB determines that a credit institution is no longer capable, immediately or in the near future (à terme rapproché), of repaying deposits. In this case, intervention of the Fund will lead to that credit institution being struck off the list of recognized credit institutions in France.

The FCB may also make a proposal for the Fund to intervene, as a preventative measure, where the financial situation of a credit institution leads to fears that deposits will not be available to be repaid, having regard to any financial support available to that credit institution. In this case, the Law of June 1999 provides that the Fund may make the sale of all or part of that credit institution's assets or business a condition to its agreement to intervene by way of preventative measure.

The Law of June 1999 provides for the Fund to have private legal personality. The Fund is managed by a board (directoire) whose members are appointed by, and who report to, the supervisory council (conseil de surveillance). The chairman of the board is appointed and approved by the minister for the economy, finance industry. The twelve members of the supervisory council are appointed by the credit institutions adhering to the Fund. The supervisory council exercises permanent control over the management of the Fund, approves the Fund's accounts and nominates the Fund's statutory auditors. Decisions of the council are taken by simple majority. Each member of the supervisory council has a number of votes calculated by reference to the aggregate financial contribution made by those credit institutions which have appointed him and which he represents on the supervisory council.

It is anticipated that by year-end 2002, the Fund will total euro 1.55 billion ($1.48 billion). The sources of finance for the Fund are principally association certificates (which are non-negotiable nominative certificates bearing interest at a rate not exceeding the average French state 10-year bond rate) and annual subscriptions. Sanctions may be imposed on a credit institution for failure to make contributions to the Fund including, for example, monetary sanctions such as payment of default interest on late payments and warnings.

Certain depositors are excluded from protection under the Fund, for example professional investors such as mutual funds and insurance companies. Certain deposits are also ineligible for indemnification under the Fund, for example deposits resulting from a money laundering transaction where the depositor has received a criminal sentence and deposits which are not denominated in a European economic zone currency. Where depositors are eligible for indemnification under the Fund, the maximum indemnity amount per depositor is at present euro 70,000 in respect of all deposits made with the same credit institution through the European economic zone. Indemnification is to be made by the Fund in euros. The Fund will indemnify eligible depositors within two months of the request by the FCB for the Fund to intervene, although, if circumstances so require, this period may be extended.

Where the Fund makes an indemnity payment to a depositor it will be subrogated in the depositor's rights in an amount equal to the indemnity payment. The Law of June 1999 provides that the Fund may take legal action against directors and/or shadow directors of a credit institution in order to recover indemnity payments made by the Fund. It has recently been reported in the French press that the Fund has instituted legal action against the former managers of Crédit Martiniquais, which was placed under surveillance in 1997.

In addition to cash deposits and deposit balances, protection under the Fund extends to cover deposits of securities and guarantees issued by credit institutions.


The Law of June 1999 introduced a new definition of insolvency (cessation des paiements) for a credit institution. It provides that a credit institution is insolvent when "it is not in a position to ensure its payments", immediately or in the near term (à terme rapproché).

This differs from the definition of insolvency for a company under the French Insolvency Law no. 85-98 of January 25 1985 as amended which provides that a company is insolvent "if it cannot meet its liabilities as they fall due with its available assets". It is felt that the new definition of insolvency for a credit institution more accurately reflects the financial position of credit institutions.


The Law of June 1999 reforms the status of SCFs. These are credit institutions approved as finance companies by the French Committee of comité des établissements de crédit et des entreprises d'investissement, whose exclusive purpose is:

  • to grant or acquire guaranteed loans, loans to government bodies and bonds and securities mentioned in Article 94 of the Law of June 1999; and
  • to issue bonds (obligations foncières) (OFs) to finance those categories of loans or bonds and securities which benefit from the privilege defined in Article 98 of the Law of June 1999 and to raise other resources, the issue or subscription contract of which makes reference to this privilege.

SCFs are subject to the supervision of the FBC. In addition, a special controller is appointed by the SCF, with the approval of the Commission for four years to ensure compliance by the SCF with the special provisions deriving from its status.

