Download - Annex 1-2 National report
Page 1 of 59
CONTRACT
ETD/2008/IM/H1/53
IMPLEMENTED BY FOR
DBB LAW COMMISSION EUROPEENNE
Study on the feasibility of reducing obstacles to the transfer of
assets within a cross border banking group during a financial crisis
National Report
FRANCE
By
Frédéric Leplat
Page 2 of 59
Part I - National regulation ..................................................................................... 4
1. Summary ....................................................................................................... 4
2. Scope ............................................................................................................ 6
3. Conditions and sanctions .................................................................................11
a) Authorization ..............................................................................................11
b) Counterpart for the asset transfer .................................................................17
a) Compulsory counterparts and guarantees .......................................................20
b) Financial capacities of the transferor and the transferee ...................................20
c) Information and transparency .......................................................................20
d) Sanctions ...................................................................................................22
e) Third parties ...............................................................................................31
Supervisory authorities .............................................................................31
Minority shareholders ...............................................................................32
Creditors .................................................................................................33
Employees ...............................................................................................34
Deposit holders ........................................................................................34
Member State ..........................................................................................35
Others ....................................................................................................36
f) Private international law ...............................................................................36
Part II -Evaluation of potential solutions ..................................................................39
1. Transfers from the parent company to the subsidiary or from the subsidiary to the
parent at arm’s length: .........................................................................................40
Proposal n°1 ............................................................................................40
2. Transfers from the subsidiary to the parent company (in preferential conditions) ...45
a) Prior and overall agreements ........................................................................45
Proposal n°2:...........................................................................................45
Page 3 of 59
b) Strong guarantees covering the risk of outstanding payment ............................48
Proposal n°3 ............................................................................................48
c) Liability of the parent company for the subsidiary’s debts .................................52
Proposal 4 ...............................................................................................53
d) Improving transferability transfer through the introduction of a new concept of
"banking group" ................................................................................................55
Proposal n° 5 ...........................................................................................55
e) Other solutions ..............................................................................................58
Proposal n° 6 ...........................................................................................58
Page 4 of 59
Part I - National regulation
Please provide a presentation of your national regulation (law, cases,…) and
attach it as Annex A and B to this document :
the relevant legal texts and cases in English (of summarized in English).
If possible, examples of transfer of assets agreements.
For each question, please first consider:
your national Civil Law, Company Law, and Insolvency Law
and on a second time explain if there are specific regulations for Banking
groups
on a third time explain if there are specific regulations for cross-border
transfer of assets.
1. Summary
Generally speaking, is the transfer of assets allowed (could you please
precise briefly under which conditions):
In crisis situation:
- from parent to subsidiary
- from subsidiary to parent
Page 5 of 59
- from subsidiary to another subsidiary
In going concern situations:
- from parent to subsidiary
- from subsidiary to parent
- from subsidiary to another subsidiary
Transfer of assets is not prohibited as such by the French legislation or
jurisprudence.
However some transfers may be prohibited or subject to specific
conditions.
Under French Criminal law, transfer of assets could be considered as a
misuse of corporate property or an misuse of authority (“abus de bien
social ou abus d’autorité”). The damage caused to the company by the
offence may also be recovered.
Under French Company law, the transfer can be fall within the category
of agreements that are regulated by French corporate Law. Those
agreements are called “regulated agreements” (“Conventions
réglementées”). French Commercial code has set a list of agreement
that may fall within this category because the other party to the
agreement is linked to the company (for example
company/shareholders, see hereunder details hereunder). Those kind of
agreements are subject to a specific procedure of approval and may be
considered as void and/or may lead to the compensation of the damages
of the company.
If the parent company is the management body of the subsidiary (de
jure or de facto), the parent can be held liable for any breach of
company law and regulations, for the non-respect of the memorandum
of association (“les statuts”) and for mismanagement.
In addition, some civil law mechanisms (paulian and oblique actions)
can be used by the creditors of the transferor. However, these are highly
specific actions and seem to concern only critical situations and the most
important creditors. Even in these particular cases, it does not seem that
these two actions are used in practice.
Page 6 of 59
Finally, under French insolvency law, the transfer may be considered as
void because it has been agreed within a short period before the
insolvency of the transferor.
Are there specific regulations for cross-border transfer of assets?
Are there any specific rules in Banking Law in relation to transfer of
assets?
- from parent to subsidiary
- from subsidiary to parent
- from subsidiary to another subsidiary
Are there specific regulations for cross-border transfer of assets?
There are no specific regulations in French legislation regarding cross-
border of assets.
2. Scope
Does the notion of company groups exist?
- Generally speaking in corporate Law? (If it exists, please give a
definition, conditions and the main applications?)
The notion of company group is not recognized as such by French
legislation. Hence, French legislation does not recognize any legal
existence to a group of company. Each entity of group has its own legal
existence. Therefore, the notion of company is recognized economically
but not legally speaking.
Nevertheless, definitions of “subsidiary”, “holding” and “control” can be
found in the French Commercial Code.
Page 7 of 59
Chapter II of the French Commercial Code concerns Commercial
companies and economic interest groups. This chapter is divided in five
titles and Title II refers to Provisions which are common to various
commercial companies. In this Title II, Chapter III sets the basic legal
framework for Subsidiaries, shares and controlled companies (articles L
233-1 to L 233-40 of the Commercial Code).
Article L 233-1 of the Commercial Code states: “When a company owns
more than half of the capital of another company, the second company
shall be regarded, in order to apply this chapter, as a subsidiary of the
first company”. Therefore, only the portion of capital owned is taken into
account, and not the right of vote.
Article L 233-2 of the Commercial Code defines the term holding, stating:
“When a company owns, in another company, a percentage of the capital
of between 10 and 50%, the first company shall be regarded, ..., as
having a holding in the second company”. In the following articles, more
particularly in articles L 233-29 to L 233-31, specific situations on this
topic are dealt with, notably reciprocal investments and company self-
control.
The holding as defined in article L 233-2 will have some information
duties.
Since a company group is formed, the law makes provisions for
information to be provided to the shareholders of the different
companies forming the group, either specific or just annual information.
The law states as well that in the event of circumvention of these
provisions, the circumvented party shall be entitled to a legal penalty.
Specific regulations are proclaimed concerning quoted companies
crossing the legal threshold for participation.
Article L 233-3 is also relevant regarding the notion of company group.
This article defines the notion of control. Due to the broad sense of the
term, and according to the provisions of this article, the following
notions are included under the concept of control: de jure control, de
facto control, indirect control, or control due to partnership. The law
states further presumptions of company control, for instance, in case
where the executive of a company is appointed by another company.
The ambiguity issued from the independence of the subsidiary and the
control of the parent company can lead to frictions. On the one hand, the
subsidiary is considered as a legal entity, and on the other hand, the
parent controls the subsidiary. However, under no circumstance the fact
that the subsidiary is a member of a company group could mean acting
Page 8 of 59
contrary to the subsidiary’s interest. This is the conclusion taken out of a
decision of the Court of Cassation on November 13, 2007. More
particularly, the decision stated that using the subsidiary as security in
favour of the parent was not possible if t is contrary to the subsidiary´s
interest (intérêt social).
Under insolvency law, the subsidiary may be considered as fictious, or
the relations between the parent company and the subsidiary may be so
extended that the court will treat both companies as a single company.
In those cases, the insolvency proceeding of one of the company maybe
be extended to the other one (see hereunder the notion of “intermingled
assets”).
Under some circumstances, when the links between the parent company
and the subsidiary are so extended that their creditors may believe that
they constitute a single company, the creditors of one of them may ask
for reimbursement to the other (appearance principle).
- Is there in your national law a definition of “group interest” that
specifically allows or facilitates intra-group transfer of assets?
The notion of group interest does not exist in the French legislation.
Nevertheless, this notion has been used by the courts under some circumstances.
Thus, the Court of Cassation uses the concept of “group interest” when
the transfer of assets may be qualified as a misuse of corporate property
or misuse of authority risks.
In this context, the courts use the notion of group interest to determine
if the act must fall within the category of misuse of corporate property
or misuse of authority.
Intermingled assets, or use of the subsidiaries’ assets by the parent
company can be qualified as a misuse of the corporate company or a
misuse of authority.
The infraction of misuse of corporate property or misuse of authority is
constituted when the company managers (de facto or de jure) act
against the company’s interest and in their exclusive own interest.
