учебный год 2023 / Haentjens, Harmonisation Of Securities Law. Custody and Transfer of Securities in European Private Law

6 France

required by a securities settlement system.167 This provision constitutes a clear derogation from several provisions of general insolvency law.168

6.5 PERFECTION AND ENFORCEMENT OF SECURITY RIGHTS

6.5.1 Introduction

Under French law, a creditor who wants to prevent pari passu ranking with other creditors, can secure his claim both by the creation of a pledge in his debtor’s securities, or have the ownership of those securities transferred. As a rule of general commercial law, a pledge may be enforced by the pledgee’s assertion of a retention right on the assets pledged and by the sale of the pledged assets, while the pledgee takes free of all other creditors’ claims (droits de rétention, de préférence et d’attribution); art. L. 622-23 C. com. Also under general commercial law, a transfer of ownership by way of security may be enforced by the assertion of a revendication right, should the collateralised assets be held by the debtor; art. L. 621-18 C. com.169 But, as will be shown in the following sections, the specific rules that govern both types of security interests derogate, sometimes quite sharply, from general French commercial and private law.

6.5.2 Transfer of title

In principle, fiduciary transfers (fiducie) are not allowed under general rules of French law. More in particular, conditional transfers to secure a claim are forbidden as a pacte commissoire, and any agreement that purports to effectuate such a transfer is void under both private and commercial law.170 Although case law has not applied this prohibition extensively,171 the French legislator has created statutory exceptions for a few specific arrangements in order to assail any legal uncertainty. In addition, the implementation legislation of the EU Financial Collateral Directive (‘FCD’) more generally exempts all transfers of title by way of security from the application of the pacte commissoire prohibition, provided that these arrangements are concluded between certain, specified institutions.172 In circumstances other

167See, e.g., arts. L. 431-7 and L. 330-2 I C. mon. fin.

168Most notably, arts. L. 621-24, L. 621-25, L. 621-80, L. 621-107 and L. 621-108 C. com.

Cf. MINOR & MAFFEI in VEREECKEN & NIJENHUIS (2003), 196.

169Cf. supra section 3.3.3.

170Arts. 2078 second paragraph C. civ. and L. 521-3 fourth paragraph C. com.

171CABRILLAC & MOULY (2002), no. 542 and AUCKENTHALER (2004), 123. But see the case law cited by AUCKENTHALER (2004), 153-154 (with respect to vente à reméré).

172Arts. L. 431-7 and 431-7-3 paragraph 1 C. mon. fin.

125

6 France

than those provided for by the FCD, fiduciary transfers can be employed only under certain agreements that will be examined below.173

First, assets may be sold and repurchased by the initial seller within five years, while that repurchase annuls the initial sale (vente à reméré); arts. 1659 and 1660 C. civ.174 Vente à reméré may be used to secure a claim when the debtor transfers ownership of his securities to the creditor against payment of the loan, with the obligation to repurchase the securities thus collateralised when the claim is due. Should the debtor default in the repayment, the sale becomes irrevocable; art. 1662 C. civ. However, the repurchase is optional and cannot always be enforced by the creditor, especially not in the case of the debtor’s insolvency.175 In addition, if the sole purpose of the vente à reméré is to secure a claim, the prohibition of pacte commissoire might still be applicable,176 and the financial markets have therefore regarded other constructions as more appropriate to secure claims.177

Under general private law, a loan of fungibles (prêt de consommation) involves the transfer of ownership from the lender to the borrower; art. 1893 C. civ.178 The borrower is therefore fully authorised to dispose of the borrowed securities, but must eventually retransfer the same quality and quantity of the securities lent; art. 1902 C. civ. When this construction is used to secure a claim, the creditor borrows securities from the debtor, and agrees that when the lender defaults, the borrower is freed from his obligation of restitution. But such an arrangement would still be void pursuant to the pacte commissoire prohibition, and a specific statutory exception therefore had to be created that expressly exempts arrangements of prêt to secure loans from the application of the prohibition.179

Similar to prêt de consommation, under an agreement of pension livrée

(repurchase agreement), the debtor transfers ownership of his securities to the creditor against payment of the loan, and agrees to repurchase the same quantity and quality of securities when the claim is due. The debtor and

173These agreements, which may be considered a distinctive type of financial instruments, are also used for purposes other than securing a claim; AUCKENTHALER (2004), 115 et seq.

