Richard Jadot & Louis-Jérôme Laisney, Lovells
France has recently introduced a new trust and security mechanism transferring the management and the ownership of an asset to the trustee. Those new security tools should help the finance industry to leverage new pools of assets, to contribute to lower borrowing costs and to provide lenders greater diversification. In a cash crunch environment, unleashing a wave of financial innovation is an opportunity for many corporations to free up cash.
How this happened? The law about the trustee or fiducie was first introduced in 2007. It was not judged sufficiently clear and protective by the stakeholders and thus became largely ignored. In January 2009, the regulator introduced rules to organize the management and the security of the assets. For instance, it is now possible for a borrower to provide trade receivables, movable or fixed assets as securities for his loans.
How it works? Pursuant to the fiducie agreement, the asset is transferred to a trustee (which can either be the lender or a third party) as a separate asset. This protects the lenders in case of bankruptcy proceedings against the grantor or the trustee.
When the fiducie agreement guarantees the financing of the transferred asset, a secondary agreement might be introduced, leaving the transferred asset under the control of the grantor. The grantor can then use and manage the financed asset which is now owned by the lenders. Some uncertainties remain regarding this secondary agreement in the context of insolvency proceedings.
The Fiducie concept exists under various forms in several other European countries: in the United Kingdom it is called Trust, in Germany Treuhand and in the Netherlands Bewind.
Despite these uncertainties, Fiducie has been qualified by some commentators as the future “Queen of security rights”. It is in our view premature to make such a strong statement. It is undeniably an interesting concept which will hopefully “find its way” and generate innovative security package schemes in the market.
Richard Jadot and Louis-Jérôme Laisney are respectively Partner and Lawyer at Lovells, in Finance and Banking. Lovells is one of the largest international legal practices with offices in Europe, Asia and the United States.
