On November 8 2016 Parliament adopted the Sapin II Act to promote:

  • transparency;
  • the fight against corruption; and
  • the modernisation of the economy.

The act authorises the government to make decisions regarding legislative matters, including with regard to clarifying and modernising the status of security agents and their role in restructurings.

This authorisation, along with the other aspects of the Sapin II Act, is another step towards making French law more attractive for investors in a time of increased competition among legal systems.

The resulting reform is expected in the coming months. It will be welcomed by market players, as the status of security agents, which was recognised by French law in 2007, has raised more questions than it has solved.

Inadequacies of existing regime

Although they are a key party in financing arrangements, security agents previously lacked specific legal recognition under French law. Lenders would therefore resort to alternative civil law institutions to appoint agents to oversee their security, including managing the administrative aspects and making distributions to lenders on enforcement.

In 2007 the status of security agents was finally recognised in French law with the introduction of Article 2328-1 to the Civil Code, which provides that "any security may be created, registered, managed and enforced on behalf of the creditors of the secured obligation by a person appointed to this end in the agreement which creates this obligation".(1)

This provision raised more issues than it solved and professionals who sought more simplicity, flexibility and legal certainty were turned off altogether.

To make security agents more appealing, the Sapin II Act has authorised the government to amend their legal status, while also setting out the salient features of the resulting reform.

General guidelines for security agents

From security agent to security trustee The new regime will allow for the creation of security interests and personal guarantees for the direct benefit of a security agent, which will hold these rights separately from its own estate and receive proceeds on enforcement.

The reform thus builds on the recent successful introduction of the French version of the trust in 2007 – particularly in the context of restructurings – and creates a specific form of trust specifically designed for the management and enforcement of security interests and personal guarantees in financing arrangements.

The following advantages are expected from the reform:

  • The rights of secured lenders under security documents will be ring-fenced if the security trustee becomes the subject of insolvency proceedings. The reform will determine the conditions for appointing an interim security trustee in such cases.
  • The trust should facilitate the management of security interests and personal guarantees in case of loan transfers (the conditions of which have yet to be determined).

Role of security trustee in respect of borrower The reform will determine how security trustees can:

  • make claims, including in court, on behalf of secured lenders; and
  • declare the claims of secured creditors in a borrower's insolvency proceedings.

The second power seems to be directly inspired by the landmark case regarding the recognition of a foreign security trustee's powers in a borrower's French insolvency proceedings. In this famous ruling of September 13 2011 regarding the Belvédère safeguard proceedings,(2) the Supreme Court notably acknowledged the powers of security trustees appointed under an agreement governed by New York law to declare the claims of the secured lenders in the borrower's French insolvency proceedings.

Conditions of appointment Without pre-empting the government's position regarding the future status of security trustees, the following significant questions must be addressed to ensure that their new status is effective:

  • Will the existing obligation to appoint a security trustee in the agreement which creates the secured obligation remain?
  • What professional requirements will a security trustee have to meet – for example, will they be identical to those of the corporate trustee, which must be a credit institution or another type of regulated professional strictly defined by law?
  • Will the assignment of receivables for security purposes under the widely used Dailly Law be possible for a security trustee that is not a credit institution, contrary to the existing Dailly Law regime?

It remains to be seen how these issues will be addressed in the reform.


(1) Law 2007-211 of February 19 2007, which introduced corporate trusts into French law.

(2) Supreme Court, Commercial Court, September 13 2011, 10-25533, 10-25731 and 10-25908, Bull IV 131.

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