174To effect the repurchase, a simple expressed intention to repurchase by the initial seller is sufficient; Cass. 1re civ., 28 May 1991, Bull. Joly, August-September 1991, p. 813, no. 290.

175Cf. AUCKENTHALER (2004), 152 and 166.

176AUCKENTHALER (2004), 153-155.

177DE VAUPLANE & BORNET (2001), no. 832.

178Prêt de consommation (mutuum) is distinguished from prêt d’usage (commodatum), under which no transfer of ownership takes place. The former type is only applicable to fungibles and biens consomptibles (consumable assets), but securities have been considered by both legal literature and case law to belong to both these categories; DE VAUPLANE & BORNET (2001), nos. 52 and 836. See also MALAURIE, AYNÈS & GAUTIER (2001), no. 930.

179Art. 31 of Act no. 87-416 of 17 June 1987, now codified as art. L. 432-6(3). See also art.

431-7 C. mon. fin., which sanctions close-out netting.

126

6 France

creditor further agree that if the debtor defaults, the creditor is freed from any obligation of restitution. But while a creditor’s need for securities is often the main reason for engaging in a prêt arrangement, the debtor’s need for money most often triggers the conclusion of a pension livrée agreement. The pacte commissoire prohibition would therefore be applicable,180 but for certain designated financial institutions, the legislator created an exception.181

Many different arrangements under which securities are transferred to a counterparty that agrees to retransfer these securities in due time to a third party or the initial seller classify as portage.182 The arrangement can be used to effectuate a repurchase agreement or securities lending, but because it is considered a sui generis agreement, i.e. not statutorily classified, the statutory exceptions to the pacte commissoire prohibition are also not applicable. As a consequence, it is far from unproblematic.183

6.5.3 Pledge and attachment

Creation of a pledge

Specific, derogatory provisions of both the Code monétaire et financier and other statutes create a special regime for the creation and enforcement of a pledge vested in dematerialised securities, which is otherwise governed by the Code de commerce.184 For instance, the registration of a pledge is not required for a pledge on securities to be effective, whereas under general private law, a pledge must be registered.185 Moreover, under the implementation legislation of the FCD, only a written deed that identifies the securities pledged and their way of creation is currently required for the creation of a pledge (nantissement) on dematerialised securities.186

In addition, the pledged securities must be transferred to a special pledge account in the pledgor’s name with any intermediary, or, in the case of titres nominatifs purs, with the issuer. The pledge may also be made effective by electronic identification of the pledged securities by the intermediary concerned, or, since the implementation of the FCD, by a control agreement

180CABRILLAC & MOULY (2002), no. 530 and AUCKENTHALER (2004), 124.

181Arts. L. 432-12 – L. 432-19 C. mon. fin., which are provisions that originate from the former Act no. 93-1444 of 31 December 1993. See AUCKENTHALER (2004), 123.

182DE VAUPLANE & BORNET (2001), no. 868.

183See DE VAUPLANE & BORNET (2001), nos. 873 – 876 and CORNU (2004), p. 681.

184See arts. L. 431-4, L. 431-5 and L. 431-6 C. mon. fin., Decree no. 97-509 of 21 May 1997

and arts. L. 521-1 – L. 521-3 C. com., respectively.

185Art. 2074 C. civ. Cf. DE VAUPLANE & BORNET (2001), no. 65.

186Ordinance no. 2005-171 of 42 February 2005, implemented as art. L. 431-7-3 paragraph 2 C. mon. fin.