SCFs may hold eligible assets as defined by the Law of June 1999. These eligible assets are, inter alia, mortgage loans secured on a property located in the European economic zone, secured (by a caution) housing loans, loans to certain public entities and senior units issued by securitization vehicles such as the French FCC (Fonds Communs de Créances).

One of the main components of the protection of privileged creditors of SCFs is the rule set out in Article 96 of the Law of June 1999 whereby its assets should at all times exceed privileged liabilities. SCFs must declare details of the computation of the privileged liabilities coverage ratio, which should be at all times (unless temporary dispensation is granted by the Commission) in excess of 100% as between their risk-weighted assets and the total amount of their liabilities having the benefit of the privilege mentioned above. This coverage ratio must be declared to the FCB twice a year (in June and December). In addition, the special controller must certify compliance with the ratio upon each issue of privileged resources in excess of euro 500 million, or otherwise on a quarterly basis.

In order to finance the eligible assets, SCFs may issue OFs, which benefit from the privilege mentioned by Article 98 of the Law of June 1999, raise other resources, the issue or subscription contract of which refers to the privilege, and contract loans or raise funds which will not benefit from the privilege.

The privilege is a statutory privilege within the meaning of Article 2095 of the French Civil Code, ie "a right which the quality of the claim affords to a creditor to be preferred to other creditors, including creditors enjoying the benefit of a mortgage."

The general mechanism of the privilege, which applies before or after insolvency, is that certain assets of the SCF are allocated on a priority basis to the payment of the privileged liabilities, irrespective of whether any insolvency event or voluntary arrangement in relation to the SCF has occurred.

Such assets are listed in Article 98 of the Law of June 1999, as including all sums from: (i) loans, bonds and securities mentioned by Article 94 of the Law of June 1999; (ii) forward financial instruments mentioned by Article 95 of the Law of June 1999; and (iii) claims resulting from deposits made by the SCF with a credit institution. The privileged liabilities are listed in Articles 93 and 95.

Insolvency proceedings against an SCF can be initiated by a creditor provided the SCF is insolvent, ie it is unable to pay its privileged liabilities on their due date, and following an advice from the FCB (which advice must also be given in the case of insolvency proceedings against any credit institution).

In case of the insolvency or voluntary arrangement of an SCF, the Law of June 1999 provides that privileged liabilities are paid on their due date in priority to all other creditors, even if such creditors benefit from security interests. No enforcement may be effected by a non-privileged creditor until complete satisfaction of the privileged liabilities.

The judicial liquidation of an SCF does not result in the acceleration of the privileged liabilities before their due date.


Law no. 99-587 of July 12 1999 introduced certain provisions liberalizing the use of the société par actions simplifiée (SAS). These provisions allow a single shareholder, whether a legal entity or an individual, to set up an SAS and have reduced the amount of share capital required by a shareholder which is a société anonyme (SA) from Ffr 1.5 million ($218,000) to Ffr 250,000 (only half of which needs to be paid on incorporation with the balance being due within five years of incorporation). These provisions provided additional flexibility for the SAS which was introduced in France in 1994 and whose structure and rules, governing both management and the decision-making process, are simplified in comparison with those required in a société anonyme (SA) or a société à responsabilité limitée (SARL), the two most often used types of French companies.


Law no. 2000-230 of March 13 2000 relating to the adaptation of the rules of evidence to information technologies and to electronic signature has modified the French Civil Code regarding evidence in writing. Article 1316 of the French Civil Code has indeed been amended to permit communication made by electronic means and, more importantly, electronic signatures to be admissible in evidence subject to certain conditions related to the identification of the sender. The details for the implementation of the Law of March 13 2000 will be provided in a decree.


An important bill relating to new economic regulations (loi sur le Nouvelle Regulations Economiques) is presently being discussed before the French parliament. This bill comprises three important aspects, a compulsory notification of concentrations, as well as a reform of the procedure before the French Competition Council; a reinforcement of the rights of the workers council (comité d'entreprise) in takeovers; and a simplification of the rules applicable to French companies (eg the possibility to hold meetings by telephone or video conference).

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