France: French Rules Applicable To Securitisation - Part II

Last Updated: 10 November 1995
This article is part of a series: Click Key General Clauses in EPC Contracts - Delay and Extensions of Time for the previous article.


Several banks and financial institutions have preferred over the last few years to implement the securitisation of their receivables without using the specific vehicle, i.e. the so-called "Fonds commun de creances", set up by French law.

These asset securitisations aim at the same goals as those achieved through the FCC: replacement of doubtful receivables, improvement of the rate risk management, increasing of equity and capital profitability.

2.1 Legal securitisation versus non-legal securitisation

2.11 Implementation of high-performing vehicles

Most of the securitisation operations performed outside the legal mechanism set up by the Law dated December 23, 1988 are based on the implementation of high-performing vehicles from a tax and finance point of view.

These schemes generally combine:

- the implementation of structures in tax havens;

- the issue of complex shares.

a) The setting-up of local structures in tax havens

Such structures aim at repurchasing the receivables concerned from the selling bank and issuing shares as the counterpart of the transferred receivables. They are located in tax havens in order to avoid any taxation on the proceeds of the receivables.

Thus in 1989, the Credit Commercial de France (CCF) set up Finov, a trust in Jersey charged with repurchasing a receivable held by the CCF on LDC countries.

In the same way in 1989, the DIAC, a credit institution controlled by Renault, set up an investment company, Cars no 1, in Guernsey, which repurchased receivables held by the DIAC on car buyers.

b) The issue of complex shares

These recipient structures must issue shares in order to obtain the money necessary to repurchase receivables from the selling bank.

These shares may be directly and totally subscribed by the selling bank (the CCF was the only subscriber of the bond issued by Finov).

In other circumstances, the structure charged with the repurchasing of the receivables from the selling bank may issue shares subscribed by private investors. In this case, the shares should combine safety, profitability and liquidity in order to attract private investors. (For instance, Cars no 1 issued redeemable preference shares). These securities let the investors receive date the initial subscribed capital (including the discount) capitalised monthly according to the month-rate PIBOR on the redemption.

2.12 Advantages linked to non-legal securitisation

Non-legal securitisation may be more favourable to French banks than legal securitisation.

a) More flexible management

The management of non-legal securitisation operations is more flexible insofar as there may be fewer constraints and limits compared to those fixed by the securitisation's legal status and relating to:

- The nature of the receivables

Indeed, non-legal securitisation operations may concern any kind of receivables. Originally, it was essentially the unique process to realise cash from a portfolio of trading assets (i.e. Bull securitised its trade receivables in Jersey) or of very short term receivables.

Nevertheless, since the Law dated January 4, 1993, some new kind of receivables such as revolving credit receivables can be securitised through French FCC's (i.e. Credit Lyonnais has securitised revolving credit of credit cards).

- The management of the investment fund

Originally, non-legal securitisation operations were carried out in foreign countries where there were no constraints on the fund management. (For instance, in Cars no 1, set up by the DIAC in Guernsey, amortised receivables can be replaced by other receivables of the same nature and the maturity of which is less than the one relating to the redeemable preference share issued by the investment company.)

Since the Law dated January, 1993 and the Decree n>93-589 dated March 27, 1993, management rules of the FCC have become more manageable. After the issue of certificates, the fund can repurchase receivables; but only the same kind of receivables. (New Article 34 of the Law and new Article 8 of the Decree).

- The open-ended character of the fund

Management of opened funds avoids the negative effects of redemptions made before the due date. Indeed, in the case of closed-funds, such redemptions imply the distribution of the cash to share owners, raising the issue of the reinvestment of this cash and the probable reduction in share profitability. On the contrary, opened funds allow the reinvestment of this cash in the fund increasing the shares' liquidating value.

Pursuant the Law dated December 23, 1988, the capital of the FCC is fixed from the issue of certificates (Article 34 paragraph 1).

b) Higher-performing set-up

Non-legal securitisation may, in fact, allow the implementation of a higher-performing set-up from a tax and finance point of view (for example: the securitisation operation implemented by the CCF and the efficiency of the set-up of the DIAC linked to the redeemable preference shares and the opened-fund mechanism).