In the case of a parent/subsidiary relation, the personal interest may be
constituted by the fact that the manager of the subsidiary acts in the
parent’s interest, in which he also has interests.
Page 9 of 59
The Court of Cassation, stated on the 4 February 1985 (in the Rozenblum
case) that if the manager had acted in the group’s interest, the act could
not be considered as a misuse.
For this purpose, the Court of cassation set three conditions:
- A group of company with a coherent and common policy must
exist. Hence, it must be possible to identify a group interest which
can be economic, financial or social. When only a disparate unit
can be identified, such a group does not exist and no group
interest can be distinguished;
- The support (especially the financial one) asked to an entity of
the group must be in the group’s interest. Under no circumstances
the previous engagements of the company concerned can be
challenged and there must be a counterpart to the support
- The agreement must not exceed the financial capacities of the
company granting the support.
We could consider then these three conditions as quite restrictive. This
leaves Rozenblum decision with little practical relevance.
This solutions may also be applied to loans (Crim. Cass., June 24, 1991 –
Crim. Cass., Jan. 18 1993).
- Are there specific tax issues that need to be addressed in intra-
group transfers of assets?
- Are there specific regulations for banking groups?
There are specific rules for cooperative banks which do not seem relevant in this study since cooperative banks represent a minor part of the banks in France.
Article 511-42-2 of the Commercial code states that when at least one the subsidiary of a credit institution is another credit institution, an
investment firm or financial holding or a company which owns shares in such an firm shall respect, on the basis of their consolidated financial
Page 10 of 59
basis, the accounting rules states by order of the Finance ministry as
well as the rules relating to participation stated in article 511-2 of the commercial code.
Therefore, commercial code provides that banking groups must respect specific rules but those rules are determined by ministerial order.
Furthermore, the Commercial code states specific regulations relating to
the supervision of banking group which parent company is not established in France. Two different systems are provided for parent
companies established in the EEE and out of the EEE.
Article L.511-41-1 of the Financial and Monetary Code states “When the parent company of a credit institution is a credit institution, an
investment firm or a financial holding company having its registered office in a State outside the European Economic Area, the Banking
Commission verifies, on its own initiative or at the request of the parent company or a regulated entity approved in an EU Member State or another European Economic Area Member State, that the said credit
institution is subject to consolidated supervision by a proper authority in the third country which is equivalent to that applicable in France. If no
such equivalence exists, the credit institution is subject to the provisions relating to consolidated supervision applicable in France.
The Banking Commission may also use other methods to guarantee equivalent consolidated supervision subject to approval from the proper authority responsible for consolidated supervision in the European
Economic Area and after consulting the relevant authorities of an EU Member State or another European Economic Area Member State. It
may, inter alia, require the formation of a financial holding company having its registered office in an EU Member State or another European Economic Area Member State."
Please specify any relevant information relating to intra-group transfer of
assets that has not been dealt with in the previous questions and that
would be useful for the study.
The commercial code states a specific support obligation for the
shareholders of a credit institution. Thus, article 511-42 of the
Commercial code states : “When it appears that the situation of a credit
institution warrants it, the Governor of the Bank of France, as chairman
of the Banking Commission, after seeking the opinion of that
Commission, except in emergencies, invites the shareholders or
members of that institution to provide it with the support that it
requires”.
Page 11 of 59
It is noteworthy that this obligation of the shareholders or members to
provide financial support to the company depart from some company law
regulations. Thus, the shareholder could be held beyond his
contribution.
According to what is stipulated in article 511-42 of the Monetary and
Financial Code, the purpose seems to be the financial support in order
for the company to pursue its activity rather than to discharge debts.
3. Conditions and sanctions
a) Authorization
Do decisions to transfer assets have to follow specific approval procedures
such as the approval of the board of directors or the transferor or
transferee or the approval of shareholders obtained through a special
meeting of shareholders?
Generally, transfers of assets do not have to be specifically authorised. Nevertheless, the Commercial code has stated special rules for transactions between a company an its executives or shareholders
(regulated agreements).
Therefore, those rules may apply to the transfer from the parent
company to its subsidiary or from the subsidiary to the parent company.
If an agreement is to be qualified as a regulated agreement, a specific procedure has to be followed and specific approval of the board of
directors and of the general assembly has to be required.
A-The qualification of “regulated agreement”
Under French regulation, the transfer of assets as such does not have to
follow a specific approval procedure.
Nevertheless, the fact that the transfer occurs between two entities
which are linked (parent/subsidiary) may have for consequence that the
Page 12 of 59
transfer will be considered as a regulated agreement and will be
submitted to a specific approval.
Regulated agreements are neither included in the category of free
agreements nor in the category of prohibited agreements.
1- Prohibited agreements
Prohibited agreements are the agreements agreed between the director, the general manager, the assistant general managers, the permanent
representatives of directors which are moral persons and the company
stated in article L.225-43 of the Commercial Code, i.e.:
- loan or deficit authorized by the company
- guarantee or support of personal engagements of the
executive.
However, financial institutions are not concerned by this prohibition.
Article 225-43 of the Commercial code literally states:
“In order for the contract to be valid, directors other than legal
personalities shall be prohibited from contracting loans from the
company irrespective of their form, from arranging for it to grant them a
loan account or other borrowing whatsoever, or to arrange for the
company to stand surety for them or act as their guarantor in respect of
their obligations to third parties.
However, if the company operates a banking or financial establishment,
this prohibition shall not apply to current commercial transactions
entered into under normal conditions.
The same prohibition shall apply to the general manager, to assistant
general managers and to permanent representatives of directors which
are legal personalities. It shall also apply to the spouse and relatives in
Page 13 of 59
the ascending and descending line of the persons referred to in this
article, as well as to any intermediary.
The prohibition shall not apply to loans granted to directors elected by
the employees by the company in application of the provisions of Article
L. 313-1 of the construction and dwelling place code”.
2- Unregulated agreements
Free agreements are the agreements mentionned in article L.225-39 of
the Commercial Code. These are agreed between the executive members
and the company and refer to current operations which are concluded
with normal conditions.
Article L 225-39 of the Commercial Code literally states:
“The provisions of article 225-38 are not applicable to agreements
relating to current operations entered into under normal terms and
conditions.
Such agreements are nevertheless made known to the chairman of the
board of directors by the interested party unless they are of no
significance to any party, given their objective or their financial
implications. A list of such agreements and their objectives is sent to the
members of the board of directors and to the auditors by the chairman”.
3- Regulated agreements
Article 225-38 of the Commercial Code mentioned by article L225-39
directly concerns regulated agreements.
“Any agreement entered into, either directly or through an
intermediary, between the company and its general manager, one of its
assistant general managers, one of its directors, one of its shareholders
holding a fraction of the voting rights greater than 10% or, in the case
of a corporate shareholder, the company which controls it within the
meaning of Article L. 233-3, must be subject to the prior consent of the
Page 14 of 59
board of directors.
The same applies to agreements in which a person referred to in the
previous paragraph has an indirect interest.
Agreements celebrated between the company and another firm are also
subject to prior consent if the company's general manager, one of its
assistant general managers or one of its directors is the owner, a
partner with unlimited liability, a manager, a director or a member of
that firm's supervisory board or, more generally, is in any way involved
in its management”.
The notions of “current operation” and “normal conditions” have been
defined by the jurisprudence.
Is considered as a “current operation”, the operation which does not
present any unusual element. This criterion is determined according to
the ordinary activity of the company or usual practices for companies
within the same sector (CA, Paris, October 17, 2003 or CA Versailles
April 8, 2002).
«Normal conditions» are seen as the same kind of conditions to those
usually applied in the company concerned or to companies within the
same sector.
Consequently, the criteria used to determine whether an agreement
must be regarded as a regulated agreement raises a difficulty because
the definition of these concepts can be interpreted differently.
In crisis situations, additional difficulties could be found to determine
whether the operation must be regarded as “current” or with “normal
conditions”. Indeed, the situation in which the agreement takes place is
unusual in itself.
It is noteworthy that the Paris commercial court passed a judgement on
April 26, 1990, concluding that the regulated agreement procedure was
not applicable just because there was no existing antagonism of
interest, due to the fact that the convention was concluded between a
parent company and its subsidiary.
Centralizing agreements are likely to be qualified as regulated
agreements, for each company, as well as for the centralizing structure
(within the joint stock companies and the limited liability companies).