127

6 France

between creditor and debtor.187 Although the written deed and securities transfer render the pledge effective, i.e. enforceable against the issuer and other third parties, they are not a constitutive element for the pledge itself, which is created by the pledge agreement alone (solo consensu).188

By virtue of the pledge, the pledgee obtains a retention right on the pledged securities,189 but the pledgee and pledgor may together define the conditions under which the latter may still dispose of the securities pledged.190 In addition, they may agree to confer the voting rights attached to the securities pledged to the pledgor, whereas the rights to the payment of dividend and interests may remain with the pledgee.191

Although the quantity and quality of the pledged securities must be identified in order for a pledge to be effectively created,192 case law has classified an accountholder’s securities portfolio as universalité des biens (a single entity of property), when that is to the accountholder’s expressed intent.193 That classification implies that a securities account and all assets to which it refers can be treated as a single legal entity, and may therefore be pledged in its entirety. Moreover, changes in the securities account do not alter the pledge as such, although it is contested in legal literature whether securities that are transferred to a pledged account must also be considered as being covered by the pledge.194 In addition, dividends and interests that follow from the securities thus pledged are covered by the pledge, even when they are credited to separate accounts; art. L. 431-4 I C. mon. fin.195

Thus, specific monetary assets are made subject to a special pledge regime, that would otherwise be governed by art. 2075 C. civ. More generally, a classification of a securities account as a universalité des biens does not accord with general private law, as general private law does not accept that a single entity of property is composed of different – and differing – assets.196 Furthermore, the possibility of later transfers to a pledged account seems

187Art. L. 431-7-3 paragraph 2 C. mon. fin. See also AUCKENTHALER (2004), 33.

188See Cass. com., 7 March 1995, RTD com., October-December 1995, p. 835, no. 13.

189Art. L. 431-4 III C. mon. fin. See also Cass. 1re civ. 4 January 1992, Bull. I, no. 4. The

pledgee’s retention right also includes dividends and interests flowing from the pledged securities; art. L. 431-4 IV C. mon. fin. Cf. MAFFEI (2005), 245.

190For instance, pledgor and pledgee may agree that the pledgee receives a mandat de gestion (management mandate) under which he has to manage the pledged portfolio; DE VAUPLANE & BORNET (2001), no. 69.

191See AUCKENTHALER (2004), 35.

192Art. L. 431-4 II C. mon. fin.

193Cass. 1re civ., 12 November 1998, Dr. sociétés, January 1999, p. 21, no. 17.

194See AUCKENTHALER (2004), 30-31.

195Derivatives, on the other hand, are excluded from this rule, as art. 5 of Decree no. 97-509 of 21 May 1997 provides that only securities expressed in accounts maintained by a financial intermediary, CSD or issuer are subject to the provisions of the Code monétaire et financier.

196DE VAUPLANE & BORNET (2001), no. 63.

128

6 France

contrary to the general commercial law provisions that prohibit fraudulent preferences.197

Enforcement of a pledge

Under general private and commercial law, a pledge vested in securities can be enforced when the following three conditions have been met: the secured claim must be certain, i.e. not challenged, precise and due; proof of default must have been sent to the debtor; and a certain time-limit must have passed.198 But under the implementation legislation of the FCD, and as a derogation from general law, the enforcement of a pledge on securities is not subject to any formalities. When the claim has become due, a pledgee may

therefore immediately either sell the pledged securities or appropriate them by set-off or transfer to his own account(s).199 Yet the FCD applies only to

specified institutions and securities transfers that are settled through the CSD’s settlement system, and when these conditions are not met, the written deed is still a statutory requirement (lettre de mise en demeure).

As a way of enforcement, appropriation clearly derogates from the prohibition of pacte commissoire discussed above, and under general commercial law, a pledge can only be enforced by public auction.200 Moreover, for pledges in all categories of securities, sums in cash that are part of, or are attached to the pledged securities account may be appropriated by the pledgee. Finally, if the value of the pledged assets plus the costs of enforcement exceed the secured claim, the surplus must be paid to the pledgor.201

In addition, under the implementation legislation of the FCD, a pledgor has full power of disposal over the pledged securities, and can therefore retransfer or rehypothecate the collateralised securities. Yet he is under an obligation to eventually return equivalent securities.202 Furthermore, clearing and settlement institutions may now create their own regime for the creation and enforcement of security rights that are vested in the context of the settlement systems they maintain.203 More generally, the C. mon. fin. expressly excludes the enforcement of all security interests from the application of all rules on insolvency proceedings.204

197Art. L. 621-107 C. com. But see AUCKENTHALER (2004), 36.

