A new law amending the French Civil Code came into effect on January 1 2022. Article 2302 imposes an annual notification requirement by lenders on the guarantors of outstanding principal and interest guaranteed amounts by March 31 each year. It applies to both new and existing financings. Failure to comply will result in the loss of unreported interest and other financial penalties. The lender may have delegated such tasks to the facility agent or security agent.
Are you compliant?
Ordinance no. 2021-1192 of September 15 2021 on changes to security law (sûretés) has vastly amended the existing provisions relating to security in the French Civil Code.
Most of the ordinance provisions came into force on January 1 2022. It reshuffled inter alia the provisions relating to surety-bonds (cautionnement).
Article 2302 of Civil Code provides that:
“Any professional creditor is bound, prior to March 31 of each year and at its own costs, to let any surety-bond guarantor that is a physical person (caution) know the principal amount of any debt, interest and ancillary payments outstanding on December 31 of the previous year in relation to the guaranteed amount, the non-compliance of which results in the guarantee being nil in relation to the interest and penalties accrued since the previous information, until the next information and any payment by the debtor will be allocated in priority on the principal of the debt.
The professional creditor is bound, at its own costs and subject to the same non-compliance sanction, to remind the surety bond guarantor who is a physical person of the term of its commitment, or, if the surety bond is with an undetermined duration, his ability to terminate its commitment at any time and the conditions under which such right may be exercised.
This article is also applicable to surety bonds granted by a company or any entity (personne morale) towards a credit institution or a financing company as a guarantee of a financing granted to an undertaking.”
These provisions came into force on January 1 2022 and apply to new and existing surety bonds and charges of third party obligations (sûretés réelles pour autrui).1
This means that the new law imposes the following new requirements on the beneficiary of a limited recourse security (that is, the security agent on a syndicated deal or the lender on a bilateral deal (as the case may be)) under French law: