French security trust (fiducie-sûreté)

The fiducie-sûreté is the trust by which the borrower, as settlor (constituant), transfers ownership of assets or rights to a trustee (fiduciaire) to secure a debt. The trustee keeps them separate from its own estate (article 2011 of the French Civil Code). Article 2015 reserves the role of trustee for credit institutions, certain public financial institutions, investment firms, portfolio management companies, insurance undertakings and lawyers. On pain of nullity, the contract identifies the assets transferred, the duration of the transfer, limited to ninety-nine years, the parties, the trustee’s role and the secured debt. It is registered with the tax office within one month of its date. On non-payment, the creditor acting as trustee acquires free disposal of the asset. When the trustee is a third party, the creditor demands delivery of the asset or its sale. An expert sets the value, except for an official quotation or a sum of money, and any surplus over the debt goes back to the settlor. The transferred asset leaves the borrower’s estate. If the borrower keeps the use of the asset, article L. 622-23-1 of the French Commercial Code prohibits any transfer to the trustee or to a third party resulting solely from the opening of insolvency proceedings, the adoption of the plan or a prior payment default. In the vote of the classes of affected parties, only the part of the claim not secured by the trust counts (article L. 626-30). The transferred ownership secures debts other than those in the constituting deed when that deed expressly provides for it (reloading, article 2372-5).

A hotel group borrows €150m to refinance its debt. It transfers to a credit institution acting as trustee, under a fiducie-sûreté, the shares of the company that owns its properties, valued at €260m. A use agreement (convention de mise à disposition) leaves the group the voting rights and dividends. The contract is registered with the tax office within one month of signing. On default, the trustee sells the shares, repays the lenders and pays the surplus back to the group.

• Check who the trustee is and the cost of its role, since the list in article 2015 of the French Civil Code is closed.
• Negotiate a use agreement (convention de mise à disposition) to keep the use of the transferred assets.
• Have the contract set out the valuation method and how the expert is appointed.
• Provide for a reloading clause if the same trust estate is to secure new debts.