Page 15 of 59
It may be so because the agreement is either concluded between the
company and one of its leaders, or between the company and one of its
shareholders holding a fraction of the voting rights greater than 10%, or
between companies which have common leaders. Is it then necessary to
respect the procedure imposed for this type of agreement? The question
arises because the agreements relating to current operations, concluded
with normal conditions, are formalities-free. Could we consider then the
agreement concluded with normal conditions as a current operation?
Doctrine had overwhelmingly considered them as different. On one
hand, centralizing agreement is not a current operation since it is mean
to last for a long-term and that it is provided with a unique nature.
On the other hand, treasury operations, made under the terms of the
agreement, which are constantly renewed, are considered as current
operations. This leads the signatory companies to observe the regulated
agreements´ procedure as a matter of an obligatory formality.
However, a Versailles Court of Appeal judgment gave a different
meaning to the term “current operation” (Versailles CA, Apr 2, 2002).
The Court considered as a current operation any usual practice in this
kind of situation, even if the practice in question needed to be a single
operation. It is certain that treasury centralization is very frequent
within groups. Formalities then would not need to be respected. An early
recommendation of the National company of the auditors was made in
this sense.
Even though the agreement takes place within companies of the same
group, to observe the regulated agreements´ procedure could be
considered as a cautious proceeding. This is due to the fact that in a
different context, the Court of Appeal affirmed that a current operation
could not be a unique operation (Com. Cass., March 11, 2003).
-Approval procedures of regulated agreements and sanctions in
case of non-respect of these procedures
Page 16 of 59
Regulated agreements have to comply with a specific procedure of
approval.
This procedure is established in articles L.225-38 and L.225-40 of the
Commercial Code.
Thus, regulated agreements require a prior approval of the board of
directors. Furthermore these conventions are subject to an auditor’s
report. These two steps are followed by a general meeting, which
decides whether or not to approve the agreements in question as well as
the auditors' report.
The interested party (the shareholder getting profit out of the
agreement) does not take part to the vote and his shares are not taken
into account for the calculation of the quorum and the majority.
With regard to the sanctions in case of non-observance of these
procedures, the agreement’s nullity can only be declared if the
agreement in question was not priorly subjected to the approval of the
board of directors. The agreement may also be considered as void in
case of disapproval by the board due to harmful consequences for the
company (article L.225-42 of the Commercial Code).
In case of prior approval by the board of directors, later non respect of
the procedure provided by the Commercial code do not involve the
nullity of the agreement. Indeed the only possible sanction is the
personal liabilities of the interested party, who must compensate the
damage of the company.
It may be so when the person concerned sits and votes at the general
meeting (Versailles CA, September 12, 2002), or for the case in which
the general meeting disapproves the agreement (article 225-41 of the
Commercial Code).
Finally, the auditor’s report is not a validity condition for the agreement
(Com. Cass., November 5, 1991).
Do transfers of assets need to be approved by other third parties or
supervisory authorities?
Do transfers of assets have to be notified to other third parties or
supervisory bodies or published?
Page 17 of 59
If the transfer is to be considered as a regulated agreement, the
beneficiary of the transfer must inform the board of directors. Next, the
board of directors delivers his opinion and transmit it to the auditors.
Finally the auditors submit a special report on these agreements to the
general meeting.
The sanctions for the non-respect of these procedures are the same as
the explained above.
Would a specific agreement incorporating the terms and conditions of the
transfer between transferor and transferee and executed by their
authorized representative be required?
As mentioned above, the convention may be considered as a regulated
agreement and may have to be approved by the board of directors and
the general meeting.
Are there differences between transfers in going concern situations /
transfers in crisis situations?
The difference between transfer in going concern situations or in crisis
situation it may not be considered as a convention in “normal
conditions” and therefore may be considered as a regulated convention
and may be subject to a specific proceeding.
b) Counterpart for the asset transfer
Is the transfer of assets treated differently by your national Law :
As already explained above, there are two main risks for the transfer
in French Law:
-the transfer can fall within the category of misuse of the
corporate property or misuse of authority and therefore constitute a
criminal offence
Page 18 of 59
-the transfer can fall within the category of regulated agreements
and be considered as void if the mechanisms that must be applied in
this case have not been respected.
In both cases, the person who is responsible for the transfer may be
held liable for the damages sustained by the company or by third
parties.
- if it respects the arm’s length principle/normal market conditions
dealing (please explain what is considered as arm’s length)
Under Company law, if the transfer of assets is not carried out under
“normal conditions” and is not regarded as a current operation, it must
be subjected to the procedure of approval of regulated agreements
stated by the Commercial Code (see first question in the “authorization”
paragraph).
- if it is agreed under preferential conditions or disadvantageous to
the transferee but advantageous to transferor and the group as a
whole
Transfer agreed in preferential or disadvantageous conditions may be considered as a misuse of company property or misuse of authority (see
the conditions for such a qualification above) except if it falls within the criteria set in the Rozenblum case by the Court of cassation (see criteria above).
Therefore, even if the transfer is agreed under disadvantageous or
preferential conditions, the fact that it is advantageous for the transferor
or the group as whole may
The concept of group interest does not seem to have any effect on the
definition of regulated agreement. Thus, agreements concluded under
preferential or disadvantageous conditions need to be approved under
the conditions established for regulated agreements, even though the
agreement is concluded in the interest of the group.
Page 19 of 59
- if there is no counterpart/compensation for the transfer
- If there is no counterpart, the transfer will certainly be regarded as a
regulated agreement (since it is not an agreement in “normal
conditions” ,see answers above on this subject).
- In addition, the transfer could be considered as a misuse of company
property if it does not respect the criteria given by the Court of
Cassation in the Rozenblum case (see above).
- Thus, there is no essential difference between the transfer carried out
under disadvantageous conditions and the transfer without counterpart.
However risks seem to be higher for transferability abusing of company
property or authority.
- if the transfer is included in a loan or credit agreement between
transferor and transferee.
If the transfer is included in a loan or credit agreement, it will be
subjected to a different legal regulation depending on the conditions it
takes place (see answers above on this question).
Are there differences between transfers in going concern situations /
transfers in crisis situations?
There is no legal instrument making a difference between transfers in
going concern situations and transfers in crisis situations. However, as
explained above, agreements will be more easily regarded as regulated
agreements since they are concluded in unusual conditions.
Consequently, this makes it even harder to consider the agreements as
“current” or concluded under “normal” conditions.
As regards misuse of company property or abuse of power, there is no
formal distinction between going concern situations and crisis
situations. If the criteria given in the Rozenblum case are respected, the
transfer will not be considered as a misuse.
Page 20 of 59
a) Compulsory counterparts and guarantees
Is there any compulsory counterpart or guarantee that transferee should
provide to transferor?
There is no specific obligation of counterpart or guarantee.
Please specify any other relevant information relating to the conditions to
be met for a transfer of asset to be authorized that has not been dealt
with in the previous question and that would be useful for the study
b) Financial capacities of the transferor and the transferee
Does the decision to transfer have to comply with conditions relating to the
financial capacities/health of the transferor/transferee?
[To do]
What are the consequences when the transfer has occurred but those
conditions have not been respected?
Are there any conditions relating to the consequences of the transfer on
the financial situation of the group?
What is the rank of claim of the transferor in case of insolvency
proceedings of the transferee ?Please specify any other relevant
information relating to Financial capacities of the transferor and the
transfereethat has not been dealt with in the previous question and that
would be useful for the study
Are there differences between transfers in going concern situations /
transfers in crisis situations?
c) Information and transparency
Page 21 of 59
Does specific information have to be communicated on the transfer to :
- supervisors
[To do]
- shareholders
In case of regulated agreement, shareholders are entitled to received
the auditors special report on these agreements at the general meeting.
- employees
Article L2323-62 of the Labor Code states that two members of the
workers´ council delegated by the council may attend with consultative
power all the meetings of the board of directors or of the supervisory
board (one or the other, according to the case).
Article L2323-63 states that the members of the workers´ council
delegation to the board of directors are entitled to receive the same
documents as those addressed or given to the members of this authority
at the time of its meetings.
They can submit the wishes of the workers´ council to the board of
directors which has to deliver a reasoned opinion on these wishes.
Consequently, whenever the transfer is regarded as a regulated
agreement, the two representatives of the workers´ council attend the
meeting of the board of directors during which the agreement is
celebrated.
