France: The Business of Multimedia - A Legal Viewpoint from France No. 6

Last Updated: 31 October 2000
The last in a series of articles in which we have been focussing on 2 sets of issues which are relevant to the business of multimedia. First, intellectual property rights and rights clearance. Second, structuring and financing new businesses.


Obtaining bank finance
Financing your business through bank debt will also require management, time, input and expense and may impose certain constraints upon the way in which you operate, through the terms and conditions upon which lenders are prepared to advance funds.

To raise finance you will have to show that your business is "bankable". In all probability this will mean providing a business plan to assist the bank in its credit analysis. This plan should contain both historical information as to the business's past financial performance (if any) and forward projections for, at least, the short to medium term (i.e. 3-5 years). These projections should detail the business's anticipated cashflows (including projected revenue, capital expenditure, interest payable, working capital, funding requirements) and capitalisation. As a part of its credit analysis, a potential lender will subject your business plan to careful review and will consider whether any assumptions made by you are reasonable and to what extent your projections are sensitive to factors beyond your control, such as an increase in interest rates. In addition to analysing your business plan, a potential lender is likely to suggest it carries out a diligence exercise. This may include sessions with your key financial and operating staff and/or a valuation of the business's realisable assets. It could also extend to instructing professional consultants to review and report on certain aspects of your business.

What form should bank finance take?
In deciding to raise external finance, be it equity or debt, it will be necessary to ensure that such finance will meet the requirements of your business. Any facility offered to you could include one or more of the following characteristics, only some of which may be relevant to you.
- uncommitted/committed.
- term or revolving credit.
- overdraft.
An uncommitted facility is typical for borrowers of such credit standing that the question is not whether they can obtain the required finance facility but at what price. Certain facilities such as foreign exchange and money market lines, commercial paper and other capital market instruments will typically be arranged on an uncommitted basis.

For a committed facility, since the lender is required to advance funds (subject to the terms of its commitment) you will usually be required to pay the lender a commitment fee, irrespective of whether the facility is used.

A term facility will have one or more specified repayment dates and is usually relevant when medium term (say 5-7 year) funding is required. The repayment dates of a term loan should fit projected cash flows.

Under a revolving credit facility funds will usually be borrowed for relatively short periods, for example 1, 2, 3 or 6 months. This is more appropriate where the funding requirements of the business vary, for example to provide working capital where there is a seasonal business or where necessary to smooth out a cash flow receipts/payments cycle.

An overdraft facility will give you the maximum flexibility but, whilst its availability may be committed it will usually be repayable on demand.

Bank lenders will often require security over all or part of a borrower's assets and in any event they will ordinarily require a borrower to agree to a negative pledge (i.e. a contractual commitment that it will not create security over any of its assets in favour of other lenders). In order to facilitate a lender's decision as to whether security will be required and as to what assets it should apply it will be necessary to consider the following:
- type of assets owned by the borrower.
- whether there are existing negative pledges (e.g. in leases) and other contractual restrictions preventing the granting of security.
- costs involved - stamp duties and notarial fees payable on the grant of security may be prohibitive in relation to the value of the asset.
- effect on creditors - will other creditors, for example trade suppliers, continue their prior dealings if security is given to lenders.
In addition to any security granted by the borrower, a lender may require a guarantee or other form of comfort from equity investors.

Bilateral or Syndicated Facility
In a single bank (bilateral) facility the borrower's legal relationship will be with a single bank with whom the borrower will typically have had a longstanding relationship. In contrast, under a syndicated facility, a bank, typically referred to as the "arranger", will arrange for a number of banks to provide the borrower with funds. Whilst the latter arrangement has certain advantages, including reducing the borrower's reliance on a particular bank, one or more of the members of the syndicate of banks may have no prior relationship with the borrower and this may be problematic if subsequent waivers or amendments to the financing agreement are required. Issues which should be discussed with the arranging bank include:
- restricting which banks the arranging bank can approach.
- controls over the syndication process i.e. restrictions on the number of banks in the syndicate.
- "majority bank" controls in the documentation.
- control of assignments, transfers and perhaps sub-participations.

A lender will wish to consider whether there is any interest rate risk if interest rates go above the assured level or currency exchange risk (for example if your debt is principally denominated in sterling whilst a material part of your cash flow is in pesetas). To protect against these risks, a lender may require certain hedging arrangements to be put in place. These in turn raise consequential issues. For instance if the interest hedging is a swap, then the counterparty will have a credit risk on the borrower for which security may be requested. If a cap is purchased, there is an expense (i.e. premium) which must be funded.

