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Archive for April, 2016

Are we nearing the end of the French credit monopoly?

28/04/2016 | Bruno Fatier
The decree implementing Article 167 of law no. 2015-990 of 6 August 2015 (“Act”) has finally been adopted and published, 6 months behind schedule. Better late than never? The decree (“Decree”

The decree implementing Article 167 of law no. 2015-990 of 6 August 2015 (“Act”) has finally been adopted and published,[1] 6 months behind schedule. Better late than never? The decree (“Decree”) puts the finishing touches to the new exemption from the not so-widely known monopoly[2] on the extension of “credit”,[3] applicable regardless of whether the borrower is a mere consumer or a business, an individual or a legal entity. Large lending structurers and non-EU institutional investors are generally well aware of the monopoly and have structured their offer accordingly, by booking credit transactions outside France and keeping or moving relevant teams outside France. However, smaller or more occasional lenders may not be as well informed, unless they are facing criminal charges or enforcement difficulties in France.

The Decree is indeed another breakthrough into the French credit monopoly, yet it is not its end. The sole purpose of the new framework is to facilitate short term intercompany lending out of cash flow surpluses on an ancillary basis, under a quite dense set of rules which, in addition to being complex, are silent on the quite important question of cross-border lending towards France.

Surprisingly, as this is not what the legislator gave the government authority for, the Decree widens the scope of the new exemption from an intercompany exemption to an intergroup exemption,[4] which, unfortunately, brings about inconsistency and complexity to the whole scheme. Why make things simple if one can make them complicated? That is the question.

In fact, what was mainly expected of the Decree was a more tangible definition of the rather vague (and, may I say, quite politically tainted) concept of “justified economic links” required by the Act.  Thankfully, the government has come up with a down-to-earth list of eligible “economic links”, among which one exemption stands out as being generally available, where a threshold of client-supplier relationship has been reached, of either EUR 500 K of sales or 5% of turnover. However, complexity reaches its peak where the method for applying the threshold and the surrounding conditions are set out by the Decree. Indeed, why make things simple where one can make them complicated?

Surprisingly, as the legislator only gave the government authority to set out the conditions and limits under which eligible companies may lend money to micro-enterprises or small, medium and intermediate size companies, the Decree does not further define eligible borrowers according to their size. Instead, the Decree goes the opposite direction by prohibiting lenders from lending more than EUR 10 million, EUR 50 million or EUR 100 million if they are, respectively, (i) small or medium size companies, (ii) intermediate size companies or (iii) large companies (or, if lower, more than 50% of their own net cash flow or 10% of the net cash flow calculated on a group consolidation basis as the case may be).

Other prudential requirements apply including general own fund and EBITDA requirements, as well as specific caps on loans per borrower.

Furthermore, auditors will be responsible for ensuring that the conditions for the new exemption to apply are met, under a certificate to be issued annually and appended to the lender’s management report.

It goes without saying (but the government found it useful to confirm) that the other exemptions from the French credit monopoly remain available, e.g. the client-supplier and intra-group exemptions, although these two old exemptions share a same scope of application as the new exemption to a quite noticeable extent. Luckily, the old exemptions are less complex and burdensome than the new exemption, and their validity and enforceability have long been tested before courts. In this respect, it is worth noting that the attractiveness of the new exemption is further dampened by the rather surprising and unexplained prohibition to securitise the receivables arising from the loans made under the new exemption.

With the new exemption, the scope of French credit monopoly is indeed reduced, but the regime applicable to the new exemption leaves room for a great deal of uncertainty and, sooner or later, legal challenges as well as clarification amendments. Making things simple in the first instance will then be seen in hindsight as the best option, undoubtedly.

[1]      Decree no. 2016-501 dated 22 April 2016, published on 24 April 2016.

[2]      Pursuant to the Financial and Monetary Code, it is prohibited for a person other than a credit or a finance institution to extend credit on a “regular” basis and for consideration (à titre onéreux).

[3]      In its broadest meaning including all types of credit commitments, loan refinancing/restructuring schemes, guarantees as well as the acquisition of unmatured receivables.