- third parties (specify who can have an access to this information and
how)
In case of regulated agreement, auditors shall be informed before the
conclusion of the agreement (see above).
If yes should this information be communicated before the transfer or after
it :
- supervisors
Page 22 of 59
Before/After
- shareholders
Before/After
- employees
Before/After
Before, in case of regulated agreement (see above).
- third parties (specify who can have an access to this information and
how)
Before/After
Auditors: before, in case of regulated agreement (see above).
Please specify any other relevant information relating to Information and
transparency that has not been dealt with in the previous question and
that would be useful for the study
d) Sanctions
When a transfer of assets has occurred what at are the sanctions (civil
liability of the manager or the supervisory authorities, nullity, criminal
penalty, …) that may be incurred :
A- under Insolvency law
1-Fictitious subsidiaries
Page 23 of 59
When the subsidiary is entirely owned by the parent company or when it
has no autonomy, it can be qualified as a fictitious subsidiary.
Two relevant judgements of the French Courts have to be mentioned.
Firstly, on December 18, 2007, the Commercial section of the Court of
concluded that even in the case in which the management bodies of the
parent company and the subsidiary were common and in which the
general assembly was taking decisions according to the interest of the
parent only, it should not be assumed that the subsidiary is fictitious.
Secondly, on December 13, 2006, the Civil section of the Court of
Cassation stated that the autonomous character of the subsidiary could
not be denied only because the parent is in charge of the establishment
of the subsidiary and contracts a commercial lease or chooses the
architecture firm.
2- Intermingled assets
The fact that each member of the economic group is endowed with a
separate legal status and treated as a unit is probably one of the main
advantages out of operating as a group. With reference to assets and
liabilities, in principle, each member is autonomous. Therefore, in crisis
situations, the entity facing difficulties is alone to manage the crisis.
Since the group is not endowed with legal capacity, it could not be
subjected to insolvency proceedings. Therefore, operating as a group
allows the economic group to limit contagion risks. However, once the
procedure is established, liabilities could be extended to other entities in
case of fulfilment of certain conditions.
The fulfilment of those conditions could more easily be considered in
case of transfer of assets and treasury centralization. This could even
lead to treat the group as a whole, or to make the liabilities of the
company in question common to all the members of the group. As a
Page 24 of 59
result of this, the above mentioned advantage could no longer be
considered.
Only transfer of assets in the context of unbalanced treasury
centralization, and not in the context of balanced treasury centralization,
seem to directly lead to the situations explained above. In this case,
intermingled assets may lead to a unique insolvency proceeding for all
the entities of the group, and the company managers may be held liable.
Even though there is no law provision in the context of crisis situations
for the extension of liabilities within entities of the same group, or for
the treatment of the group as a whole, courts have played an important
role in this field.
When the assets of several entities have been exchanged, it is
sometimes not possible to determine to which entity each asset belongs
to. Therefore, courts have stated that in this case the insolvency
proceeding may be extend to all the entities of the group.
Courts have extended this principle to the cases where unusual assets
flows have occurred.
In principle, unbalanced transfer of assets or unbalanced treasury
centralization lead to the concept of unusual assets flows. This notably
applies to the cases where payments are either way too high or way too
low, as well as to the cases where the company does not have its
treasury at his disposal any more.
The Commercial section of the Court of Cassation, in a decision rendered
on April 19, 2005, concluded that the monetary links between companies
of the same group, as well as agreements concerning treasury
management and personnel and financial assistance were not strong
enough for considering intermingled assets. This decision has set a
precedent.
Courts’ decisions in this matter have most commonly stated the non-
existence of equity merger rather than the opposite.
3- Liability of the company’s executive
Within the different law provisions concerning insolvency proceedings
several rules are set for interested parties and/or authorities to bring an
action for liability against the company´s executive. Some of these
Page 25 of 59
actions can entail for some of de jure or de facto managers to be held
responsible for the debts of the legal entity, in whole or in part.
In the context of treasury centralization, parent companies being at the
same time the executive/manager of the company under control is a
common practice. Therefore, treasury centralization under doubtable
conditions can entail for the parent company to be held responsible for
the debts of the subsidiary.
These actions have partly been modified by the Act No. 2005-845 of July
26, 2005.
Two actions are still contemplated in the new legal system: action
addressing liability for excess of liabilities over assets, and action
addressing liability for the debts of the company. The former is just
about a continuation of the previous existing action. The latter is new.
4- Liability for excess of liabilities over assets
With regard to the action addressing liability for excess of liabilities over assets, the most significant modification is the fact that the action
cannot be brought unless a safeguard or a reorganization plan is set.
In the new system, as well as in the former, unbalanced transfer of
assets can be regarded as a management fault.
For that reason, the company manager/s may be compelled to bear the debts of the legal entity, in whole or in part.
The sums paid by the manager shall form part of the debtor’s assets and may be distributed to all creditors on a pro rata basis.
Article L.652-1 states that the right of action shall be barred after three years from the date of issuance of the order pronouncing the liquidation proceedings or the rescission of the plan.
5- Liability for the debts of the company
Page 26 of 59
Action addressing liability for the debts of the company replaces the
action to extend corporate liability which was used before the 2005 Law. It is no longer regulated as a liability but as a monetary sanction.
If the manager/s of the legal entity commit one or several faults within the ones listed in article 652-3 of the Code of commerce, he risks to bear
all or part of the entity’s debts.
Even if the company discharges part of its debts, obligation with regard to the manager/s is maintained. Contrary to the other action existing in the new legal system, “sums recovered shall be used to pay off creditors
according to the order of their secured claims” (article L 652-3 of the Commercial Code). With regard to the faults listed by law, they are
pretty much the same as the ones stated in the former system.
6- Acts agreed after the cessation of payments (cessation des paiements).
The transfer may be considered as void because they have been agreed after the cessation of payments of transferor.
In case of insolvency, the court generally fixes the date of the cessation
of payments. In such a date has not been fixed by the court, the date of
cessation of payments is the date of the judgement which declares the
cessation of payment. Thus, the court has the right to consider that the
financial situation of the company was compromised before the
insolvency procedure is opened.
Some acts agreed after the date of cessation may be considered as void.
The category of transfer that may be considered as void are as follows :
-gratuitous acts;
-commutative acts in which the obligations of the debtor exceed
the obligations of the other parts (in case of unbalanced transfer);
-any contractual mortgage or judiciary mortgage on the assets of
the debtor.
Page 27 of 59
Except from these specific acts, any payment or act in exchange for
payment may be considered as void if the party who has agreed the act
with the debtor knew he was in a stage of cessation of payments.
The later proposition seems to be quite relevant in case of a transfer
parent/subsidiary or subsidiary/parent since both companies are related
and have information about the financial situation of the other
(especially the parent company as a shareholder of the subsidiary).
b- under Civil Law
1 -Oblique action (action oblique)
Article 1166 of the Civil Code states : “creditors may exercise their
debtor´s rights and actions, except those which are exclusively
dependent on the person”.
This disposition makes it possible to fight against situations in which the
debtor of a person has rights against third parties but refuses or
neglects to exercise them.
For this action to be exercised two conditions are required:
- Firstly, the debtor must be inactive. Thus, if the debtor is active the
creditor cannot use this action;
- Secondly, the creditor´s interference must be based on his interest to
protect his rights. Thus, if the debtor´s assets are sufficient for the
payment to be made to the creditor, so that the interests of the latter
are not compromised, the oblique action cannot be exercised.
Oblique action has the following effect, the property recovered by a
creditor in the name of the debtor falls into the patrimony of the latter
and benefits all its creditors and not only the creditors who exercised
the right.
Concerning transfer of assets between two banking entities, the use of
this action seems rather reduced. Indeed, in order for the creditor of the
transferor to exercise an oblique action against the transferee, the two
Page 28 of 59
before-mentioned conditions need to be present. Therefore, it is
necessary that after the transfer, the transferor is no longer able to pay
the creditor. This possibility seems rather rare.
Moreover, the transferor should held a right in re against the transferee.
Consequently, the exercise of the oblique action seems to be left to loan
matters only.
2- Paulian action (action paulienne)
Article 1167 of the Civil Code states: “They (creditors) may also, on their
own behalf, attack transactions made by their debtor in fraud of their
rights”.
This action called “paulian action” is aimed at making ineffective the
acts agreed in fraud of the rights of the creditor.
