Year in Review – French Law in 2016
Reform of contract law: The long awaited reform of French contract law has now happened. Although it consists for a large part in the codification of existing case law, the reform, which came into force on 1st October, also brings a few significant changes. The reform results in a modernised French Code civil offering greater clarity and predictability.
New Market Abuse Regulation and Repression System: Following the entry into force of the new EU-wide framework for market abuse on 3 July, the Financial Market Authority (AMF) revised its general regulation and published updated and consolidated guidance on disclosure of inside information and related issues during the second semester. Issuers and their managers are subject to stricter rules, including the obligation for issuers to notify the AMF upon publication of any inside information whose disclosure had been delayed. Following the landmark EU and national court decisions in relation to the ne bis in idem rule, the legislator introduced a guiding mechanism between the AMF and the National Financial Public Prosecutor to determine, on a case-by-case basis, which authority can solely prosecute a market abuse. Criminal and administrative sanctions related to market abuse have also been strengthened.
Audit reform: The implementation of the European audit reform took effect on 17 June, but there are a number of transitional measures. It results in a new set of rules, in particular on rotation and selection of auditors, rotation of individuals in audit firms, non audit services, mission of the audit committee and audit reports, with a distinction between public interest entities (which include listed entities) and other entities.
New exception to the banking monopoly: The decree setting out the conditions for certain French investment funds to grant loans directly to borrowers came into force on 27 November and allows such French funds to be more competitive, in particular for transactions set up in a multi-jurisdictional context. This new alternative financing mechanism by non-bank entities will simplify a great number of structured finance, project bond and securitisation transactions involving French borrowers where the fronting and interposition of licensed banks were previously required due to the mandatory French banking monopoly rules.
Negative interest rate: Two decisions have been given on negative interest rates in a loan agreement. The judges rejected the banks’ arguments on the existence of an “implicit zero floor” and ordered them to apply a negative interest rate, as there was no floor in the agreement. It is not clear from those decisions whether the lender would be required to pay a negative interest should it exceed the value of the margin.
Soft law: By two decisions handed down on 21 March, the Conseil d’Etat has for the first time considered as admissible actions for annulment against acts of soft law from regulatory authorities. This is an important development as the courts had traditionally rejected actions for annulment against such acts of soft law, on the grounds that such acts did not change the regulatory framework and could not adversely affect applicants.
Illegal state aid interest recovery: On 15 April, the Conseil d’Etat ordered the French government to recover interest from wind energy producers on the aid they received under the 2008 feed-in tariff, which had been designated as illegal but compatible state aid. The risk of recovery had been identified but considered theoretical as the French government was supportive of the wind energy sector. However, the Conseil d’Etat did not take into account political considerations and applied state aid law in a strict way.
A more favourable regime for arbitration and ADR: The Law n°2016-1547 of 18 November establishes a more favourable regime for alternative dispute resolution and domestic arbitration, in line with the French pro-arbitration approach. In particular, the new wording of Article 2061 of the French Code civil (regarding the arbitrability of disputes) allows a wider range of disputes to be submitted to arbitration. For example, disputes between non-professionals may now be submitted to domestic arbitration.
Reform of French anti-corruption law: The “Sapin 2” Law, published on 10 December, aims at ensuring more efficient prevention, detection and repression of corruption in France. Companies of a certain size are now required to adopt an anti-corruption compliance programme and the new Anticorruption Agency may impose a penalty of €1 million. The protection of whistle-blowers is entirely revised. Deferred prosecution agreements are introduced. An extraterritorial approach of French criminal law is promoted.
New money creditors: the treatment of new money creditors (with a privilege resulting from conciliation proceedings leading to a court-sanctioned agreement) has been recently clarified in the case of a safeguard or reorganisation plan adopted by creditors’ committees. As provided for a plan proposed outside creditors’ committees, debt write-offs or rescheduling cannot be imposed on new money creditors who should now be repaid in cash upon endorsement of the plan if claims are due and payable or at the contractual maturity date. An express consent to the debt write-offs or rescheduling is still possible. There is doubt as to the application of a similar protection for members of the bondholders’ general meeting with a new money privilege.
Competition Law and Data: In May, the French Autorité de la concurrence and the German Bundeskartellamt published a joint paper on data, analysing the implications and challenges for competition authorities resulting from data collection in the digital economy and other industries. This joint work is a prime example of close cooperation between two major national competition authorities. Read more…
Gun jumping: On 8 November, the Autorité de la concurrence fined the Altice group 80 million euros for the premature completion of two mergers notified in 2014. This decision is the first to be issued in Europe or anywhere else in the world in terms of the scale of practices sanctioned and the amount of fines. It is also the first decision fining an undertaking for gun jumping in France. Read more…
Entry into force of the Digital Republic Law: The Digital Republic Law came into force on 9 October. Its purpose is threefold: promote open data, strengthen the protection of privacy for Internet users and facilitate citizens’ access to digital services. It also anticipates a number of provisions of the European Union’s General Data Protection Regulation (GDPR), which is due to come into effect on 25 May 2018. In particular, it introduces new rights for data subjects, imposes new data protection compliance requirements on businesses and strengthens the powers of the French data protection authority.