[4]      Subject to the group(s) involved meeting consolidation and cash centralisation conditions as set out by the Decree.

This article should not be taken as definitive legal advice on any of the subjects covered. If you do require legal advice in relation to any of the above, please contact Bruno Fatier on 020 7955 1478


22/04/2016 | Elizabeth Shaw
BACKGROUND The recently heard case in the Chancery Division of Haysport Properties Ltd and another v Ackerman EWHC 393 (CH) provides a stark warning regarding the importance of directors adhering


The recently heard case in the Chancery Division of Haysport Properties Ltd and another v Ackerman [2016] EWHC 393 (CH) provides a stark warning regarding the importance of directors adhering to their fiduciary duties, particularly in respect of transactions involving other companies or entities that they have an association or connection with. In addition, the case also dealt with the issue of whether the claim should be statute barred under the Limitation Act 1980.


Mr Ackerman, a well-known property magnate, was approached in 2005 in connection with the purchase of some commercial and residential properties that formed part of the “Liberty One” development. The properties were to be purchased via an offshore company named New Liberty Property Holdings Limited (“NLPH”), which was wholly owned by a discretionary trust of which Mr Ackerman was a beneficiary. Mr Ackerman was not a director of NLPH but was the driving force behind the deal.

Mr Ackerman was also at this time the sole active director of both Haysport Properties Ltd and (“Haysport”) and Twinsectra Limited (“Twinsectra”), both of which were subsidiaries of Delapage Limited (“Delapage”), a charitable company that was incorporated to gift excess profits generated by its subsidiaries to charitable causes. The other director of both Haysport and Twinsectra was Mr Ackerman’s sister-in-law but she was submissive to all that Mr Ackerman did.

In connection with NPHL’s financing of the aforementioned acquisition, Mr Ackerman caused both Haysport and Twinsectra to secure certain assets they held in respect of a £10m million bank liability owed by NLPH (as NPLH had no assets of significance). The (meagre) consideration given to Haysport and Twinsectra in return for the provision of this security was £25,000, which was found never to have been paid. As well as that, Mr Ackerman caused Twinsectra to loan £4 million to NLPH against unsecured loan notes carrying an interest rate of 8% and which, again, were never repaid.

NLPH eventually entered into insolvent liquidation in December 2009 and, in order to prevent the enforcement of the bank’s security, Twinsectra had been paying interest to the bank in respect of the debt owed by NLPH. Mr Ackerman eventually resigned as a director of Haysport and Twinsectra in 2011 following an intervention by the Charity Commission in respect of irregularities concerning Delapage.

Haysport and Twinsectra subsequently brought proceedings against Mr Ackerman alleging that he had breached the fiduciary duties he owed to Haysport and Twinsectra and that he should (i) repay the £4 million loan made by Twinsectra (together with the interest accrued thereon) and (ii) indemnify Haysport and Twinsectra for all other losses that they suffered as a result of Mr Ackerman’s breach of his fiduciary duties in respect of the security that Haysport and Twinsectra each provided and the loan provided by Twinsectra.


In ruling in favour of Haysport and Twinsectra, the judgment found that Mr Ackerman was “hopelessly conflicted” and that he had clearly breached the fiduciary duties he owed to both Haysport and Twinsectra. Despite Mr Ackerman’s assertion that he had considered the commercial benefits that Twinsectra and Haysport would derive from entering into this transaction, the judgment found that there was “no real incentive” for either of them in doing so. Contrarily, Twinsectra would be an unsecured creditor behind a large queue of secured lenders in respect of the £4 million loan that it made. Whilst this was clearly an attractive venture for NLPH, the same could not be said for Twinsectra and Haysport and Mr Ackerman had not fully evaluated the evident risks that they would each be subjected to.