Four conditions are required so that the action can be exercised:
-the act has to be of purely patrimonial nature;
- the act must involve the debtor´s impoverishment (therefore an
unbalanced act is necessary);
- the act must involve the unability for the debtor to pay the creditor;
-the act must have been agreed at a date at which the debt was already
existing.
However, if the act is in exchange of payment, it can only be challenged
if the third party is aware of the fraud.
Unlike the oblique action, the result of the paulian action cannot be
shared among all the creditors and only the creditor who exercised the
action but only benefit to the creditor who exercised the action.
The conditions for the paulian action are very strict and not suitable for
an action against a transfer of asset between two member of a banking
group.
Hence, paulian action can only be exercised when the act to be
challenged involves the unability for the debtor to pay the creditor.
Page 29 of 59
Therefore, as far as transfer of assets are concerned, the paulian action
only relates to either the most problematic situations or transfers of
high value.
C-Under company Law
1- Regulated agreements.
In case of a regulated agreement (see above the conditions for an
agreement to be considered as a regulated agreement), if the procedure
of approval is not respected, only some stage of the procedure will lead
to the nullity of the agreement.
Thus, the agreement will be considered as void only if the board of
directors has not given its approval to the agreement (if its approval has
not been requested or if it has given a disapproval, article L.225-42 of
the Commercial Code).
In case of prior agreement by the board of directors, non-respect of the
later stages of procedure (for example, approval by the general
meeting) cannot lead to the nullity of the agreement. In these cases only
the personal liability of the interested parties for the damages suffered
by the company because of the agreement can be incurred.
Therefore, only liability is incurred and not the nullity of the agreement
when :
-the person concerned by the agreement sits and votes at the general
meeting (for example, the parent company votes in sits at the general
meeting and vote for the transfer of assets, which is strictly forbidden by
the Code of commerce). This principle has been set by the Court of
Appeal of Versailles on September 12th, 2002)
-In cases in which the general meeting disapproves the agreement
(article 225-41 of the Commercial Code).
-when not auditor’s report has been made on the agreement (Com.
Cass., November 5, 1991).
2- Executive’s liability
Page 30 of 59
Article 225-251 of the Commercial code states that the limited
company’s executive “are liable either for infringements of the laws or
regulations applicable to public limited companies, or for breaches of the
memorandum and articles of association, or for tortious or negligent
acts of management”.
Any action for liability against the executive must be brought within
three years of the act or event causing the loss or damage, or, if this was
concealed, after the discovery thereof (A.C. Paris, July 5, 2001, in
particular).
The damage suffered by the company itself and the damages suffered by
the third are not subject to the same rules.
a- Compensation for damage caused to the company
The executive itself can introduce an action for compensation of the
damage caused to the company. This action, called the ut singuli action
has, of course, a minor role when the damages was caused by the
executive.
Shareholders can also introduce an action for compensation of the
damage caused to the company individually or in association (the ut
singuli action, article L225-252 of the Commercial Code).
In order for the executive to be held liable, a mismanagement fault has
to be proved (“faute de gestion”). This type of fault is different from the
kind of fault used in common civil law and has been defined by the
Courts.
In case of a transfer of assets, this action cannot be used by the third
parties since the transfer automatically falls within the duties of the
executive.
b- Compensation for damage caused to third parties
With regard to third parties, the executive can be held responsible. The
Court of cassation created a specific fault (which is also used in Labour
law).
In order for the executive to be held liable to the third party “a fault
which can be detached from the duties” (“faute détachable des
fonctions”) must be proved. This kind of fault is more serious than the
Page 31 of 59
fault necessary for the liability of the executive to the company to be
engaged.
This notion of “fault which can be detached from the duties” has been
defined by the commercial section of the Court of cassation on the 20th
May 2003 as the fault which incompatible with the normal exercise of
the executive duties. This incompatibility is based on two elements :
- the act is deliberate
- the fault of great seriousness
The action of the third party against the executive must be brought
within three year starting from the event causing the damage.
- D- under Banking Law
- E- under Criminal Law
Article L.241-3 of the Commercial Code states that the sanction for a
misuse of company assets/property is a prison sentence of five years
and a fine of 375.000 euros (see above for the elements that may
constitute the offence of misuse).
- F- Other
e) Third parties
Supervisory authorities
What is the role of the supervisory authorities in case of a transfer
of assets (right to be informed, have to give an authorization..)?
Please distinguish the home/host supervisory authorities.
Page 32 of 59
Are there any conditions or consequences relating to solvency ratios
(implementation of Bale I et II notably)?
Are there differences between transfers in going concern situations /
transfers in crisis situations?
Please specify any relevant information relating to the supervisory
authorities that has not been dealt with in the previous questions
and that would be useful for the study
[To do]
Minority shareholders
Does a minority shareholder of the transferor have any right
concerning the transfer :
- before the transfer or the decision to transfer (eg. right
of opposition, right of approval, right to be informed…),
- after the transfer (eg. Right to have the transfer
annulled when transfer disadvantageous to transferor,
request for an audit…).
-Liability of the executive
Shareholders can also introduce an action for compensation of the
damage caused to the company individually or in association (the ut
singuli action, article L225-252 of the Commercial Code).
-written questions and management auditoring
According to the article 225-231 of the Commercial Code, shareholders
who owns at least 5% of the share capital are entitled to submit written
questions to the chairman of the board of directors or the directorate on
Page 33 of 59
one or more of the company's management operations concerning
companies under its control.
In case the shareholders are unsatisfied of the reply, procedure for the
appointment of one or more management auditors can be launched.
Creditors
Do Creditors of the transferor have any rights concerning the
transfer :
- before the transfer or the decision to transfer (eg. Right
of opposition, acceleration rights, or right of approval,
right to be informed…),
Under French Law, the creditors do not have any rights concerning the
transfer before the transfer.
After the transfer, the creditors may exercise oblique or paulian actions
in the conditions described above.
As regards the liability of the executive, and as it has been told above,
the action of the third parties against the executive is restricted to the
cases where a “fault which can be detached from the duties” can be
proved, which is irrelevant in the case of a transfer.
Regarding criminal law, the creditors have no rights to join a victim’s
demand for compensation.
(right to have the transfer annulled for fraud when transfer
disadvantageous to transferor and aimed at fleecing creditors…)
Page 34 of 59
Employees
Do Employees of the transferor have any right concerning the
transfer :
- before the transfer or the decision to transfer (eg. Right
of opposition, acceleration rights, or right of approval,
right to be informed…),
- after the transfer (right to have the transfer annulled
when transfer disadvantageous to transferor and likely
to result in redundancies…)
Articles L432-5 and L422-4 of the Labour code states that the work
committee or the elected representatives of the employees can set up an
alarm proceeding if he is aware of facts that can affect the economic
situation of the company.
When the committee group has noticed such facts, the work committee
can ask the executive to give him explanations about the situation of the
company until the next meeting of the committee.
If he is not satisfied of the reply of the executive or if the reply confirms
the fact that the economic situation of the company is affected, the work
committee writes a report which must be transmitted to the executive
and to the auditor of corporate accounts (if there is one for the
company).
The work committee then decides if the report has to be transmitted to
the board of directors, to the directorate or to the shareholders.
Deposit holders
Page 35 of 59
Deposit holders have no special rights compared to the rights of the
creditors.
Regarding the directive 94/19 : Who provides the deposit
guarantee (the government, national bank, insurers…)? For
which amount?
Is there a specific regulation concerning the deposit
guarantee in case of a transfer of assets in another Member
State?
If a transfer of assets including deposited funds occurs, does
the deposit insurer or guarantor have to be notified?
Do Deposit holders of the transferor have any right
concerning the transfer :
- before the transfer or the decision to transfer (eg.
Right of opposition or right of prior approval)
- after the transfer (eg. right to have the transfer
annulled as deposited funds not part of
transferor’s assets but belong to deposit
holders…)
Member State
In case of transfer of assets to/from a transferee/transferor located
in another Member State, has the host/home Member State any
right or obligation?
Page 36 of 59
Others
Please specify any other relevant information relating to third
parties that has not been dealt with in the previous question and
that would be useful for the study
Approved associations having as explicit purpose to defend inverstors
interests may be entitled with a power of attorney from the shareholders
empowering them to act on their behalf (article L 452-2 of the Monetary
and Financial Code).
f) Private international law
What is the applicable law in case of transfer of assets:
With regard to Private International Law, banking activities can be
classified in two groups: activities carried out between two banks, and
activities carried out between a bank and its clients.