Regulatory Capital: The “Sapin 2” Law came into force. It modified the hierarchy of creditors of credit institutions and has introduced a new type of security in France: the Senior non-preferred Note, which is a bail-inable instrument. On 23 November, the European Commission submitted its proposal to amend CRR, CRD 4 and BRRD in order to merge the Total Loss Absorbing Capacity Ratio with its EU equivalent: the Minimum Requirement for own funds and eligible liabilities. Read more…
EMIR and Margin Requirements: The regulatory technical standards on risk mitigation techniques for OTC-derivative contracts not centrally cleared by a Central Counterparty Clearing (CCP) were published in the Official Journal of the European Union on 15 December. The new rules implement Article 11(3) of Regulation (EU) 648/2012 (EMIR) and set out the requirements for the collection of initial margin (IM) and variation margin (VM). On 8 June, ISDA and FBF jointly published the AFB/FBF Addendum to the ISDA 2016 Credit Support Annex for VM which enables the parties to document, under French law, their VM arrangements using the ISDA framework and definitions under the AFB and FBF Master Agreements.On 25 November, ISDA and FBF jointly published the FBF/ISDA Master Pledge Agreement (IM), which allows parties to document their IM arrangements under a FBF/AFB Master Agreement.
Rebate on Notary Fees: Since 1 May 2016, notaries can, at their discretion, grant a fixed rebate on their fees up to 10% or 40% depending on the nature of the transaction provided that such percentages are published on their website. This change can have a significant cost impact for mergers and partial contributions of assets which include transfer of ownership of real estate assets.
Civil Law of Environment: The Law of 8 August establishes a new regime of non-contractual liability (without fault) to repair ecological damage caused to the environment. Anyone causing significant damage to the elements or the functions of ecosystems or the collective benefits derived by man from the environment, must repair it. Repair is in priority in kind and then damages. The action belongs to anyone having capacity and interest, such as the State, local authorities and their groupings and associations. Other legal grounds, including general French civil liability, remain in place to repair individual injury and collective interests of environmental associations resulting from harm caused to the environment.
French labour reform: The law “El Khomri”, published on 8 August, addresses a vast range of topics, from collective negotiations to company transfers, and will gradually become enforceable over the next two years. One of the key measures of this reform is designed to give more flexibility to employers by reversing the existing order or “hierarchy” of standards, and make it easy for employers to adopt in-house agreements providing employees with lower benefits than the higher standard provided by industry-wide collective bargaining agreements. The law also includes a new flexibility for laying off employees with new criteria for dismissals based on economic reasons (decrease in orders, turnover, EBIDTA, etc.).
Year to come – French Law in 2017
Say on pay: Compensation of executive directors and corporate officers in French listed companies will now need to be approved by the shareholders’ general meeting, which vote shall be “binding”. These new rules enacted in 2016 shall be supplemented by a governmental decree expected in early 2017.
New regime for the Security Agent: The “Sapin 2” Law has authorised the Government to reform by way of Ordinance the existing regime relating to the use of an agent to hold security on behalf of several creditors provided for by article 2328-1 of the French Code civil. It is expected that the Ordinance will be based on the proposals put together by a working group set up by Paris Europlace in 2012. Although the concept of a security agent was introduced in the French Code civil in 2008, it is rarely used in practice as a result of the uncertainties remaining as to the rights and obligations of the agent.
Update of the securitisation vehicles regime: In line with the decree setting out the conditions for certain French investment funds to grant loans directly to borrowers (see above), a similar decree is expected to be published around April 2017 in relation to securitisation vehicles (including fonds commun de titrisation (FCT) and sociétés de titrisation (ST)).
Regulated tariffs of natural gas: the Conseil d’Etat is expected to take a decision in 2017 on the legality of regulated tariffs for natural gas in France. The European Court of Justice decided that the regulation of natural gas tariffs in France is justified as it pursues a general economic interest (the need to ensure security of supply and territorial cohesion). As regards the proportionality of the regulation in question, the European Court of Justice observed that it will be for the Conseil d’Etat to assess whether such regulation is proportionate to achieve the objectives of general interest and whether it is non-discriminatory.
Non-financial reporting: The Government is expected to transpose the EU non-financial reporting directive during the first semester. This transposition should result in new requirements for large public interest entities (which include listed entities) whose staff greater than 500 to report on environmental, social and employee matters, respect for human rights, anti-corruption and bribery matters, as well as on measures to combat discrimination and to take into account French society’s diversity.
Obligation to implement “duty of care procedures” in large groups: Since early 2015, there have been ongoing discussions about a draft law (proposed by certain members of the French Parliament) aimed at imposing a new obligation to implement “duty of care procedures” on large French companies. This law may be adopted in the early months of 2017. If this is the case, large groups (whose staff exceeds in the aggregate either 5,000 employees in France or 10,000 employees worldwide) would be required to set up, actually implement and report on procedures aimed at identifying and preventing serious damages or infringements to human rights, fundamental freedoms, health and safety or the environment that may result from their activities or from the activities of their suppliers. Fines up to 30 million euros may be imposed in case of non-compliance with these obligations.
