Reed Smith Client Alerts

1. Background

The sauvegarde filing by Camaïeu’s holding company Modacin France SAS (Holdco) has been reported in the French press as one of the first cases where a safeguard proceeding has been opened by a company’s management1 in order to prevent its creditors from enforcing the fiducie previously granted to them over the shares of Holdco’s subsidiary as part of a court-approved restructuring proceeding (conciliation) of the group back in 2016.

The safeguard proceeding did not result in a safeguard plan. Instead, (i) an early agreement was reached between Holdco and its creditors pursuant to which the creditors acquired 100 per cent. control of the group in return for a debt write-off of €459 million and (ii) the tribunal de commerce de Lille withdrew the safeguard proceeding on 25 February 2019 as Holdco could not demonstrate it was facing insurmountable difficulties.2 

As the sauvegarde was withdrawn, the French court could not rule on the right of a debtor to use the sauvegarde procedure as a strategy to prevent the enforcement of the fiducie. We have expanded below on a few points to be considered by creditors where the security package includes a French fiducie, in the event of the opening of a safeguard, reorganisation or liquidation proceeding (an Insolvency Proceeding) by the management of the debtor.

The French fiducie as security

A fiducie is the French equivalent of the English law trust. It is a contract pursuant to which a company (the Company) transfers ownership of specifically identified assets, rights or security interests (existing or future) belonging to the Company to a trustee (the Trustee). The Trustee holds these in a segregated estate created for the purpose of that fiducie until the discharge of obligations under the underlying financing agreement. The Trustee acts on behalf of one or more beneficiaries, which usually are, until a default, the Company and, after a default, the security agent on behalf of the lenders/bondholders.

Shares may be transferred into a fiducie. Typically the fiducie agreement will include provisions on how the fiducie may be enforced, including the transfer of such shares to the beneficiaries of the fiducie, e.g., the lenders/bondholders.

The main advantage of a fiducie is that it operates a transfer of ownership of and title to the shares so transferred, and that by being segregated from the estate of the Company, the fiducie creates an insolvency-remote structure. As ownership belongs with the Trustee, the shares transferred to the fiducie (before the Company enters into an Insolvency Proceeding) are excluded from the debtor’s insolvent estate.

Therefore, while in principle, under French law, security enforcement is frozen once the Company enters into an Insolvency Proceeding pursuant to article L.622-21 of the French Code de commerce, the fiducie is considered to be bankruptcy-remote and circumvent any Insolvency Proceedings.

However, in the Camaïeu case, Holdco used the opening of the safeguard proceeding as a strategy to prevent the enforcement of the fiducie on Holdco’s shares in its subsidiary.