Concerning relations between banks, and in case that the law applicable
to the contract has not been chosen by the parties, the Rome Convention
states a special rule.
This special rule is due to the fact that in a bank/bank operation context,
the characteristic performance cannot be determined. Therefore, in
these cases, the law of the country with which it is most closely
connected should be applied to the contract.
Due to the diversity of operations coming out of a bank/bank context, a
general rule cannot be stated concerning the applicable law, and a case
to case study is needed to establish it.
Page 37 of 59
If the transferor located in your member state and the transferee in
another member state?
If the transferor located in another member state and the transferee
in you member state?
Please specify any other relevant information relating to Private
international law that has not been dealt with in the previous question and
that would be useful for the study
Parent´s obligation of financial support to its subsidiaries
Case study: Decision of the Chamber No.15 of the Paris Court of Appeal,
May 24, 2007:
Context
In 1996 a French bank became shareholder of an Argentinean bank. The
French entity firstly hold 16% of the company’s shares. Three years
later the percentage rose up to 70%.
In 2001, due to the Argentinean financial crisis, the government of the
Republic of Argentina enacted a set of measures (informally known as
the corralito) that effectively froze all bank accounts for twelve months,
allowing only minor sums of cash to be withdrawn. Next, in January
2002 the fixed 1-to-1 peso-US dollar parity that had been in place for ten
years was replaced by an official change of 1,40 peso for 1 USD.
The Argentinian bank in question was not able then to respond to all of
its creditors’ demands.
Page 38 of 59
Based on the provisions stated in article 35 bis of the Argentinean
Financial Entities Law, the French bank called upon Argentinean
authorities to withdraw authorization of the Argentinean bank.
After that, the Argentinean bank clients brought an action in France
against the French bank. Clients argued that the latter breached the law
by not supporting the Argentinean bank.
With regard to the applicable law
The action brought by the Argentinean bank clients was based in the
following objection: instead of supporting the Argentinean entity, the
French bank brutally stop pursuing its activity in Argentina, and no
further investment in the Argentinean bank was made. Parties agreed to
treat the fault as a matter of criminal offence.
The decision of the Court of Appeal stated that the appreciation of that
fault was to be made according to the lex societatis, i.e. the law of the
country where the French bank had its central administration.
In matters relating to criminal liability, the Court stated as well that the
applicable law was the one of the place where the harmful event
occurred, i.e. the Argentinian law.
With regard to the French bank liabilities
The French entity was not found guilty by the Court of Appeal.
According to the Court’s decision, frozing bank accounts and abandoning
the fixed 1-to-1 peso-US dollar parity was only due to the new policy
established by the Argentinian government.
Page 39 of 59
The Court’s decision did not take into account the legal arguments used
by the Argentinean bank clients for two reasons: firstly, no legal binding
was found for the French entity to continue its investments in the
Argentinean bank; secondly, even if article 35 bis of the Argentinean
Financial Entities Law sets a sort of financial support for financial
entities in crisis situations, this support could only be considered if the
Central Bank of the Argentine Republic decides it. Though, no Central
Bank decision set so.
Action brought by the Argentinean bank clients mentioned article 511-42
of the French Monetary and Financial Code. This article happens to have
great similarities with article 35 bis of the Argentinean Financial Entities
Law. However, and according to what is stated above, the Court did not
consider the legal arguments based on the French provision because
according to the Court the only applicable law was the Argentinean law.
Part II -Evaluation of potential solutions
The purpose of this second part is to analyze potential solutions to remove
obstacles to asset transferability. Different categories of solutions will be
proposed.
Page 40 of 59
We first would like to know which parts of your legislation would need to be
amended in order to implement the solution.
Second, we would like to have your personal opinion about the feasibility of the
solutions regarding the legislation in your Member State.
After that, we would like know if you consider that this solution is satisfactory
and we would like you to explain why.
Lastly, we would like to know what legal obstacles still remain in your Member
State.
Regarding those proposals, please consider that a transfer of assets from the
subsidiary to the parent company in a crisis situation should not be considered as
a transfer at arm’s length.
1. Transfers from the parent company to the subsidiary or
from the subsidiary to the parent at arm’s length:
Proposal n°1
Community legislation allows:
- any kind of transfer from the parent company to the subsidiary and
- transfers from the subsidiary to the parent at arm’s length.
Possible consequences or conditions:
- Any restriction to those transfers have to be removed by Members States
- After the transfer, specific information about the transfer have to be
communicated to supervisors and shareholders
Page 41 of 59
Questions
i) Please provide a summary of the national measures that should be revised
in order to reach this result.
None.
Transfer from the parent company to the subsidiary : no difficulty
Transfer from the subsidiary to the parent :
- there is a minor risk that the transfer would be considered as a
misuse of corporate property. Nevertheless, when the transfer is in
the group interest, the offence of misuse of assets is not
constituted. To avoid the qualification of misuse of corporate
property, the proposition should be clearly transposed in the laws
in force (the exemption when the transfer is in the group interest
has been introduced by courts and is not clearly stated in the legal
texts).
-Regarding regulated conventions, it should also be written in the
legal texts that this kind of transfer does not fall within the category
regulated conventions.
ii) In order to determine the feasibility of this solution, please explain
precisely whether those modifications would entail
frictions or even a disruption of your legal system or
entail substantial modifications but no major frictions with established
legal principles or
merely minor changes.
This solution would only entail minor changes
Page 42 of 59
iii) Please precise if this solution does satisfactorily take into account interests
of parent companies, subsidiaries, minority shareholders, creditors,
deposit holders, employees, supervisory authorities or Member States as a
whole
Preliminary comments:
It is assumed that:
-Since the transfer is decided on a voluntary basis by the parent, the
transfer is in its own interest. Therefore, the transfer will help the
subsidiary but will not be agreed when the subsidiary is not in a position
that can be solved. Thus it is assumed that the help to the subsidiary is a
mean to avoid the loss of an asset owned by the parent.
-the transfer does not lead to a solvency ratio under the legal
requirements.
-transfer parent/subsidiary:
-for the parent company: yes, since it is on a voluntary basis,
there is no risk of pressure from the subsidiary (unlike
transfers from the parent to the subsidiary)
-for the subsidiary: yes, since it facilitates help from the
parent. Nevertheless, the specific information communicated
to shareholders about the transfer discloses the fact that the
transferee may face some financial difficulties and the public
might not trust the transferee anymore.
-minority shareholder: The benefit of the subsidiary’s
shareholders is obvious. For the minority parent’s
shareholders, it avoids the loss of an asset of the parent
(since the subsidiary is an asset of the parent).
-creditors and deposit holders : their interest is the same as
minority shareholders but if the subsidiary becomes
Page 43 of 59
insolvent after the transfer, a preferential right should be
given to the parent company to be reimbursed (of course,
except in the case where the transfer is a capital increase or
the like).
-employees: see creditors and shareholders. Furthermore, it
is suggested that information should also be communicated
to employees
-supervisory authorities : as mentioned in the preliminary
comments, it is assumed that it does not lead to a solvency
ratio under the legal requirements.
-transfer subsidiary/parent company
-parent company : the interest is obvious. Nevertheless, the
specific information communicated to shareholders about the
transfer discloses the fact the transferee may face some financial
difficulties and the public might not trust the transferee anymore
(this risk is less important than for the transfer from parent to
subsidiary considered above since it is at arm’s length).
-subsidiary interest : the fact that it is at arm’s length does not
mean that the subsidiary has the choice to transfer assets. There is a
risk of pressure from the parent to the subsidiary that would lead to the
transfer whereas the subsidiary needs her assets because she is in a
difficult position. Solvency/liquidity ratios still have to be respected
after the transfer.
-minority shareholders, creditors, deposit holders : same interest
as the subsidiary itself. Regarding minority shareholders, the date and
the amount of the transfer should be mentioned in the annual report to
shareholders. This information seems necessary since some suspicion
could exist regarding transfer from the subsidiary to the parent company
because the parent may bring pressure to bear on the subsidiary. This
information could lead to a control of the manager of the subsidiary.
Page 44 of 59
-employees: it is suggested that information should also be
communicated to employees
-supervisory authorities: The power of the subsidiary
authorities (ie. Sanction) should be defined in cases when
the transfer is not at arm’s length.
iv) Please precise whether legal obstacles remain and how they could be
removed in banking, insolvency and company law).
