The financing of acquisition and development projects is generally secured by security created over the assets and shares of the borrower; lenders generally accept non-recourse financing for the acquisition of commercial real estate assets, whereas investor and/or bank guarantees will usually be required in addition to the standard security package for development projects.
Typically, the lenders will require security that allows them to directly or indirectly recover the financed asset.
The most common forms of security over real estate are:
Under French law, pursuant to article 2409 of the French Civil Code, a mortgage must be notarized (using a notarial deed) that is, executed in front of a French public notary. The debtor’s consent to the mortgage needs to be given in the notarial deed either directly by the debtor or by its attorney-in-fact on its behalf, pursuant to a power of attorney granted for the purpose of such deed. The beneficiary’s (ie the lender’s) consent to the mortgage may be expressed by an agent of the lender, under a power of attorney expressly granted by the lender to its attorney-in-fact. The mortgage deed must state the obligation secured and the amount of the secured debt.
In order to be completed, a mortgage requires:
Obtaining the mortgage extract for the relevant asset usually takes three weeks (sometimes more, depending on the location of the property).
A mortgage will guarantee the repayment of the principal amount secured, payment of the interest at the contractual rate and additional expenses, usually valued at up to a maximum 20% of the amount secured.
A mortgage must be registered with the land publicity registry. There is no time limit for registering a mortgage, but in the absence of registration the mortgage will not be enforceable against third parties. In addition, if the borrower is subject to bankruptcy proceedings prior to registration, it will then be impossible to implement the required formalities with full effect in the proceedings. Mortgages rank according to their date and time of registration. As a result, a mortgage created in February but registered in May will rank behind a mortgage created in March but registered in April.
A lender's legal mortgage can only secure liabilities incurred in connection with the financing of the acquisition price of a property (excluding any other costs relating thereto). This means that, if a loan agreement is entered into to finance the purchase of land and the carrying out of construction works, only the financing relating to the purchase of the land may be secured by the lender's legal mortgage. In such a case (purchase of property and construction works), a lender's legal mortgage will be granted for the amount of the loan corresponding to the purchase price and a contractual mortgage will be granted for that part of the loan relating to construction works.
A lender's legal mortgage, like a mortgage, must be made by a notarial deed, but, contrary to a contractual mortgage, the loan secured by lender's legal mortgage must also be made by a notarial deed whereas contractual mortgage may validly secure a loan made under a private deed (it being specified that in such case the lender would not benefit from enforceable title allowing it to enforce such mortgage within a prior court judgement declaring its receivable due and payable). The deed of sale, also made by a notarial instrument, will provide that payment of the price of the property was effected in whole or in part with the funds lent.
Like a contractual mortgage, this security must be registered with the land publicity registry for enforceability against third-parties purpose and it ranks according to its date and time of registration. However, article 2418 of the French Civil Code provides for specific ranking rules to govern the case where several mortgages of different kind (legal, judicial and/or contractual) are registered on the same date:
The registration of a lender's legal mortgage is less costly than a mortgage registration, since this security is exempt from the land publicity tax, which can represent a significant cost saving when the amount secured is significant.
Last modified 17 Mar 2026
Real estate includes land, buildings erected on it and fixtures which form part of those buildings.
It is also possible to take security over fittings, furniture and moveable objects (but these do not constitute real estate assets unless deemed, by law, part of the property).
A mortgage may also be taken over long-term leases (baux emphytéotiques).
Pursuant to article L. 313-23 of the French Monetary and Financial Code, any professional receivable held by a company against a third party can be assigned to the benefit of a credit institution or financial institution duly licensed in France or holding an EU passport or to the benefit of certain European long-term investment funds and certain alternative investment funds (as listed by the French Monetary and Financial Code) in their capacity as lender only to secure the company's liabilities as borrower only (such security cannot be used to secure liabilities incurred as guarantor).
