Modernization of French Bondholders' Rights

Modernization of French Bondholders' Rights

On 10 May 2017, an ordinance was adopted by the French government ("Ordinance") in order to promote the use of bonds as a financing vehicle for French issuers that represents a major step forward in the French debt capital markets landscape from the current regime adopted in 1966. While the Ordinance is considered enforceable from the day following its date of publication (i.e., 13 May 2017), certain of its provisions will need to be fleshed out by an implementation decree that is currently under review by the Council of State (Conseil d'Etat). Convertible bonds, bonds redeemable for shares and sovereign bonds are excluded from the scope of the Ordinance.

The Ordinance enables capital markets players to contractualise the rules relating to bondholders' meetings and representation for "wholesale" issues and updates or repeals a number of outdated provisions applying to debt securities. Prior to the Ordinance, bondholders were grouped into a so-called "masse," a distinct legal entity, subject to rigid operating procedures. The masse was required to take decisions in general meetings through one or more representatives. It had to 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 denomination that will be in an amount to be determined by the Council of State (likely to be equal to, or greater than €100,000), issuers and investors will be free to define contractually their relationship without the traditional masse provisions applying automatically. The parties will also be able to apply all the masse provisions in either their original or amended form, issuers will have the possibility to amend the terms and conditions of the bonds unilaterally in order to correct a manifest error and the parties will be given the opportunity to consult the bondholders via a written consultation. This is a minor revolution for the French bond market.

The Ordinance also modernizes the corporate authorizations regime, allowing the board of directors to delegate the decision to issue bonds to any person of its choice. Prior to the Ordinance, the board of directors was able to delegate authority only to one or more of its members, to the Chief Executive Officer or, with the Chief Executive Officer's consent, to one or more deputy Chief Executive Officers).

In addition, the Ordinance simplifies the provisions relating to secured bonds, removing certain notarization requirements and permitting the grant of security at the time of the issue (not only before or after, as is currently the case).

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