In respect of whether the claim was deemed time barred under the Limitation Act 1980, as the loans and security were granted to a party controlled by Mr Ackerman, they fell within section 21(1)(b) (recovery of trust property) of the Limitation Act 1980, and as such the limitation period would be disapplied. In addition, as Mr Ackerman had a duty to disclose his breaches of duty, and he had failed to do so, sections 32(1)(b) and 32(2) of the Limitation Act (deliberate concealment and deliberate breach of duty) applied and consequently the limitation period was disregarded.


The case is a salient reminder for directors of their need to fully evaluate the benefits and risks of any transaction and to avoid having their judgement clouded by the interests of any other company that they are involved with. Company directors should always be advised to record in detail the factors they have considered when reaching their decision, so that they can be seen to be acting so as to promote the success of the company, particularly in cases involving connected parties. The judgment illustrates that courts will look to assess whether directors have exercised independent judgement (and, where appropriate, sought independent advice) in respect of each company that they are representing. The judgement also highlights that in claims involving breach of duty, it is not always clear cut as to whether such claims will be statute barred under the Limitation Act 1980.


This article should not be taken as definitive legal advice on any of the subjects covered. If you do require legal advice in relation to any of the above, please contact Elizabeth Shaw on 020 7955 1456.

The EU Referendum – Not as Simple as It Seems?

13/04/2016 | Nick Leigh
The legal repercussions of the UK voting to leave the European Union In societies governed by the rule of law, democracy is deferred – you vote for others and they make the big decisions. Rarely

The legal repercussions of the UK voting to leave the European Union

In societies governed by the rule of law, democracy is deferred – you vote for others and they make the big decisions. Rarely is the general public given the chance to decide directly, even less so on a matter of global importance, such as the Brexit referendum, scheduled to take place on 23 June 2016. But this is not a decision about whether or not you want your grandchildren to grow up in the land of the free or the Brussels gulag. Nor is it about immigrants, benefits, straightened bananas, Boris or Nigel, despite what you will hear. This is a decision about a legal system, and whether or not the framework provided by membership of that system is beneficial to our country.

Project Peace

The European Union began – and begins – with a series of treaties between countries who agreed to conduct their relationships with one another – and, together, with those outside of the EU – for their collective benefit. Following the Second World War, this desire possessed an existential value: it was countries as well as millions of people that had come close to death. Once that danger had passed, the focus of the EU evolved into increasing the living standards of its member states’ citizens. This would be achieved by reducing the restrictions – that is, the laws – preventing people from crossing borders and doing business with others in new markets. That same freedom of movement also created the circumstances for a revolution in leisure travel.

The European Union continues with a series of institutions designed to advance this collective benefit: primarily, the European Council – composed of ministers from every member state’s national government; the European Parliament – which returns members directly elected by all of the EU’s citizens; and the European Commission – in which every nation has a commissioner. Therefore, every EU member has a say in the making of new laws and in how the EU is governed. Some, such as the U.K., have a much stronger voice than others (for instance in respect of voting rights in the European Council).

Peace has reigned for so long in Europe that many no longer question why it has lasted. A legal framework that allows the free movement of people and the free market to flourish across borders has been one of the most significant reasons. Leave that, and you leave one of the most successful environments for the development of both business and the lives of individuals in the world.

The Money

Take, for example, the UK’s financial sector, universally recognised as world class. Brexit will deny financial organisations the automatic authorisation to operate in other EU countries that arises from their authorisation to operate in the UK, and may damage their business significantly. While the rehabilitation of the reputation of bankers still has some way to go, and such authorisation may be a long way down the list of many people’s considerations, the financial industry remains one of the UK’s most successful, is a major employer and contributed more than £125 billion in gross value added to the UK economy in 2015. In 2013-14, the banking sector by itself contributed £21.4 billion in tax. Damage this, and you damage the nation. Those in favour of Brexit are almost certain to say, but yes – we pay £50m a day to Brussels! But is that figure really £15m? Or £11m?  And when the exchequer receives more than £500 billion each year in tax revenue, and much of the money paid over to Brussels returns as grants and investment, is this really the expense people think, considering the access to the single market?