The third party (the assigned debtor) can be either:
The assigned debtor cannot be a final consumer. The security is granted by:
The assigned receivables become the property of the assignee as from the date stated on the assignment form (bordereau). However, the standard practice on the French market is either (i) to allow the assignor to act as collection agent on behalf of the assignee and directly receive the assigned receivables from the assigned debtor or (ii) to organise the restitution of such receivables from the assignee to the assignor if following a notification to the assigned debtor the later pays directly to the assignee, in both cases, so long as an agreed event (default or event of default) has not occurred.
If, following the notification of the assignment to the debtor, receivables are paid directly by the assigned debtor to the assignee, the assignee will be under an obligation to return to the assignor amounts received in excess of the amount secured once all secured obligation irrevocably repaid in full.
Payment of receivables can also be directed to finance parties by means of a delegation (délégation imparfaite). Under a delegation, at the request of a debtor (délégant), a third party (délégué) undertakes to pay a creditor (délégataire) who accepts to be paid by the délégué, the latter usually being the debtor of the délégant. As a consequence, the délégataire has two debtors (the délégant and the délégué) and can request payment to the délégant if the délégué does not pay the délégataire.
Such mechanism is traditionally used when a borrower is an indemnified party under representations and warranties made in connection with an acquisition of shares. It may also be implemented in connection with insurance policies taken out by the borrower where the debtor under such policy may be “delegated” in payment to the lender.
There is no specific requirement as to form other than executing and delivering a written agreement signed by each of the délégant, the délégué and the délégataire.
As a delegation creates a direct obligation owed by the third-party debtor towards the beneficiary, insurers, for instance, may refuse to execute a delegation with respect to insurance policies such as a “decennial” insurance policy.
A French security interests law reform has recently been introduced pursuant to the ordinance n°2021-1192 dated 15 September 2021 which came into force on 1 January 2022 (the “Reform”). The Reform has an impact (mainly technical and from a drafting perspective) on the security package described above such as modifications regarding personal guarantees and mortgage security and creation of a new civil assignment of receivables by way of security as an alternative to the Dailly assignment by way of security.
Last modified 17 Mar 2026
The concept of trust is not known in France, and it is not possible to create a trust under French law. However, French law provides for a concept which aims at being similar to a trust known as “fiducie”. The “fiducie” is applicable in the following two situations:
This mechanism is not widely used as there are still certain grey areas regarding its implementation.
Case law on the recognition of trusts established under foreign law is scarce and it is generally acknowledged that the concept of a trust is unknown under French law.
The Reform has an impact on the fiducie-sûreté such as admission of the guarantee of a future obligation and softening of the rules of creation and enforcement of the security.
Last modified 17 Mar 2026
Debt may be traded between lenders.
There are several ways of transferring debt:
Sub-participations are sometimes disclosed to the borrower without this creating a relationship between the borrower and the sub-participant. The sub-participant is entitled to receive the interest amount (and the principal paid by the borrower).
Last modified 17 Mar 2026
In principle, French banking monopoly rules prohibit institutions other than licensed credit institutions or licensed financial institutions from carrying out banking operations in France on a customary basis and for valuable consideration. However, there are certain exceptions to this general rule, particularly for European long-term investment funds and certain alternative investment funds. Therefore, unless qualifying for such exception, a foreign lender participating in a financing transaction considered to be located in France must be licensed in France or hold an EU passport so as not to violate the French banking monopoly rules.
There are no restrictions on granting security to foreign lenders (subject to lenders being duly licensed/qualified if they are to benefit from Dailly assignment of receivables, as Dailly assignment of receivables may only be granted to a lender that is a credit institution or financial institution duly licensed in France or holding an EU passport or an European long-term investment funds and certain alternative investment funds (as listed by the French Monetary and Financial Code), it being specified that, in the event of assignment or transfer of loan secured by a Dailly assignment, the existing Dailly assignment granted to a qualifying assignor/transferor will continue to secure the assigned or transferred portion of the loan independent of the quality of the assignee/transferee).
Some security interests are not available when the law of the underlying secured obligation does not recognize it.
Last modified 17 Mar 2026
Mortgage-related fees are proportional to the amount of the secured debt at the time of creation of the mortgage.
Costs relating to the creation of securities interests include the public notary’s proportional fees, which are based on a sliding scale (subject to discounts that are regularly offered by the notarial offices).
|
Mortgage (hypothèque) |
Money lender's legal mortgage |
||
|
Land publicity tax |
0.715% of the secured amount |
EUR 25 |
|
|
Notary’s emoluments |
Proportional to the loan amount (but the percentage differs) + VAT |
|
|
|
Real estate security contribution |
0.05% of the secured amount |
||
|
Disbursements |
Depends on the transaction |
Depends on the transaction |
|
|
Lawyer's fees |
Depends on the transaction |
Depends on the transaction |
|
Last modified 17 Mar 2026
Yes, there are both financial assistance rules and corporate interest rules which must be complied with:
Article L. 225-216 of the French Commercial Code prohibits a target company from advancing monies or granting loans or any security in connection with the subscription or purchase of its own shares by a third party. This prohibition applies to limited liability companies (e.g. Sociétés Anonymes, Sociétés par Actions Simplifiées) and does not apply to partnerships or civil real estate companies (e.g. Sociétés en Nom Collectif, Sociétés Civiles, Sociétés Civiles Immobilières). This prohibition is subject to criminal and civil sanctions, which could result in the rescission of the transaction and/or a fine amounting to EUR 150,000 on the grounds of article L. 242-24 of the French Commercial Code.
As a consequence, a French limited liability company will not be able to provide a valid guarantee or security over its assets to secure the repayment of a loan (in whole or in part) granted to finance a third party’s subscription or acquisition of the guarantor’s shares or the related transaction costs.
Any decision or act taken by a French entity that is not consistent with its corporate interest, a concept which is quite narrowly defined, exposes management to criminal and civil sanctions.
In financing transactions, this principle limits the ability of French limited liability companies (such as Sociétés Anonymes, Sociétés par Actions Simplifiées or Sociétés à Responsabilité Limitée) to give upstream guarantees or guarantees to affiliated companies. An upstream guarantee (or guarantee to affiliated entity) may give rise to management liability if such guarantee is considered to be a misappropriation or misuse of the subsidiary guarantor’s corporate assets or misuse of credit (abus de biens sociaux), i.e. "an act of using the powers which they [managers, chairman, directors, managing directors] possess or the votes which they have in this capacity, in bad faith, in a way which they know is contrary to the interests of the company, for personal purposes or to encourage another company or undertaking in which they are directly or indirectly involved” (Articles L. 241-3 and L. 242-6 of the French Commercial Code).
Such an act may be punished by a five-year jail time and/or a fine of EUR 375,000.
More specifically, the French Supreme Court (Cour de Cassation) has set out the following criteria for meeting the test:
Accordingly, loan documentation will usually contain limitation clauses such as:
It is market practice in France to reduce the liability to the amount outstanding at the time the guarantee is called.
The only tax issue that could be relevant with respect to the granting of securities in France relates to the withholding tax on interest payments.
Payments of interest will not be subject to the withholding tax set out under article 125 A III of the French General Tax Code unless such payments are made outside France in a "non-cooperative State", as defined in article 238-0 A of the French General Tax Code (Non-Cooperative Jurisdiction). If such interest payments are made on a bank account located in a Non-Cooperative Jurisdiction or paid or accrued to persons established or domiciled in such a Non-Cooperative Jurisdiction, a 75% withholding tax will be applicable as defined in article 125 A of the French General Tax Code.
Such payments of interest are not deductible from the borrower’s taxable income, as from the fiscal year starting on 1 January 2011, if they are paid on a bank account located in a Non-Treaty Country or paid or accrued to persons established or domiciled in such a Non-Treaty Country.
Neither the 75% withholding tax nor the non-deductibility will apply if the borrower proves that the principal purpose and effect of such issue was not to allow the payments of interest or other revenue to be made in a Non-Cooperative Jurisdiction.
Corporate authorizations may be required when a French company contemplates granting security over its assets. Pursuant to article L. 225-35 of the French Commercial Code, any guarantee granted by a Société Anonyme to secure the liabilities of a third party must first be authorized by its board of directors. In addition, by-laws of the company (whatever type of entity it is) may require prior approval by the board of directors and/or the shareholders’ general meeting before the facilities agreement is entered into and the security is created.
A specific corporate authorization may also be required in the event of a pledge of shares in Sociétés Anonymes, Sociétés par Actions Simplifiées or Sociétés en Commandite, the by-laws of which may contain an approval clause (clause d’agrément). In such cases, the beneficiary of the pledge, which will become a shareholder of the company if the pledge is enforced, must be approved (by the board of directors or the shareholders of the company, as the case may be) as potential new shareholder of the company. While the approval may be given at any time, in practice it should be obtained before the constitution of the pledge.
In the event of a pledge of shares in Sociétés à Responsabilité Limitée, Sociétés en Nom Collectif, or Sociétés Civiles, the shareholders must also approve the beneficiary of the pledge as a new potential shareholder.
Pursuant to article L. 2311-2 and the following articles of the French Labour Code, the Works Council – the existence of which is mandatory in companies with at least 11 employees – must be informed of and/or consulted on the decisions which may have significant consequences for the company’s future. Consequently, parties to financing transactions or receiverships including the grant of security over the assets of the company shall ensure that the works council is duly informed and consulted about such transactions when the criterium referred to in article L. 2311-2 et seq. of the French Labour Code is met.
Last modified 17 Mar 2026
There are no restrictions on payments made to foreign lenders under a security document or loan agreement.
A borrower may be required to deduct withholding tax in respect of interest, which is payable to a foreign lender, if the conditions which relate to withholding tax on interest payments are met.
Last modified 17 Mar 2026
A creditor can agree to subordinate its security interest to that of another creditor in a priority agreement or an intercreditor agreement. The agreement will regulate the subordination of the debt as well as the security and will cover matters such as rights of enforcement. Such agreements, however, are not necessarily recognised by a court in bankruptcy proceedings.
Last modified 17 Mar 2026
Security interests over real estate located in France must be governed by French law in order to be enforceable in France.
Last modified 17 Mar 2026
A security interest created by a company over property must be registered at the Land Registry within the time period imposed by law or prior to the start of proceedings. If left unregistered, it will not be enforceable against a liquidator or administrator in the framework of insolvency proceedings.
Last modified 17 Mar 2026
A holder of security over land is not liable for environmental damage provided it does not take possession of the land and does not itself cause, or knowingly permit, damage to the environment.
Great care must be taken if the security is enforced because in some circumstances owners of land can be liable for environmental damage on that land or emanating from it, even if they did not cause the damage. A mortgagee should not go into possession of land without careful consideration of the implications of potential environmental liability.
Last modified 17 Mar 2026
The secured creditor can enforce the mortgage following three different ways:
Note that in the event that (i) the loan agreement has not been contracted in the form of a notarial deed executed in front of a French notary or (ii) the notary mortgage deed does not reiterate the existence of the obligation to pay, the mortgage is not enforceable immediately and the beneficiary of the mortgage will have to go to court to have the existence of its claim recognized. The court order will be notified by bailiff to the borrower. Such procedure:
Last modified 17 Mar 2026
A debtor facing difficulties without being cash flow insolvent (en état de cessation des paiements) (or for less than 45 days in the case of conciliation proceedings) may request the opening of court-assisted pre-insolvency proceedings:
These preventive and consensual restructuring mechanisms, which are distinct from formal insolvency proceedings, are designed to address a company’s financial difficulties at an early stage. Their purpose is to enable the debtor to reach an agreement with its main creditors and stakeholders — for example, an agreement to reduce or reschedule its indebtedness.
These proceedings may only be initiated by the debtor itself, in its sole discretion. The mandat ad hoc is not subject to a statutory maximum duration. Conciliation, by contrast, is opened for a period of four (4) months, which may be extended once for an additional period of one (1) month upon application. A (3) three‑month waiting period must be observed between two conciliation proceedings.
Mandat ad hoc and conciliation proceedings are informal and confidential proceedings carried out under the aegis of a court-appointed officer (mandataire ad hoc or conciliateur, whose name can be suggested by the debtor itself) under the supervision of the President of the relevant court (usually the Commercial Court), which do not involve any stay of the claims nor pending proceedings.