Both: There is a risk of judicial insecurity: the transfer may be
considered as a regulated convention and may be considered as void if
the approval of the board of directors has not been requested.
Transfer from the parent to the subsidiary: If the parent company is
facing financial difficulties (“période suspecte”), the transfer may be
considered as void in case of insolvency procedure. Removing these
obstacles would present advantages (make the transfer safer for the
subsidiary) and inconvenient (this rule protects the parent’s assets, its
creditors, shareholders and deposit holders).
Transfer from the subsidiary to the parent company:
-the notion of transfer “at arm’s length” should be defined in order to
reduced the risk of challenging the transfer because it can be considered
as a regulated agreement. The notion of “arm’s length” should be
defined in relation with other transactions of the same kind.
- If the parent knows that the subsidiary is facing difficulties, the
transfer can be considered as void (periode suspecte) in case of
insolvency procedure of the subsidiary. Nevertheless, the risk of
insolvency of the subsidiary is low because the transfer is at arm’s
length and because we assume that solvency ratios of the subsidiary are
still respected after the transfer.
Page 45 of 59
2. Transfers from the subsidiary to the parent company (in
preferential conditions)
a) Prior and overall agreements
Proposal n°2:
Similar EU instrument:
Art. 234 - Solvency II: Amended Proposal for a
Directive on the taking-up and pursuit of the business of Insurance and
Reinsurance http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0119:FIN:EN:PDF
Proposal:
For this proposal, please consider that an EU instrument has been
adopted, which provides that a group agreement under which the parent
company and some of the entities of the group can mutually commit
themselves to transfer assets in a crisis situation has to be allowed by the
Member States. This agreement is endorsed by each legal entity being a
party to the agreement. This agreement guarantees financial support from
the parent to the subsidiary and from the subsidiary to the parent. This
agreement could only be voluntary because of the freedom of contracts,
the limited liabilities of companies and minority shareholder rights.
Page 46 of 59
This agreement is submitted to the supervisory authorities. A group-wide
view of solvency and liquidity would be a useful part of the supervisory
assessment of an intra-group transfer. This group-wide approach will be
required as part of the review of the CRD on 'colleges'.
The agreement may already be submitted when the subsidiary asks for
authorization to take up and pursuit the business of credit institutions. This
agreement may also be submitted when the subsidiary asks for
authorization and will be considered as a modification to the conditions of
the authorization to take up and pursuit the business of credit institutions.
Possible consequences or conditions:
-The capital adequacy rules is still respected after the transfer
-The transfer does not endanger the transferor’s solvency
-The amount of the transfer is to be reimbursed by the transferee to the
transferor. In case of insolvency, the creditors of the transferor will be
reimbursed before the creditors of the transferor up to the amount of
transfers that occurred
-After each transfer, the transferor informs supervisors and the
shareholders during the ordinary General Assembly meeting following the
transfer
- If the good faith, competence and prudence of the transferor's
management is not in question and if the transfer fulfils all the conditions
specified above, then the transfer cannot be challenged under Insolvency
Law.
Questions
Page 47 of 59
i) Please provide a summary of the national measures that should be revised
in order to reach this result.
[TO DO]
ii) In order to determine the feasibility of this solution, please explain
precisely whether those modifications would entail
frictions or even a disruption of your legal system or
entail substantial modifications but no major frictions with established
legal principles or
X
merely minor changes.
iii) Please precise if this solution does satisfactorily take into account interests
of parent companies, subsidiaries, minority shareholders, creditors,
deposit holders, employees, supervisory authorities or Member States as a
whole
It is suggested that the existence of a prior and overall agreement
should be disclosed and published because it may have important
consequences for all the persons concerned. This information may be
published by the supervisory authorities and/or in the annex of the
annual report of the parent and the subsidiary.
If a transfer occurs within the conditions set in the agreement, no prior
approval from the supervisory authorities is required. Therefore, even if
there are major differences between the insurance sector and the
banking sector, such an agreement would enable transfers in short
delays (less than 24 hours).
Unlike the amended proposal in the insurance sector (Solvency II-
article 237), the transfer would not only concern own funds but other
kinds of assets.
Page 48 of 59
There should be other advantages that would prompt banking groups to
conclude such an agreement (tax advantages for example).
Parent and subsidiary: this solution is balanced for all the members of
the group, and especially the subsidiary. This solution would reduce the
risk of undue influence from the parent to the subsidiary and would
guarantee the subsidiary that in case of financial difficulties the parent
company will help her.
Credit and deposit holder : On one hand, the interests of the creditors
and deposit holders of the transferor would be harmed since the assets
of the transferor would be reduced. Nevertheless, they will have a
preferential right on the assets of the transferee up to the amount of the
transfer. One the other hand, creditors and deposit holders of the
transferee would benefit from this solution. Finally, the proposal is fair
because even if the creditors and deposit holders of the transferee
benefit from the transfer, the transferee is facing financial difficulties.
The proposal is balanced because both parent and subsidiary are
covered in case of a financial difficulty.
iv) Please precise whether legal obstacles remain and how they could be
removed in banking, insolvency and company law).
b) Strong guarantees covering the risk of outstanding payment
Proposal n°3
Similar EU instrument:
Directive 2002/47/EC of the European Parliament and of the Council of 6
June 2002 on financial collateral arrangements (http://eur-
lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002L0047:EN:HT
ML )
Page 49 of 59
Proposal:
For this proposal, please consider that an EU instrument has been adopted,
which provides that a group agreement under which the parent company and
some of the entities of the group can mutually commit themselves to transfer
assets in a crisis situation has to be allowed by the Member States. This
agreement is endorsed by each legal entity being a party to the agreement. This
agreement guarantees financial support from the parent to the subsidiary and
from the subsidiary to the parent. This agreement could only be voluntary
because of the freedom of contracts, the limited liabilities of companies and
minority shareholder rights.
This agreement is submitted to the supervisory authorities. A group-wide view of
solvency and liquidity would be a useful part of the supervisory assessment of an
intra-group transfer. This group-wide approach will be required as part of the
review of the CRD on 'colleges'.
The agreement may already be submitted when the subsidiary asks for
authorization to take up and pursuit the business of credit institutions. This
agreement may also be submitted when the subsidiary asks for authorization and
will be considered as a modification to the conditions of the authorization to take
up and pursuit the business of credit institutions.
Possible consequences or conditions:
-The capital adequacy rules is still respected after the transfer
-The transfer does not endanger the transferor’s solvency
-The amount of the transfer is to be reimbursed by the transferee to the
transferor. In case of insolvency, the creditors of the transferor will be
reimbursed before the creditors of the transferor up to the amount of transfers
that occurred
Page 50 of 59
-After each transfer, the transferor informs supervisors and the shareholders
during the ordinary General Assembly meeting following the transfer
- If the good faith, competence and prudence of the transferor's management is
not in question and if the transfer fulfils all the conditions specified above, then
the transfer cannot be challenged under Insolvency Law.
Questions
i) Please provide a summary of the national measures that should be revised
in order to reach this result.
[TO DO]
ii) In order to determine the feasibility of this solution, please explain
precisely whether those modifications would entail
frictions or even a disruption of your legal system or
entail substantial modifications but no major frictions with established
legal principles or
merely minor changes.
X
iii) Please precise if this solution does satisfactorily take into account interests
of parent companies, subsidiaries, minority shareholders, creditors,
deposit holders, employees, supervisory authorities or Member States as a
whole
The parent company: the parent company may use the financial
collateral concerned by the directive to obtain some liquidity from her
central bank. Therefore, it is not obvious that the parent company has a
Page 51 of 59
particular interest to ask for liquidity to its subsidiary rather than to her
central bank.
Furthermore, the assets concerned by the directive (which are also
accepted by the central bank) are cash and financial instrument. In case
of a financial crisis, the parent company may have difficulties to find this
kind of assets. Therefore, this solution may not be suitable to financial
difficulties.
The situation may change if the directive is amended and provides that
the subsidiary may accept credit claim as collaterals. In this case, the
parent company would find it easier to give this kind of asset as a
collateral.
Finally, the interest of the proposal depends on the amendment of the
directive 2002/47
The subsidiary : If common criteria in the area of collateral are defined
by central banks and if there a greater acceptance of the cross-border
use of collateral, then this solution may help the subsidiary when she
needs refunding.