Trade thrives in certainty, and is damaged – perhaps dangerously so – by uncertainty. Legal systems strive to introduce certainty in otherwise uncertain environments. The EU is no different. It certainly has problems that require serious reform, but look beyond its borders – to Russia, to China, to South America, to the Middle East – and there are vast swathes of greater uncertainty than that currently affecting the EU.  It is not such a friendly world out there for a country to go it alone.

The Big “S”

It will make no difference if we leave, say those in favour of Brexit. We are a great nation, and we will continue to be great, even if we are no longer in the EU. More than that, we will be sovereign again.

It is true that the European Communities Act 1972 established the principle that the UK’s laws were subordinate to those of the EU. One may then wonder why we still elect our own governments, still decide what we do with our taxes, and still have our own foreign and defence policies. In fact, the EU only has power over those areas in which member nations permit it to act, thanks to the principle of conferral. As the UK has opted out of many such areas, we have retained much of our sovereignty. Meanwhile, use by the EU of the sovereignty we have pooled remains limited by the EU’s own rules. Though deemed irrelevant by many, the deal secured by David Cameron earlier this year asserts the importance of subsidiarity, i.e. that the EU only acts when the proposed action cannot be better achieved by the member state itself, and as close to the citizen as possible. This is why some of the EU legislation most beneficial to the citizens of the UK is found in the areas of employment, science, agriculture and the environment – areas which many citizens believe the UK government has ignored over the years.

It is a peculiarity of the Brexit debate that those passionate to leave the EU in order to restore our sovereignty are almost certain to applaud our membership of NATO, which commits the UK to such action as is necessary – including military action – in the event that another NATO member is attacked, even if that dispute has nothing to do with us.  The same could be said for membership of the World Trade Organisation, which requires a degree of surrender of sovereignty in return for improvements in the conditions in which our companies do business globally, and which enhances their success, profitability – and tax payments.

Come 24 June 2016

Should the British public vote to leave the EU, the country will commence a period in which the terms of our departure are negotiated. Article 50 of the Lisbon Treaty allows two years for this process to take place. If no agreement is reached within that time, the UK and the European Council can agree to extend it. Until those negotiations come to an end – a negotiation in which the world’s fifth largest economy departs from a body that accounts for almost 25% of global GDP on not wholly friendly terms – the UK remains a part of the EU, and subject to its rules. No one knows if that negotiation will last six months, or ten years, or if the European Council will decide not to extend the period for negotiating, at which point the UK will find itself outside of the EU with, perhaps, no trade agreement(s) to replace it. This would not just affect the UK’s dealings with the EU, it would also hamper our relationship with other nations of the world, for as a member state the UK benefits from the global agreements the EU reaches with a vast amount of countries beyond its borders. Indeed, we ourselves help negotiate them, a power that would be lost with Brexit.

But, about those bananas …

Over the next three months, we will be told: be like Norway (out of the EU but with access to the single market); be like Switzerland (a bilateral trade agreement with the EU as part of the European Free Trade Association); be like Algeria (left the EEC in 1962 on gaining independence from France); be like Greenland (left the EEC in 1985 although stayed a part of Denmark); be like Saint Bartélemy (seceded in 2012 from Guadeloupe, a part of France, and thus the EU). But the fact is, we will be like none of these countries, for our circumstances – and indeed our nation – are entirely different from any of them. Meanwhile, as Norway is a member of the Schengen area, it has a higher rate of migration than the UK. And, for now at least, Switzerland can access the EU’s single market only because it has been forced to accept unlimited EU migration. So perhaps being like Switzerland would mean that immigration from the EU increases, rather than decreases. Another law we are all subject to: the law of unintended consequences.

Come 23 June 2016, few voters are likely to be considering legal systems when deciding whether or not to stay in the EU. Of those that do, most will no doubt be thinking about those straightened bananas. As I have referred above, even those most supportive of continued membership believe that the EU has major reforms to carry out. But that is not to say the entire system should be ditched for ever more. Legal systems are fluid and responsive – one only has to look at the legal system of England and Wales to see how it has changed over the centuries – the infamous Waltham Black Act of 1723 introduced more than 50 new offences carrying the death sentence, including being found in a forest while disguised. Many feel that the EU is undemocratic, but there is no doubt that those at its heart recognise this mood. The danger of Brexit is the failure to recognise that the EU is a legal system, and if enough people want it to change, as increasingly is the case, change it will.