The tax neutrality of the vehicle user (trust, company, others) is necessary to the success of the operation: this explains why the vehicle is generally located in tax havens.

Pursuant to Article 238 bis-OI of the French Tax Code, corporation tax is applicable to the proceeds of assets transferred to foreign structures in order to administer them (i.e. trust). As securitisation qualifies more as a sale than a transfer, this article may not be applicable in the case of transfer to foreign structure: the application of corporate tax would depend on the way in which the given operation is structured.

2.13 Higher risk linked to non-legal securitisation

Non-legal securitisation operations may be more risky than those came out through FCCs insofar as the law requires several guaranties when implementing an FCC aimed at protecting investors and debtors.

Pursuant to the Decree dated March 9, 1989 supplemented by the Regulation dated November 3, 1993, the French FCC must have a maximum ratio of available funds in order to protect investors.

However, the increase in risks stemming from non-legal securitisation operations should not be exaggerated. Indeed, in order to attract private investors, shares issued by the structures described above should be adequately secured. Thus, the DIAC has guaranteed the safety of shares issued by Cars no 1 by:

- selecting the receivables to be securitised according to the risk attached to each receivable;

- requesting a rating of the risk attached to the securitised portfolio from Standard and Pool's agency.

2.2 Tax treatment uncertainties

The withholding tax regime applicable to non-legal asset securitisation remains unclear.

2.2 There are two legal way in order to transfer receivables outside the French legal status :

International tax treaties generally withdraw withholding tax; but securitisation operations are frequently carried out with "offshore" structures in countries that did not sign any treaty (i.e. Jersey).

As the vehicle is a foreign entity, the special simplified regime of receivable selling provided for by the securitisation legal regime in France (to the FCC) will not apply.

Consequently, there are two ways in which to transfer receivables outside the French legal status :

- Transfer of receivables by subrogation :

The first possibility of transfer is the "subrogation" which transfers to the non-legal vehicle the receivable and security debts for the amount of the original value (of the receivable). At the same time, the creditor usually pays an amount for the risk and financial cost.

Pursuant to Article 125-A-II of the French Tax Code, withholding tax (15%) applies on interest which would be paid by a French company to a foreign structure. Nevertheless, it seems that Article 125-A-III only applies between the creditor and debtor and consequently does not apply to a subrogation case (an operation between the original creditor and a new creditor alone).

- Transfer by sale of receivables :

The second possibility of transfer is the sale of receivables through the "Bordereau Dailly" procedure. In that case, the receivable is transferred for its market value. This transfer is a purchase/sale operation only between the creditor (the seller) and the structure used (the buyer). This operation is outside the scope of Article 125 A-III of the French Tax Code, which only applies to relations between creditors and the debtors.

Moreover, as there is no amount paid by the French creditor to the foreign vehicle, the withholding tax (which applies on amounts paid for provision of a service provided or used in France pursuant to Article 182-B of the French Tax Code - the rate is 33.33%) would not be applied.

2.22 Transfer of assets with interest :

The tax regime of a transfer between a French debtor and a non-French vehicle (new creditor) is unclear when there is a transfer of receivable with interest.

Pursuant to Article 125-A-III of the French Tax Code, withholding tax may be apply on the amount of interest paid by the French debtor to the foreign transferee (new creditor). (There is not application of the exemption pursuant to Article 131-quater of the French Tax Code which is limited to loans initially subscribed in foreign countries).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought for your specific circumstances. For additional information contact Claire Acard at +33 (1) 55 61 10 10 or enter text search: 'Archibald Andersen' and 'Business Monitor'. The members of Archibald Andersen Association d'Avocats (S.G. Archibald and Arthur Andersen International) are registered with the Hauts-de-Seine Bar.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

This article is part of a series: Click Key General Clauses in EPC Contracts - Delay and Extensions of Time for the previous article.
This article is part of a series: Click Exclusive Remedies and Fail Safe Clauses for the next article.
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions