Real estate security for reimbursement of a debt
By Pierre-Olivier Martinez, LMBE Avocats
In accordance with a French Supreme Court decision, a real estate security granted by a real estate civil company to guarantee the reimbursement of the debt of one of its shareholders is not valid if it is contrary to the company’s corporate interest (Cour de Cassation, 8-11-2011), i.e. if:
- granting the security is likely to endanger the existence of the company if the guaranteed debt is not paid, and no related benefit is provided to the company
- even if such a guarantee is in line with the company’s corporate purposes of its articles of association.
In the light of this case law, a recent the French Supreme Court decision (Cour de Cassation, 10-12-2015) shows the interest within a Group experiencing financial difficulties of a safeguarding plan (governed by rules similar to those of the US Chapter 11). In this case, it was judged that it was valid for a real estate civil company (which was not under safeguard proceedings) to grant its real estate asset as a guarantee for another Group company (which was under safeguard proceedings).
Therefore, when a company or several companies within a group are under safeguard proceedings, it should be considered that another Group company may grant a real estate security in order to guarantee the reimbursement of a debt contracted in accordance with a creditor’s agreement, if: the shareholders authorised unanimously the real estate security, and the creditor’s agreement signed by the company with the authorisation of the bankruptcy judge was necessary to avoid insolvency.
It is in the best interest of the Group that its companies corporate interests are aimed at avoiding insolvency the continuation of its activities.
Pierre-Olivier MartinezLMBE Avocats, Paris, France
T : +33 (0)1 43 12 80 86
Pierre-Olivier Martinez, Partner of LMBE, was admitted to the Paris Bar in 1992. His areas of practice include insolvency, bankruptcy and restructuring, commercial litigation, M&A, corporate law, tax aspects as well as business criminal law and whitecollar crime.
LMBE was created in 2005 as a result of its partners’ desires: to maintain high quality standards whilst having the flexibility to assist their clients with adaptability, creativity and reactivity. Today LMBE brings together 30 lawyers, including 17 partners, involved in all the strategic areas of business law; the expertise of LMBE is centred on advice to businesses, litigation, arbitration and mediation.
published: September 2015 l Photo: fovivafoto - Fotolia.com