Creditors and deposit holders : For creditors of the subsidiary, the
directive provides for very strong guarantees. For the creditors of the
parent company, the proposal n°3 does not change their situations.
Their situation has already been modified by the directive 2002/47. The
proposal only suppresses restrictions to transfer of asset from the
subsidiary to the parent company.
Employees : NA
Supervisory authorities : NA
Member states : Member state of the subsidiary : Facilitating the transfer
of assets from the subsidiary to the parent may reduce the number of
cases where the Member states have to give financial support to the
Page 52 of 59
parent company. Member states of the subsidiary : Since the solution
protects the interests of the subsidiary, there should be no opposition to
this proposal from the Member state of the subsidiary.
Please precise whether legal obstacles remain and how they could be
removed in banking, insolvency and company law )
c) Liability of the parent company for the subsidiary’s debts
Prior question
Firstly, please indicate if in your Member State, the parent company can be held
jointly and severally liable for the subsidiary’s debts and why:
-due to the specific legal form of the subsidiary where the shareholders are
systematically liable for all decisions
Yes, such a legal form exists in legal law and is called “société en
commandit simple”. Nevertheless, it must be noted that this kind
of legal forms are nearly never used. More precisely, no subsidiary
in such a legal form can actually be found. The reason is that the
parent company does not want to be held fully liable for the
subsidiary’s debts.
-due to preferred shares under which the shareholder is
systematically liable for some or all decisions of the company
In French corporate Law, a parent company can be held jointly and
severally liable for the subsidiary’s debts due to preferred shares.
Nevertheless, such shares are nearly never used in the banking
Page 53 of 59
sector. This kind of preferred shares may wear two different forms
: preferred shares (Code de commerce) or “catégories d’actions”
Proposal 4
Then, for this proposal, please consider that a EU instrument has been adopted
and creates an automatic liability:
- by means of a specific type of company where the shareholders are
systematically liable for all decisions that are disadvantageous for the
company
- or by means of a preferred shares under which the shareholder is
systematically liable for some or all decisions of the company
Questions
i) Please provide a summary of the national measures that should be revised
in order to reach this result.
None
ii) In order to determine the feasibility of this solution, please explain
precisely whether those modifications would entail
frictions or even a disruption of your legal system or
entail substantial modifications but no major frictions with established
legal principles or
merely minor changes.
Page 54 of 59
X
iii) Please precise if this solution does satisfactorily take into account interests
of parent companies, subsidiaries, minority shareholders, creditors,
deposit holders, employees, supervisory authorities or Member States as a
whole
The parent company: the parent company has no interest to choose such a
legal form for its subsidiary. One of the main reasons why she chooses
to create a subsidiary rather than a branch is to limit her liability. Unlike
the other propositions above, this solution creates a liability of the
shareholders which can be more important than the amount of the
transfer. Furthermore, this solution concerns a wider subject than only
the question of the transfer of assets and the consequences may be
more important than only removing obstacles to the transfer of assets.
In order to be feasible, this solution should be based on a voluntary
basis. But even in this case, it is doubtful that the parent company has
any interest to choose this solution.
The subsidiary : It is obvious that this proposal is in the subsidiary’s
interest.
Minority shareholders :
-If a specific company where all the shareholders are fully liable
has been created, it would lead to a full liability of the minority
shareholders. This solution is not acceptable because they do not have
any power to take decisions.
-In case of preferred shares, minority shareholders would not be
concerned.
iv) Please precise whether legal obstacles remain and how they could be
removed in banking, insolvency and company law ).
Page 55 of 59
d) Improving transferability transfer through the introduction of a new
concept of "banking group"
Proposal n° 5
Similar EU instrument:
Draft of the Ninth Company Law Directive for the conduct of groups
containing a public limited company as a subsidiary
“Company Law Action Plan” dated May 2003 : “framework agreement” for
group companies
Under the "Company Law Action Plan" dated May 2003, the European
Commission recommended specific rules on the enforcement of the group
policy, for which Member States are required to draft a "frame agreement"
for group companies that allows them to adopt a coordinated group
company policy, as long as the interests of the companies' creditors are
protected. This initiative has not been pursued. There might be merit in
further investigating whether the definition of banking groups might
remove obstacles in terms of banking law.
In that respect, a draft Ninth Company Law Directive on the conduct of
groups containing a public limited company as a subsidiary was presented
in December 1984 for consultation. The Commission did not pursue this
work. The Directive was intended to provide a framework in which groups
are managed on a sound basis whilst ensuring that interests affected by
group operations are adequately protected. Particular reference was made
to the possibility to transfer assets while protecting the interests of
different parties. Under the 9th Directive project, the legal recognition of
the 'group' went hand in hand with specific steps to protect minority
Page 56 of 59
shareholders and creditors. It must be noted that a banking group would
be a contract freely entered into. As contemplated in 1984 under the 9th
Directive on company law, if a banking group does not wish to submit to a
group regime, it will have to respect the economic interests of the
subsidiary.
Proposal:
For this proposal, please consider that the idea of “group company” has
been adopted by an EU instrument,.
The managers of the subsidiaries will be obliged to follow instructions even
if the subsidiaries will thereby incur financial losses. These managers must
therefore not be held liable vis-à-vis their own companies. This power of
management is accompanied by the right to use the financial resources of
the subsidiary, since the economic advantage of the group can be
maximized only where there is a complete intergartion of the two entities.
Once the agreement is concluded, transfers of assets are allowed between
the members of the group.
Possible consequences or conditions:
- The constitution of the group is submitted to the supervisory authorities.
- In case of insolvency, there is a possibility for creditors to file their claims
with any of the companies of the group
- In case of Insolvency, the creditors of the transferor will be reimbursed
before creditors of the transferor up to the amount of transfers that
occurred and the possibility for creditors to file their claims to any of the
companies concerned by the transfer
Page 57 of 59
Questions
i) Please provide a summary of the national measures that should be revised
in order to reach this result.
[TO DO]
ii) In order to determine the feasibility of this solution, please explain
precisely whether those modifications would entail
frictions or even a disruption of your legal system or
X This proposal is in conflict with the fundamental principles of the
French legal system, mostly regarding corporate Law and also
regarding Insolvency Law. Furthermore, it would not be justified to
create a specific corporate Law for banking groups only.
entail substantial modifications but no major frictions with established
legal principles or
merely minor changes.
iii) Please precise if this solution does satisfactorily take into account interests
of parent companies, subsidiaries, minority shareholders, creditors,
deposit holders, employees, supervisory authorities or Member States as a
whole
Parent company : The interest of the parent company is obvious because
she can use the assets of the subsidiary. Nevertheless, she has no
interest to take so many assets to the subsidiary that she becomes
insolvent since the claims of the subsidiary’s creditors can be filed
against the parent company.
Page 58 of 59
Subsidiary: This solution may be considered as very dangerous regarding
the subsidiary’s interest and may not be accepted by the Member states
where there are mainly subsidiaries. This solution could be more balanced if
the parent company’s power were limited to decisions in the group interest.
Creditors of the subsidiary : the risk for the subsidiary’s creditors is that all the
assets of the subsidiary can be taken by the parent company. But ion the other
hand, the can file their claim to the parent company. Nevertheless, if the parent
company is located in other Member state, the proceeding may be quite
expensive. Furthermore, if an insolvency proceeding is opened against the
subsidiary because of the transfer, the losses may be more important than the
amount of the transfer. Therefore, the fact that the creditors of the transferor
will be reimbursed before creditors of the transferee up to the amount if the
transfer may not be considered as sufficient.
Employees : this solution does not take into account the situation of the
employees. They are not informed neither before not after the
agreement.
iv) Please precise whether legal obstacles remain and how they could be
removed in banking, insolvency and company law )
e) Other solutions
Proposal n° 6
Supervisors of the transferor and the transferee can jointly authorize transfers of
assets without any counterpart if:
- The transferee is facing difficulties but no insolvency proceeding has been
opened;
- The transfer does not jeopardize the solvency of the transferor.
Page 59 of 59
Possible consequences or conditions:
- Transfer cannot be challenged by the national company Law, criminal Law
or insolvency law because of the special resolution regime for banks/early
interventions;
- The legislation ensures the entity providing a transfer a priority right in
case of insolvency proceeding of the transferee.
Please feel free to suggest other solutions here.