Constructing the joint venture - carried interests and incentives
You may well want to factor into the financing structure the value of the concept or invention that you are contributing. This is a matter for negotiation, but often investors will want to measure the value against the proven success, or lack of success, of the business. You may, therefore, seek a structure which will allow you to increase your proportional ownership of the business free of charge, or at a nominal price, dependent on investors achieving target rates of return. This may take the form of share options or the issue of shares with limited rights, which convert into more valuable equity shares depending on the success of the business. If you are responsible for the management of the business, similar structures may be used to give you a further incentive or reward for the success of the business.

New participants
Where there are only relatively few material participants in a joint venture, good relations between the material participants is often key to the success of the business. Initial strategic investors will have chosen to work together in the venture, but what if the working relationship does not work? Also, financial investors are likely to demand some liquidity for their investments. The financing structure should regulate the sale and purchase of shares or partnership interests in the venture. Commonly, in the case of a joint venture company, before an investor sells any shares to a third party, it is required to offer them first to existing shareholders. This may give existing shareholders an opportunity to shut out an unwanted investor, but allows a certain degree of liquidity for an investor who wishes to sell. Often this procedure will be supplemented by a requirement that, where an investor itself comes under the control of a third party, that investor must offer its shares to the existing shareholders. The constitution of the venture will similarly often require that new shares be offered to existing shareholders in proportion to their existing holdings before they are offered to outsiders. This allows investors to avoid being diluted. Similar provisions can be made in partnership agreements.

Further, if the business depends on the continuation of a franchise or licence, the constitution of the venture should probably provide that where the franchise or licence is put in jeopardy by the continued participation of a particular investor, the other investors may require it to sell in order to preserve the franchise or licence. This is common in the UK, for example, in the case of joint ventures holding television broadcast licences, the ownership of which is closely regulated.

Although some investors may be willing to allow others to conduct the day to day management of the business, generally all investors will want a say on material matters, such as business acquisitions and disposals, material financings and other commitments and approving annual budgets - for example through a right of veto, weighted voting rights, or a shareholders' agreement. Where there are several parties to a venture, consideration will have to be given to how decisions are taken i.e. which ones can be made by management of the venture, which require a simple majority, and which require a greater majority, say, two thirds or seventy five percent.

Disputes and termination
It is important to ensure before entering into a joint venture that all parties have the same aims and expectations, in particular as to how it is managed and funded and as to how the participants obtain a return on their investment. Hopefully, this should avoid continual resort to any sort of dispute resolution procedures. However, as disputes do sometimes occur, procedures should be agreed in advance to regulate the resolution of disputes. For example, investors may agree that, in the case of a dispute which they cannot resolve between themselves, the matter should be decided first by the most senior people at the joint venture parties or, failing that, by an appropriately qualified independent third party. Procedures also need to be set up to ensure the business can continue to operate in the interim, for example the parties could agree they will maintain the status quo in the event of a disagreement or continue to apply last year's budget.

Investors may consider, however, that the only solution in the event of a dispute which proves incapable of resolution between themselves is to provide for the termination of the joint venture. If the venture is wound up, who will inherit the joint venture's property? This can be regulated in the joint venture documents. The ownership of the joint venture's intellectual property may be particularly relevant here. Alternatively, in a two party joint venture the parties' joint participation may be terminated by way of each investor having the right to offer to buy out the other party at a price specified by it and, if the other party does not accept its offer, to have the right to be bought out by the other party at the same price.

The participants in the joint venture may also consider it appropriate for the joint venture to be brought to an end if a participant is the subject of any insolvency event, ceases to carry on business or is guilty of material or persistent breach of the shareholders' agreement. In these circumstances, the shareholders' agreement or the company's constitution may entitle the other participants compulsorily to acquire the shares held by the defaulting participant.

Exit strategies
Strategic investors may be willing to sign up to a joint venture for an indefinite period. Financial investors, however, will generally want increased liquidity for their investment in later years and may, therefore, require the right to be bought out, to require a trade sale of the business or to work towards the listing of the joint venture's securities on a stock exchange.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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.

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”

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
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). 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 & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd 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 or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

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