As a consequence, creditors are not barred from taking legal action against the company to recover their claims. In any event, the debtor retains the right to petition the President of the court having opened the proceedings, for grace periods.
In addition, conciliation proceedings provide specific mechanisms regarding the granting of grace periods. The debtor can ask the President of the Court to defer or spread the repayment of the claim:
In conciliation proceedings, any agreement reached between the debtor and its creditors may either be acknowledged (by the President of the court) or homologated (by the court). In both cases, the agreement is enforceable between the parties.
A “new money privilege” applies only where the conciliation agreement is homologated. Creditors providing new money (or new goods or services) during conciliation proceedings may benefit from a priority payment right in the event of subsequent insolvency proceedings.
A third party having granted a guarantee (sûreté personnelle) or a security interest (sûreté réelle) can benefit from the grace periods granted to the debtor during conciliation proceedings as well as from the provisions of the acknowledged or homologated agreement.
Court-administered pre-insolvency proceedings – safeguard and accelerated safeguard proceedings – may be initiated upon petition by the debtor only and court-administered insolvency proceedings – judicial receivership and judicial liquidation proceedings – may be initiated upon petition by the debtor, any creditor or the public prosecutor.
Opening
The debtor may file for safeguard or accelerated safeguard proceedings at any time if it is facing difficulties that it cannot overcome. Regular safeguard proceedings can only be opened, if the debtor is not cash flow insolvent (en état de cessation des paiements) whereas accelerated safeguard proceedings may be opened as long as it was not cash flow insolvent for more than 45 days when it initially requested the opening of conciliation proceedings.
Observation period – judicial bodies
The period from the date of the court decision commencing the proceedings to the date on which the court takes a decision on the outcome of the proceedings is called the "observation period" and may last up to 12 months for safeguard proceedings. During the observation period, a judicial trustee (administrateur judiciaire) is appointed to supervise or assist the debtor’s management and investigates the debtor’s business.
A creditors’ representative (mandataire judiciaire) is appointed to represent the interests of creditors.
A supervising judge (juge-commissaire) is also appointed to ensure the proper conduct of the proceedings and to authorize certain significant acts or transactions that the debtor cannot carry out alone.
End of proceedings
At the end of the observation period, if the court considers that the debtor can survive as a going concern, it will adopt a safeguard or continuation plan which will entail a restructuring and/or rescheduling of debts and may entail the divestiture of some or all of the debtor’s assets and businesses (a sale of the entire business is not possible in a safeguard plan).
At any time during safeguard proceedings, the court may convert such proceedings into judicial receivership proceedings if the debtor appears to have been insolvent before the opening of the proceedings, or in the case where the debtor is cash flow insolvent (en état de cessation des paiements) or if the approval of a safeguard plan is manifestly impossible and if the debtor would shortly become insolvent should safeguard proceedings be closed. The court may also convert such proceedings into liquidation proceedings if the debtor is cash flow insolvent and its recovery is manifestly impossible. The outcome of these proceedings, which is decided by court without a vote of the creditors, may be a sale of the business through a disposal plan and/or isolated sales of the debtor’s assets in order to discharge the debtor’s liabilities.
Adoption and content of the safeguard plan without classes of affected parties
A safeguard plan may include debt rescheduling and debt write-offs as well as debt-to-equity swaps and may provide for a different treatment of creditors if the differences in their situations justify so.
The consultation of the creditors on the draft plan will be done on an individual basis. They will be asked by the creditors’ representative (mandataire judiciaire) whether they accept the draft plan. Where the consultation is in writing and includes proposals for debt rescheduling and/or debt write-offs, creditors shall have a period of thirty (30) days from receipt of the letter issued by the creditors' representative to submit their response. Failure to respond within this period shall be deemed to constitute acceptance of the proposed draft plan. Where the proposal entails a debt-to-equity swap, creditors shall likewise have a period of thirty (30) days to respond. In this case, failure to respond within the prescribed timeframe shall be deemed a rejection of the proposal.