198AUCKENTHALER (2004), 36.

199Art. L. 431-7-3 paragraph 2 C. mon. fin. Prior to the implementation of the FCD, appropriation was already allowed under art. 3 of Decree no. 97-509 of 21 May 1997.

200Art. L. 521-3 C. com.

201See AUCKENTHALER (2004), 37.

202Art. L. 431-7-3 paragraph 3 C. mon. fin.

203Art. L. 330-2 paragraph 2 C. mon. fin.

204Arts. L. 330-2 paragraph 3 and L. 431-7-2 C. mon. fin.

129

6 France

Attachment

With respect to attachment (saisie), a distinction is made between mesures d’exécution forcée (measures to liquidate) and mesures conservatoires

(measures to freeze). Under the first type, securities are attached under the issuer in the case of titres nominatifs purs, or under an intermediary in all other instances.205 But if the creditor has been judicially granted the authority to liquidate, this type of attachment is effected through the transfer of the

attached securities to a special account, after which these securities may be sold.206

Mesures conservatoires can also be effectuated only by duly authorised creditors, and the attached securities may not subsequently be transferred by the debtor. The judgment creditor may only sell the assets if he has obtained proper authorisation. In addition, this type of mesures conservatoires is distinguished from sûreté judiciaire, under which the debtor is still free to transfer the attached securities; art. 79 of Act no. 91-650 of 9 July 1991.

6.6 CONFLICT OF LAWS

Because, as noted above, many issues of substantive law are the subject of considerable debate, private international law regarding dematerialised securities is also muddled. It is unclear, for example, whether the express choice of law rules on the assignment of claims apply to securities.207 The conflict of laws rules of the European Directives, discussed above, have provided more certainty. Their scope, however, is limited.

Under French private international law, conflict of laws issues regarding non-dematerialised titres au porteur are traditionally governed by the lex rei sitae. Since the certificates are deemed to incorporate the investors’ rights, the law of their location governs proprietary claims, such as revendication of lost or stolen securities.208 To ‘non-dematerialised’ titres nominatifs, the lex incorporationis or the law of the register’s location applies.209 Most often, but not necessarily, these rules will point to the same law.

205Arts. 178 and 180 of Decree no. 92-755 of 31 July 1992.

206Art. 59 of Act no. 91-650 of 9 July 1991.

207Cf. PARDOEL (1997), 23-24 and AUDIT (2000), no. 763.

208But see Cass. 1re civ., 25 January 1966, Dalloz Sirey 1966, 390 and Cass. 1re civ., 17 October 1972, Revue critique de Droit International Privé 1973, 520. In these cases, the lex societatis was applied, probably because of the lois de police having a predominant influence.

209DE VAUPLANE & NIZARD (2001), 410. On the French version of lex incorporationis (siège social), see, e.g., MAYER & HEUZÉ (2004), 717 et seq.

130

6 France

As to the appropriate conflict of laws rule regarding dematerialised securities, uncertainty exists since the classification of dematerialised securities themselves is a matter of discussion. Such classification is of relevance, because if securities are considered meubles corporels (tangibles), the lex rei sitae applies.210 If dematerialised securities are classified as meubles incorporels (intangibles), the applicability of the lex rei sitae is not that obvious.211 Yet a French court, having made the classification under French law as the lex fori,212 is most likely to classify dematerialised securities as intangibles.213

Nonetheless, most legal authors assume the applicability of the lex rei sitae, without ‘looking-through’ the chain of custodians. Thus a variation of PRIMA is advocated. The argument is made mainly on practical grounds, such as the inefficiency of the traditional rules due to the disconnected relationship between the issuer and the ultimate accountholder/investor and due to modern portfolios consisting of different types of securities. Others, more theoretically, locate the investors’ rights in the custodian’s/intermediary’s jurisdiction214 or at the place of the securities account.215 Still others advocate a general application of the PRIMA rule as defined in the SFD.216