Amendments to the ICC Arbitration Rules: The International Court of Arbitration of the International Chamber of Commerce (ICC Court) has announced amendments to its 2012 arbitration rules which will apply from 1 March 2017. These amendments include, in particular, the introduction of expedited procedure rules (applicable to small claims not exceeding USD 2 million unless the parties have expressly opted out of the expedited rules, and otherwise available upon the parties’ agreement). These rules provide for an expeditious and cost-effective resolution of disputes within a period normally not to exceed six months from the date of the case management conference. Under the expedited procedure rules, the ICC Court may decide that a sole arbitrator will be appointed (regardless of any contrary term in the original arbitration agreement). Furthermore, the Arbitral Tribunal may decide after consultation with the parties that such an expedited case will be decided on the basis of written materials only, with no document production phase or witness or pleadings hearing. Another distinctive change to the ICC Arbitration Rules more generally is that the ICC Court may now provide reasons for its most important decisions (in particular, on challenges of arbitrators) if requested to do so by any party. These amendments reflect the ICC Court’s strong commitment to enhance efficiency and transparency in the arbitration process.
EU insolvency regulation: The new European Insolvency Regulation will start to apply to insolvency proceedings commenced from 26 June 2017. It recasts and repeals the 1346/2000 Regulation. Building on the earlier Regulation, it will now clearly apply to pre-insolvency rescue proceedings (French accelerated safeguard and financial accelerated safeguard proceedings are now included in Annex A of the Regulation alongside safeguard proceedings) to ensure their recognition across the EU and avoid unnecessary liquidations which are generally value destructive. Confidential proceedings (such as French mandat ad hoc or conciliation proceedings) remain out of the scope of the recast Regulation. The recast Regulation also provides for a new group co-ordination proceeding, although it remains to be seen how often it will be used given its limitations (notably, that a group co-ordinator’s plan will be non-binding). The provisions on Member States maintaining national insolvency registers and the establishment by the Commission of a decentralised system for their interconnection will not apply, however, until 2018 and 2019 respectively. Read more...
Settlement procedure: Major decisions by the French Competition Authority are expected further to the procedural reform introduced by the “Loi Macron” introducing a settlement procedure in France (so called “Transaction”) and which constitutes a beneficial step forward in terms of procedural efficiencies (simplified and accelerated procedure).
Final Report in the E-commerce sector inquiry due to be published by the European Commission in the first quarter of 2017. The Commission’s preliminary report, published in September of this year, confirmed the fast growth of e-commerce in the EU and identified business practices that might restrict competition and limit consumer choice. Read more…
Outcome of the European Commission’s consultation on improvements to EU Merger Regulation, including whether to amend the current turnover-based jurisdictional thresholds to reflect e.g. deal value. Responses to the public consultation will be published in the first quarter of 2017 and a Staff Working Document evaluating the results will be published in the second half of 2017. Read more…
Implementation of the Antitrust Damages Directive: By the end of 2016, Member States must have taken steps to implement the EU Directive on Antitrust Damages Actions, which aims to promote and facilitate private redress. The effects (particularly on choice of forum) will likely start to be felt during 2017. Read more…
Opening of the Unified Patent Court: After a period of uncertainty following the Brexit referendum, the UK Government confirmed on 28 November 2016 that it is proceeding with preparations to ratify the Unified Patent Court (“UPC”) Agreement and that it should do so by March/April 2017. With German ratification also expected by Spring 2017, this would bring the number of ratifications to the required minimum of 13, including France, Germany and the UK, meaning that the Unified Patent Court could open its doors by the end of 2017. The sunrise period during which patentees will be able to file early opt-out declarations could also begin by mid- 2017. For more information about the UPC and Unitary Patents and strategic considerations that should be assessed in the run-up to this new system, please visit our dedicated UPC microsite.
Financial Regulation: The Priips Regulation on key information documents for packaged retail and insurance-based investment products introduces a key information document (KID), a simple document giving key information to investors on collective investment schemes but also other ‘packaged’ investment products offered by banks or insurance companies. Due to delays in the adoption of the RTS on KIDs, the application of the Priips Regulation has been postponed to 1 January 2018. The Benchmarks Regulation was adopted on 30 June 2016 in order to avoid any further manipulation of benchmarks, which could affect the pricing of financial instruments. It will have to be implemented within 18 months. The Payment Services Directive 2 (PSD 2) published on 23 December 2015 will have to be implemented before 13 January 2018. It aims at harmonising rules applicable to payment services in the European Union and increasing competition by allowing new entrants.
Employee right to disconnect: From 1 January 2017, companies must negotiate with employee representatives on the means for employees to exercise a right to disconnect from their work when not a work and on the use of digital devices out of working hours.