The court has the right to impose uniform debt deferrals for a maximum period of 10 years (it being noted that debts the maturity dates of which exceed the duration of the plan are not concerned and their maturity dates shall remain the same) with a minimum instalment equal to 5% of the claim per year as from the third anniversary of the plan and 10% per year as from the sixth anniversary. The court is however not entitled to impose debt write-off or debt-to-equity swaps. All proposals in the draft plan to this end must be voluntarily accepted by creditors.
Adoption and content of the safeguard plan with classes of affected parties
Classes of affected parties must be constituted when the following thresholds of the debtor, measured at group level, are reached at the date of the opening of safeguard proceedings or judicial receivership: (i) 250 employees and 20 million (euros) net turnover; or (ii) 40 million (euros) in net turnover. The constitution of classes of affected parties is also permitted below these thresholds, by decision of the supervisory judge, on demand of the debtor in safeguard proceedings (and on demand of the debtor or the judicial trustee in judicial receivership proceedings). The constitution of classes is also mandatory within accelerated safeguard proceedings (see below).
The judicial trustee shall, on the basis of verifiable objective criteria, divide the affected parties into classes representing a sufficient community of interest (article L. 626-30 III of the French Commercial Code), it is specified that (i) the judicial trustee must at least distinguish between unsecured creditors and those secured by a security interest in the debtor's assets, (ii) the distribution between the classes must respect the subordination agreements and (iii) at least one class of equity holders must be formed if the plan changes the capital structure.
The draft plan will be drafted by the debtor’s management, together with the judicial trustee in safeguard proceedings. Please note that in receivership proceedings the plan is drafted by the judicial trustee, and a competing draft plan may also be submitted by a creditor.
Within each class of affected parties, voting rights are allocated among creditors in proportion to the amount of their claims and the rights impacted by the plan. Each class is consulted on the draft plan, which shall be deemed accepted by the class if it receives a two-thirds majority of positive votes.
Several scenarios may occur at the end of the voting process:
If the conditions of a cross-class cramdown are not fulfilled, the court cannot adopt the plan.
In such a situation in safeguard proceedings, this would lead to the end of the proceedings (if the debtor is cash flow insolvent (en état de cessation des paiements), the court could convert the safeguard proceedings into judicial receivership proceedings).
Accelerated safeguard proceedings
A debtor in the course of conciliation proceedings may request the commencement of accelerated safeguard proceedings with roughly the same applicable regime as the regular safeguard proceedings but with a duration limited to four months. The initiation of this procedure requires that, during the conciliation phase, a plan that can ensure the company’s long-term viability has been established and is likely to receive sufficiently broad support from the affected parties to make its adoption plausible. The effects of the accelerated safeguard proceedings can be limited only to debts owed to financial institutions and, as the case may be, bondholders which are subject to an automatic stay and dealt with under the safeguard plan. The accelerated safeguard proceedings have effect only against parties affected by the draft plan, with no impact on other creditors.
Status of creditors during safeguard (the same apply in judicial receivership or judicial liquidation proceedings which are proper insolvency proceedings)
Contractual provisions pursuant to which the opening of the proceedings triggers the acceleration of the debt (for safeguard or judicial receivership proceedings) or the termination or cancellation of an ongoing contract (for all court-administered proceedings) are not enforceable against the debtor, as well as, contractual provisions modifying the conditions of continuation of an ongoing contract, diminishing the rights or increasing the obligations of the debtor solely upon the opening of the proceedings. In any event, judicial trustee can request the termination of ongoing contracts (contrats en cours) which it believes the debtor will not be able to continue to perform. The court-appointed administrator can, on the contrary, require that other parties to the contract continue to perform their obligations even though the debtor may have been in default, on the condition that it fully performs its post-petition contractual obligations.
In addition, during the observation period:
As a consequence, the opening of a French court-administered pre-insolvency or insolvency proceedings may affect the rights of the beneficiaries of security and/or guarantee given by the debtor in proceedings to enforce such security interests. As a general rule, security interests benefiting from a retention right and/or a transfer of property will remain enforceable (fiducie, Dailly assignment, escrow account). Other security interests will be unenforceable (eg mortgage, bank accounts pledge, share pledge). In the event any French Asset Entity is put into French court-administered pre-insolvency or insolvency proceedings, this would therefore have an impact on the possibility to enforce some of the security and/or guarantees provided by said French Asset Entity in accordance with the French Security Agreements.