To proprietary aspects of transfers of non-dematerialised securities the traditional conflict rules apply: the lex rei sitae, i.e. the law of the certificates’ location, determines the perfection requirements and the effects of transfers of title in the case of titres au porteur, whereas the law of the issuer governs the proprietary aspects in the case of a transfer of titres nominatifs.217 But in the event that a judge would classify a transfer of titres nominatifs as an operation sui generis,218 he would apply the law where the issuer’s register is located.219 Most likely, this will refer to the same law as the lex societatis. Should this not be the case, then the law of the register’s location prevails, provided no fraus legis is intended and both the law of the siège social and of the register’s location recognise the validity of the register.

To the proprietary aspects of transfers of dematerialised securities, a French court would most likely apply PRIMA as a variation of the lex rei sitae,

210Cass. 1re civ., 8 July 1969, Revue critique de Droit International Privé 1971, 75.

211MAYER & HEUZE (2004), 469.

212Juris-Classeur International, Fasc. 550, no. 12, p. 4.

213Court of Paris, 5 July 1990, Droit des sociétés, December 1990, 7, no. Q-20. Cf. also DE VAUPLANE & NIZARD (2001), 404.

214MOUY & DE VAUPLANE (1995), 59.

215DE VAUPLANE & NIZARD (2001), 411.

216BLOCH (1999), 80.

217AUDIT (2000), no. 763 and 765.

218RIPERT & ROBLOT II (1996), nos. 1761, 1764 and 1765.

219Juris-Classeur International, Fasc. 564-30, no. 124 et seq., 13.

131

6 France

which is considered the appropriate conflict rule regarding proprietary matters. However, if the securities in question are not transferred as collateral, as a consequence of which articles L. 330-2 or L. 431-7-4 paragraph 4 C. mon. fin. would prescribe PRIMA, this cannot be stated with absolute certainty.

In a private international law case decided on 8 July 1969,220 the Cour de cassation stringently applied the lex rei sitae. In this case, the German parties had created a security interest in a car that was located in Germany at the time of the creation of the security interest. In due time, however, the car moved to France, where a French garage owner obtained a retention claim with regard to this property. Called upon to hear this claim, the Cour de cassation held that French law applied to the validity of the security interest, since the car now stood on French soil. As can be inferred from this case, the rei sitae rule is a well established rule of French private international law on the proprietary aspects of security interests.

Already in 1983, on the other hand, a provision was enacted221 that explicitly applies a certain rule of French substantive law to the enforcement of a pledge vested in securities expressed by a French securities account, whether the securities concerned are French or not.222 This could be understood as a form of PRIMA, but this provision has not been supported by other, more general provisions. Moreover, it is unlikely that a French judge would conversely apply foreign law in the case of a pledge vested in dematerialised securities expressed by a foreign securities account.223 Since the enactment of the SFD and the FCD implementation legislation, however, PRIMA, considered as a variation of the lex sitae,224 is applied to collateralised securities, whether outright or by way of security.225

Although EU legislation has introduced new rules of private international law, these are not considered to constitute a break with the traditional principle of lex rei sitae. Consequently, it is not entirely certain that PRIMA will be applied by French courts when called upon to judge proprietary conflicts of laws regarding book-entry securities, save for cases on collateralised securities. Moreover, even if PRIMA is applied in cases of collateralisation, it is far from clear whether the French courts would apply the law of the intermediary’s location or the law of the location of the securities account. In conclusion, it is submitted that much uncertainty still

220Cass. 1re civ., 8 July 1969, Revue critique de Droit International Privé, January-March 1971, 75.

221Now codified as Article L. 431-4 IV C. mon. fin.

222Provided the pledge has been created prior to 4 July 1996: Article L. 431-5 C. mon. fin.

223POTOK (2002), 44.

224BLOCH (1999), 78 et seq.

225Arts. L. 330-2 paragraph 4 and L. 431-7-4 C. mon. fin.

132

6 France

exists under French private international law, which calls for a clarification or perhaps even a statutory modification.

