Something of an unknown creature that is long overdue according to some observers, but greeted with scepticism by others, the concept of la fiducie, inspired by the anglo-american notion of a “trust”, has finally been introduced into French law.
This Act of February 2007 is nearly identical to the original bill laid before Parliament in 2005 by Senator Philippe Marini, which itself followed in the footsteps of other prior bills. At first glance, the fiducie appears be a replica model of the anglo-american “trust” or the Anstalt recognised in Lichtenstein or Luxembourg. However, a closer examination reveals that it is a tool with only limited effectiveness.
The new article 2011 of the French Civil Code defines a fiducie as a contract by which a company (the Settlor) transfers goods or rights to another person (the Trustee) who holds these separate from his own property with the remit to manage the property for the benefit of one or more Beneficiaries. A fiducie must comply with various requirements. In particular, the fiducie can only be created by law or by contract and it must be expressly created. The contract that sets it up must contain a certain amount of information and must be registered with the registre national des fiducies (a purposely set up national registry) and the service des impôts (the French Inland Revenue), as failure to so register the fiducie renders it null and void.
In terms of legal substance, the fiducie brings new concepts into French law. First, it enables property to be temporarily transferred. Secondly, it enables goods to be isolated in an autonomous entity, separate from the Settlor’s estate. Indeed, the fiducie brings to an end one of the fundamental concepts of French law, the idea that a person’s estate cannot be divided up.
As a result of trusts’ reputation for opaqueness, not to mention their strong appeal in tax havens, the fiducie is widely mistrusted in France. This new statute has accordingly limited the fiducie’s scope and seeks to maintain its tax-neutral position, in so doing taking away much of the interest that this tool may otherwise have attracted.
Whilst the English form of trust is used for a multitude of purposes, including the transmission of property from one generation onto another, this new piece of legislation sets out that “a fiducie is null and void if it is created with the sole intention of benefiting the Beneficiary”. Moreover, it can only be used by companies that are registered for corporation tax; ie, individuals are excluded. People hoping that the fiducie could be used to transfer property onto relatives or in other circumstances will no doubt be disappointed.
The Act further provides a framework for making fiducies transparent and facilitates their monitoring: in addition to the formalities set out above, the Trustee must be a financial institution, an insurance company or any other body corporate that is subject to the regulatory constraints of the Code monétaire et financier (equivalent, by and large, to the Financial Services and Markets Act (“FSMA”) in the U.K.) and is under an obligation to make clear its status as holder of the property. The Settlor must be registered in the EU or in a country with which France has signed a tax treaty providing for assistance as regards fighting fraud and tax-evasion matters.
Views concerning the benefit of having added the Trust concept to the French legal machinery are mixed. Some people consider that whilst the principle of the fiducie is laudable, the new legal framework is so restrictive that it makes the new tool less attractive than resorting to the more flexible foreign systems (e.g. for the transfer of a deceased’s estate).
Other commentators still prefer the numerous mechanisms already on offer under French law. Some focus groups have already reported upon the opportunities that are created by the fiducie in the areas of banking syndications, the management of certain types of loans and funds and above all for the securitisation of facilities.
More generally, the fiducie will easily enable a business to set aside or manage some or all of its property with a set objective in mind. Several case studies have revealed that French companies have until now been obliged to look overseas for the legal means by which they can manage their financial portfolios. One such example is that of Euromillions, for which La Française des Jeux (the French gaming operator – see article in this review) joined other European lottery operators to form a Trust under English law. In 1987, French car manufacturer Peugeot turned to the US for a solution. In 2004, Alstom (transport and energy infrastructure) also resorted to using an anglo-american type trust for its corporate restructuring.
On balance, we can look forward to the fiducie taking place under French Law alongside the range of legal tools already available to companies. Further, the contractual freedom with regards to its drafting, an advantage that is well concealed upon the reading of the statute itself, may in itself attract a reasonable amount of interest.