Under French law, as from the opening of insolvency proceedings, any increase under an in rem security agreement (few exception like Dailly assignment exists) (eg by adding or supplementing property or rights, in particular by registering additional shares or proceeds (fruits et produits), or by the transfer of property or rights from the debtor) is prohibited. As a consequence, the opening of insolvency proceedings may affect the rights of the beneficiaries of securities in rem by excluding future property and rights i.e. arising after the opening of insolvency proceedings from the scope of such securities.
Last modified 17 Mar 2026
As a general rule, creditors domiciled in France whose debts arose prior to the commencement of proceedings must file a proof of claim (déclaration de créances) with the court-appointed creditors’ representative within two months of the publication of the court decision in the Bulletin Officiel des annonces civiles et commerciales; this period being extended to four months for creditors domiciled outside France. Each proof of claim must specify the nature and basis of the security that may guarantee the claim. Also, any person, even if not a creditor, must declare any security that has been created on the debtor's assets to guarantee the debt of a third party.
As a consequence, should any of the French Asset Entities (or any other relevant entities that may be subject to the French insolvency regime) be put into French court-administered pre-insolvency or insolvency proceedings, creditors would have, in due time, to file a proof of claim before the appointed creditors’ representative (mandataire judiciaire) or judicial liquidator (liquidateur judiciaire) as regard to any claim they may hold against said French Asset Entity. Also, any person beneficiary of any security and/or guarantees provided by said French Asset Entity in accordance with the French Security Agreements would have to declare said security interests in due time, before the appointed creditors’ representative (mandataire judiciaire) or judicial liquidator (liquidateur judiciaire).
Creditors who have not submitted their claims during the relevant period are barred from receiving distributions made in connection with the proceedings.
If the court decides to order the judicial liquidation of the debtor, the court will appoint a liquidator (usually the former creditors’ representative) in charge of liquidating the company, i.e. selling the assets of the company and settling the relevant debts in accordance with their ranking.
The cashflow insolvency date (date de cessation des paiements) is generally deemed to be the date of the judgment opening the judicial receivership or liquidation proceedings, but the court may rule that a debtor’s insolvency date occurred up to 18 months prior to the commencement date of such proceedings. This marks the beginning of the clawback period (période suspecte). Certain transactions entered by the debtor during the clawback period are automatically void or voidable by the court.
Automatically void transactions include transactions or payments entered during the clawback period that may constitute voluntary preferences for the benefit of some creditors to the detriment of other creditors. These include, notably, transfers of assets for inequivalent or no consideration, contracts under which the reciprocal obligations of the debtor significantly exceed those of the other party, payments of debts not due at the time of payment, payments made in a manner that is not commonly used in the ordinary course of business, security granted for debts (including a security granted to secure a guarantee obligation such as the guarantees) previously incurred and provisional measures (unless the right of attachment or seizure predates the date of cash flow insolvency), the transfer of any assets or rights to a trust arrangement (fiducie) (unless such transfer is made as a security for debt incurred at the same time), any amendment to a trust arrangement (fiducie) that dedicates assets or rights as a guarantee of pre-existing debts, and a declaration of non-seizability (déclaration d’insaisissabilité) applying to any assets of the debtor during the clawback period.
Transactions declared voidable by the court, depending on its findings, include payments made on due debts, transfers of assets for consideration and notices of attachments made to third parties (avis à tiers détenteur), seizures (saisie attribution) and oppositions made during the clawback period, if such actions are taken after the debtor was cash flow insolvent and if the court determines that the creditor knew of the cash flow insolvency of the debtor at that time. Transactions relating to the transfer of assets for no consideration are also voidable when made during the six-month period preceding the clawback period.
As a consequence, should any of the French Asset Entities (or any other relevant entity that may be subject to the French insolvency regime) be put into judicial receivership and/or judicial liquidation proceedings, any security and/or guarantees provided by said entities in accordance with the French Security Agreements (or any security agreement as the case maybe), could be voided in accordance with the above mentioned provisions.