6.7 CONCLUSIONS

6.7.1 Questions and answers

1.Which securities are admitted to the national systems of giro transfer and administration?

Although no uncontested general definition of valeurs mobilières (securities) exists under French law, France’s CSD may admit all securities (dematerialised or in a physical form) as defined under art. L. 211-1 C. mon. fin. This provision includes shares, bonds, and shares in collective investment funds. Foreign securities may be admitted as long as they are compatible with French book-entry securities. In addition, securities are admitted ex officio if they are listed at a regulated French stock exchange and are transferable by book-entry only pursuant to a rule of law or issuing rules. Derivatives are not eligible for admittance to the central system of custody.

2.What is the nature of investors’ interests in securities?

Art. L. 533-7 C. mon. fin. explicitly refers to accountholder interests as ownership rights. However, the classification is intensely debated, and, as has been shown, the better view seems to be that accountholder interests ought to be classified as a combination of rights in rem and in personam, for they can be asserted against third parties, but also depend on the fulfilment of the account provider’s obligations and the latter’s maintenance of its clients’ securities accounts.

2.1 Is a credit entry in a securities account merely a proof of ownership or is it a constitutive element of ownership of the securities concerned?

Although it is not entirely certain, it can be concluded from the case law that a credit entry in a securities account provides the accountholder with an effective, i.e. enforceable interest against third parties, provided that the accountholder is bona fide and that there is an absence of vices as far as the securities are concerned. Between the parties to a transfer, however, it provides proof of ownership that is more broadly challengeable.

2.2 Are informal (i.e. not registered by book-entry) dispositions over securities possible?

In principle, both ownership and security rights are created solo consensu, i.e. by agreement only, and, as a consequence, no book-entry need be effected to reflect such dispositions. Yet ownership and security rights only

133

6 France

become effective, i.e. enforceable against third parties, when expressed by a credit entry in the entitlement holder’s securities account. Moreover, as a derogation from the solo consensu rule, ownership of the greater majority of dematerialised securities is transferred by a credit in the transferee’s account.

2.3 Is provisional credit in book-entry securities possible?

Art. L. 431-2 second paragraph C. mon. fin. provides that a transfer, and therewith the credit entry in a buyer’s account, is de iure annulled when the securities account of the buyer’s intermediary with Euroclear France has not been credited accordingly. This suggests that, other than in the situation referred to, no provisional credit entries, i.e. credit entries in a securities account that do not correspond with a credit entry at the CSD level, are possible.

3. How are investors’ rights in respect of securities protected against the account provider and third parties?

An account provider’s obligations are clearly defined by law and enforced by the Autorité des Marchés Financiers. In addition, accountholders’ rights in respect of dematerialised securities are protected by rules of statutory law (mainly the Code monétaire et financier) and regulatory law (mainly the Règlement général AMF). Under the latter, account providers must separate their own assets from those of their clients, a rule which also applies to accounts with the CSD and accounts maintained by mandatees or subcustodians. Under the former, the use, i.e. transfer and hypothecation, of accountholders’ securities by an account provider is strictly forbidden as illegal tirage sur la masse; art. L. 533-7 C. mon. fin. Account providers therefore do not enjoy any power of disposal over their clients’ assets that has not been expressly conferred. They do have, on the other hand, a right of retention to secure their claims against accountholders.

3.1 Should shortfalls occur in accounts, how are they availed?

First, deficits are covered by recourse to the insolvent intermediary’s own assets. Remaining losses are apportioned among accountholders pro rata, i.e. in proportion to their entitlements; art. L. 431-6 C. mon. fin. These losses are covered up to € 70.000 per investor by the guarantee fund that has been created for that purpose.

3.2 How are an investor’s interests in securities separated from the account provider’s property or how can investors’ interests avail the claims of the provider’s general creditors?

Under regulatory law, account providers must separate their own assets from those of their clients, a rule which also applies to accounts with the CSD and accounts maintained by mandatees or sub-custodians. The number of (sub- )custodians does not therefore involve legal consequences with respect to accountholders’ interests. Furthermore, accountholders can enforce a

134