Opinions are my own and not the views of my employer

The EU Referendum: You’d Better BeLeave It

13/04/2016 | Tom Spiller
In commercial litigation lawyers are taught to look at a situation not only with reference to the letter of the law, but the overall commercial context and the strategic dynamic of each dispute that

In commercial litigation lawyers are taught to look at a situation not only with reference to the letter of the law, but the overall commercial context and the strategic dynamic of each dispute that comes across their desk.

The EU referendum is very much a dispute and is perhaps the most divisive issue of recent times in this country – with the Poll of Polls showing that the country is evenly divided on the matter – so the approach that we should take is no different here and I will first consider the current context in which the issue arises.

The State of the Union

In 2016 the following picture presents itself:

  • economic growth in the EU economies is in decline – in 1973 the 28 members of the EU accounted for 36% of global GDP, in 2015 it was only 17%;
  • unemployment, and particularly youth unemployment, stands at between 25% and 40% in the largest EU economies;
  • since 2008 the European Central Bank has had to bail out Cyrpus (twice), Greece (three times and counting), Hungary, Ireland, Latvia, Portugal, Spain and Romania (thrice). The fact that these countries have entrusted monetary policy to the EU has meant that they have lost control of the ability to manage their own finances and led to some of them having to raise taxes whilst cutting public spending. Some doubt whether the Euro will last: it hasn’t been much of a success so far.
  • intra-EU relations are fractious: (i) the Dutch voted no to the EU agreement with Ukraine as a show of discontent over the un-democratic nature of the EU, (ii) there are anti-German marches in Athens and other European cities on a regular basis and (iii) there is tension between Germany and the Balkan nations over the refugee crisis that has perhaps irreparably damaged the effectiveness of the Schengen Zone.


An organisation that began life as a multi-lateral trade organisation (the EEC) designed to allow for a degree of free trade between six Western European nations has become a sovereign body with 28 members and its own currency, immigration policy, legislature, executive body, foreign policy and judiciary.

In summary: bad.

Britain has tried to block legislation going from the European Council to the European Parliament 55 times in recent years and has failed on every try. British MEPs of all persuasions have combined to block legislation in the European Parliament 576 times over the last six years and 485 of those were still passed into the EU statute book.

Britain’s membership of the EU means that it cannot negotiate its own trade agreements in international forums. Instead of having our own, elected ministers negotiate for British interests on our behalf, we are represented at the WTO by one 28th of an unelected EU official: a former sociology lecturer from Sweden. She would not have been my first choice.

The simple fact is that the interests of the EU as a whole, or at least the most powerful actors within in, are often not the interests of Britain. Take for example the Ports Services Regulation, a regulation aimed at improving the competitiveness of continental ports, which are few and often state-owned. This regulation has no purpose in Britain where ports are many, small and independently owned, yet the regulation is being imposed anyway in a characteristically “one size fits all” approach. British politicians of all persuasions have voted against it in the European Parliament but they have been over-ruled. This legislation, that will damage our ports – which we need to be healthy in order to thrive as a trading economy – will pass into law despite our resistance. Many further examples of this trend exist in relation to art, cheese, temping agencies, trawlermen, steel workers and cider producers to name but a few.

At a time when the best prospects for future growth and trade lie outside of the EU (15 of the G20 economies are non-EU nations) our membership of the EU stands as a barrier to us negotiating deals with prospective new partners. At a time when India and China offer attractive opportunities for trade we do only 3.6% (China, our sixth biggest export market) and 1.7% (India, the third largest foreign investor in the UK) of our trade with them because the EU prevents us from doing so. Britain is currently the fifth biggest economy in the world – how much bigger would we be if we unshackled ourselves from the EU?