Other effects of Court administrated proceedings
Please refer to the section entitled ‘Status of creditors during safeguard (the same applies in judicial receivership or judicial liquidation proceedings, which are proper insolvency proceedings)’ above.
Creditors’ liability
Pursuant to article L. 650-1 of the French Commercial Code, where insolvency proceedings or safeguard proceedings (including accelerated safeguard proceedings) have been commenced, creditors may not be held liable for the losses suffered as a result of facilities granted to the debtor except in three limited exceptions: (i) fraud; (ii) wrongful interference with the management of the debtor (immixtion caractérisée dans la gestion); and (iii) the security or guarantees taken to support the facilities are disproportionate to such facilities. In addition, any security or guarantees taken to support facilities in respect of which a creditor is found liable on any of these grounds can be cancelled or reduced by the court. Case law has recently set out that this liability would also require that the granting of the facility be deemed to be wrongful.
If a creditor has repeatedly interfered in the company’s management, it can be deemed a de facto manager of such company (dirigeant de fait). In such case, article L. 651-2 of the French Commercial Code provides that, if judicial liquidation proceedings (liquidation judiciaire) have been commenced against the debtor, the creditor being a de facto manager may be liable for the insufficiency of assets (insuffisance d’actifs) of the debtor, along with the other managers (whether de jure or de facto), as the case may be, if it is established that their mismanagement has contributed to the debtor’s shortfall of assets. If such conditions are met, French courts will decide whether the managers should bear all or part of the shortfall amount.
Last modified 17 Mar 2026
The answer is quite complex, as the solutions may vary depending on whether the court (i) adopts a restructuring plan, (ii) adopts a sale plan or (iii) pronounces the liquidation of the company, as detailed hereunder.
Where the debtor's business is continued, the creditor may have granted the debtor extended terms of payment and/or agree to a write-off of the debts. In this case, creditors will not be able to enforce their security interests while the plan is in effect, provided that the debtor complies with its terms.
Where the entire business of the debtor or a substantial part of it is sold, all creditors are discharged by a distribution of the proceeds of the sale price in accordance with the secured/unsecured nature of their debts. This distribution clears all charges and security over the assets, except the security taken to secure financing of the secured assets. For the purposes of payment, post-bankruptcy creditors have priority over pre-bankruptcy creditors, whether secured or unsecured, except with respect to court fees, expenses linked to the proceedings and employees' wages which carry preferential rights. Mortgagees will be paid amongst themselves according to their rank (which depends on the timing of registration of the mortgage).
The purpose of the liquidation of the company is to realize the assets at the best price and distribute the proceeds to the creditors in accordance with their priority ranking. In a liquidation of the debtor, all debts become due (but individual enforcement actions remain stayed in most cases).
In judicial liquidation proceedings, the waterfall refers to the order of priority under which all declared and admitted creditors will be satisfied from the proceeds of the sale of the debtor’s assets. This distribution follows two core principles: (i) compliance with the statutory ranking of security interests and privileges, and (ii) the equal treatment of unsecured creditors.
Article L.643-8 of the French Commercial Code sets out the waterfall applicable to the various classes of creditors. Secured and priority creditors are paid in accordance with the ranking established by law, while unsecured creditors are satisfied thereafter through a pro‑rata distribution (pari passu).
Last modified 17 Mar 2026
Is the concept of a trust or a split between legal ownership and beneficial ownership recognized?
The concept of trust is not known in France, and it is not possible to create a trust under French law. However, French law provides for a concept which aims at being similar to a trust known as “fiducie”. The “fiducie” is applicable in the following two situations:
This mechanism is not widely used as there are still certain grey areas regarding its implementation.
Case law on the recognition of trusts established under foreign law is scarce and it is generally acknowledged that the concept of a trust is unknown under French law.
The Reform has an impact on the fiducie-sûreté such as admission of the guarantee of a future obligation and softening of the rules of creation and enforcement of the security.
Last modified 17 Mar 2026