Q: What is a “fondé de pouvoir” and why do I need one in order to obtain security in Québec to support my syndicated loan transaction?
A: The expression “fondé de pouvoir” is used in Article 2692 of the Civil Code of Québec (“CCQ”) which came into force on January 1, 1994. Article 2692 CCQ reads as follows:
“A hypothec securing payment of bonds or other titles of indebtedness issued by a trustee, a limited partnership or legal person authorized to do so by law shall, on pain of absolute nullity, be granted by notarial act en minute in favour of the person holding the power of attorney of the creditors.”
The expression “person holding the power of attorney of the creditors” is translated in French by the words “fondé de pouvoir des créanciers”.
The majority of the Québec lawyers and notaries consider that Article 2692 CCQ imposes the following structure for syndicated loan transactions in Québec: execution of a Deed of Hypothec in favour of the fondé de pouvoir before a Québec Notary, issuance of a collateral demand bond by the Borrower under the hypothec in favour of the fondé de pouvoir and pledge of the bond in favour of the fondé de pouvoir, acting for and on behalf of the initial lenders and all such persons who may, at any time, become lenders under the credit agreement.
In the context of a syndicated loan, the issuance of a bond will not be necessary if the indebtedness is already evidenced by a note, debenture, bond or similar instrument. As regards non-syndicated loans, the hypothec secures the obligations of the debtor under the commitment letter and/or the loan agreement and the issuance of a bond is not necessary.
Over the years, the drafting of Article 2692 CCQ has been criticized by numerous authors, practitioners and by the Québec Bar who have suggested amendments to this Article.
The use of the expression “person holding the power of attorney” is considered by numerous authors as being unfortunate. It gives the impression that the fondé de pouvoir is a simple agent (mandatary) and therefore Article 2692 CCQ would not be necessary since there are other provisions in the Civil Code of Québec dealing with the agency (mandate). This ambiguity has led some practitioners to conclude that the sole purpose of Article 2692 CCQ is to require the notarial form for the hypothecs securing payment of bonds or other titles of indebtedness.
The notarial act en minute is always required for immovable hypothecs (syndicated loans and non-syndicated loans). As regards movable hypothecs, the notarial form is not required for non-syndicated loans. The notarial act en minute requires that the representatives of the lender and of the debtor sign in the presence of a Québec notary. It is usual practice for lenders and debtors having their head office or place of business outside Québec to appoint a representative in Québec to sign on their behalf.
In a judgment rendered on October 3, 2008, the Honourable Judge of the Superior Court, Christiane Alary, has stated that, although there is only one creditor at the time of the execution of the hypothec, the hypothec securing the payment of bonds or other titles of indebtedness shall, on pain of absolute nullity, be granted by notarial act en minute in favour of the fondé de pouvoir.