Would Britain vote to join the EU now? I think that the answer is no.

The Law

In Britain we have a legal system under-pinned by the rule of law and democracy. The same does not really apply to the EU (i.e. the supra-national bureaucracies that form the EU’s institutions) which is a law unto itself and is of course entirely unelected.

Democracy itself is founded upon principles of accountability, choice and scrutiny, yet members of the European Parliament, that vote on laws (3,500 of them being passed since 2010 alone) which effect the daily lives of British citizens and small businesses which operate in Britain, are so distant and unknown as to be unaccountable to the British people. If the governing party in Britain does something that we do not like, we know that we need to campaign against them and we know where to find them. But what is our recourse against German, Romanian, Latvian or Portugese MEPs?

Also, the EU’s brand of democracy is of the most expensive kind in the world. An ordinary MEP earns more than the British Prime Minister – an extraordinary fact. MEPs are paid a block grant of £3,500 per month (even though their offices in Brussels and Strasbourg are paid for) without needing to submit receipts, they are given 12,000 Euros a month for staff costs and are paid their travel costs of attending the European Parliament based on the number of kilometres they have to travel to get there, not their actual costs. Britain is the second largest contributor towards the EU’s budget, so it’s more than likely to be British pounds that are gushing into the pockets of the European politicians that are not accountable to you.

When Britain entered the EEC it was all about trade. Britain would benefit from being part of a free trade organisation in Europe, but I do not think that it is in Britain’s interests to be part of the EU, a self-declared supra-national legal and political entity which we pay £10 billion per year for membership of and often operates in a way which is against British interests.

The Strategy

Vote Leave on 23 June.

In a post-EU world, Britain will be free to play to its strengths by re-establishing our trading links with the commonwealth and the English-speaking world more generally.

79% of Britain’s economy is the sale of services. We sell mainly to countries and firms where they speak English and whose time zone is not too distant from ours. GMT and the English language will not change if we leave the EU; they are inalienable, national assets.

We will be free to conclude free trade deals with the G20 and will of course be able to spend the £20 billion that we send to the EU every year (this is a gross figure, the net annual cost of membership is £10 billion, as stated above) on our own domestic concerns, and perhaps even opt in to the odd EU scientific research scheme, much like Norway and other non-EU European countries do.

It is the favourite tactic of the pro-EU campaign to warn against the risks and uncertainty that a Brexit would entail. But they have sometimes struggled to be consistent in this message. In the words of Sir Stuart Rose, the Chairman of the largest Remain campaign group (which is funded by the EU), Britain Stronger In:

“Nothing is going to happen if we come out of Europe in the first five years, probably. There will be absolutely no change.”

Sir Stuart has also told us that wages for Britain’s workers will also increase in the immediate aftermath of Brexit. So much for “project fear” then.

And free trade with the EU would continue. Every non-EU country from the edge of Eastern Europe to Iceland is a member of EFTA, an organisation which extends the access to the European single market to non-EU members. I do not think that it can seriously be suggested that Britain, the EU’s second largest customer and the world’s fifth (for now) largest economy, who has a trade deficit with the EU of £50 billion (we run a trade surplus of £20 billion with the rest of the world) will be excluded. No EU politician is likely to make a decision that makes it harder for them to sell goods to us. In the highly unlikely event that Britain was not allowed to conduct free trade with the EU economies then it would be done on the basis of WTO reciprocal trade tariffs, in the interim period whilst free trade treaties are negotiated with our major, non-EU trading partners, the EU and its component member states all being members of that organisation. Trading on the basis of WTO tariffs, without the cost of EU membership and having the ability to conclude our own trade agreements with the rest of the world would be a very much more profitable situation for Britain than the one it finds itself in now.

Perhaps the last word should be one from China, the second largest economy in the world:

“Whether the UK will stay in the EU or not, will not do any harm to trade and economic ties or financial relations between the UK and China” – Chairman of the China Construction Bank, the world’s second largest bank.

Opinions are my own and not the views of my employer

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