French Government Passes Ordinance To Promote Bond Financings

Author:Ms Linda Hesse, Diane Sénéchal, Thomas De Mortemart and Natalia Sauszyn
Profession:Jones Day

In Short

The Situation: With some provisions left unchanged for more than 50 years, France's bond laws were outdated and overly complicated.

The Action: An ordinance enacted by the French government modernizes the legal framework pertaining to bond issues.

Looking Ahead: The Ordinance is expected to be the initial step in simplifying the country's bond laws, thereby making them more attractive as a financing instrument.

On May 10, 2017, an ordinance was adopted by the French government ("Ordinance") in order to promote the use of bonds governed by French law as a financing instrument. The Ordinance seeks to modernize the French legal framework governing bond issuances so as to make it more attractive. One of the Ordinance's major innovations is to allow the parties to contractually organize the representation of the bondholders.

While the Ordinance is enforceable beginning the day following its date of publication, there are certain provisions of the Ordinance that will need to be fleshed out by an implementation decree that is currently under review by the Council of State (Conseil d'Etat).

The Ordinance is the first step towards the simplification of the legal regime applicable to bonds governed by French law; a simplification that is welcomed in French law debt transactions.

Bondholders' Representations and General Meetings: More Flexibility?

The current legal framework regarding bondholders' representation was adopted in 1966. Bondholders are grouped into a so-called "masse," which is a distinct legal entity and that makes decisions in general meetings through one or more representatives. This entity must be consulted for any change in the bond documentation and upon certain corporate events of the issuer. The main innovation of the Ordinance is that, for all bonds with a nominal value which will be in an amount to be determined by the Council of State (likely to be equal to or greater than €100,000), parties will be free to contractually define their relationship without the traditional masse provisions applying automatically.

The parties will also be permitted to set aside provisions relating to the bondholders' representative and/or to general bondholders' meetings, thus allowing the parties to contractually agree upon the amendments, quorums, and majority provisions. In addition, issuers will have the ability to amend the terms and conditions of the bonds unilaterally in order to correct a manifest error.

The masse provisions and other related...

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