Annex 1-2 National report

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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

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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

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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

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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

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- from subsidiary to another subsidiary

In going concern situations:




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.

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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?




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.

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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

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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.

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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

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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”.

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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

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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

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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

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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).

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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

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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?

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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

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-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.

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- 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).



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.

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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



c) Information and transparency

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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

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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

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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

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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

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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

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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.

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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

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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.

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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

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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

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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.

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Are there any conditions or consequences relating to solvency ratios

(implementation of Bale I et II notably)?



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

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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…)

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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

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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?

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Others

Please specify any other relevant information relating to third

parties that has not been dealt with in the previous question and


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.

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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


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.

http://en.wikipedia.org/wiki/Corralito

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.

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-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.

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0119:FIN:EN:PDF

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=COM:2008:0119:FIN:EN:PDF

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.


-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

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[TO DO]





legal principles or

X





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.


removed in banking, insolvency and company law).

b) Strong guarantees covering the risk of outstanding payment

Proposal n°3


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 )

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=CELEX:32002L0047:EN:HTML



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.


-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



[TO DO]





legal principles or


X




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



None





legal principles or


Page 54 of 59

X




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.


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


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.


- 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



[TO DO]




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.


legal principles or





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.


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


- 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.

Documents

Annex 1-2 National report