Trusts enable the issue of shares with simultaneous retention of voting rights. With the help of trust companies, companies can continue to decide themselves on the course to be taken by the company and still increase the capital by issuing shares to investors. One could also say that it is a kind of protective construction. This form is the most comprehensive, which ensures that the voting right remains at least partially with the company.
When a company engages a trust company, shareholders can only buy certificates of the shares owned by the trust itself. Keep in mind that these certificates can only generate returns.
Shares and certificates
The difference between shares and certificates is not very big financially, but it has important consequences. If you own shares, you are also a partner of the entrepreneur. This means that you can earn a share price, have the right to receive a dividend and have the right to vote. If you have many shares in a company, that means theoretically that you have a say in the future course of the company.
A trust company owns all the shares of a company and issues certificates – these form the basis for your investment. Consider the fact that you do not qualify for the certificate to receive the price or dividend paid. You have no voting rights because the company does not want to give it away.
No voting rights
When using shares, you have no voting rights and, for example, you can not attend general meetings of shareholders. Only the trust company is present at these meetings, as this is theoretically the sole shareholder. The fact that you own a certificate ensures that you can achieve an attractive return, but it does not change the identity of the shareholders. Set yourself a goal that you want to achieve with the share purchase. When it comes to the financial investment, choosing the certificate does not have to be a problem. You would like to actively use the voting right? Then you should make sure that you actually buy shares and not the certificates of a trust company.
Trust companies can be used to protect against hostile takeovers. This variant is especially popular with family businesses. In this way, you can prevent that you as a shareholder get a vote because you are actually not a shareholder. They hold a certificate in their hands and invest in a company without voting in return.
Inspired by the Anglo-Saxon trust, the trust is frequently used to effectively secure the granting of new financing. Its use is particularly relevant where the settlor of the trust is in difficulty.
A brief reminder of the fiduciary mechanism
Introduced by a law of 19 February 2007, the trust allows one or more persons, called constituents , to temporarily transfer the ownership of assets (property or rights, tangible or intangible, present or future, movable or immovable) to one or more trusted third parties, the trustees , with the mission of making use of it under the trust contract for the benefit of one or more persons, the beneficiaries , who may be third parties, or the settlor or the trustee -even.
The essential specificity of the fiduciary instrument resides in this real transfer of ownership of the property assigned in trust for the benefit of the trustee, which earns it the evocative, but not usurped, the nickname of “Queen of collateral”.
While this is a transitional property and finalized, the trustee can exercise its powers only within the limits set by the trust agreement, but the fiduciary assets are legally transferred to a patrimony called “assignment”, isolated with a total imperviousness of the property of the settlor, but also that of the trustee.
The trust patrimony, specific to each trust, thus remains immune, for the duration of the trust, from any disposition by the settlor or its creditors.
Trust-security and trust-management, an unnecessary distinction
A distinction is often made between (i) the trust, where the fiduciary assets are turned over to the trustee to secure a grantor’s obligation and (ii) the management trust when the property is turned over to the trustee with a management mission fiduciary assets.
This distinction turns out to be irrelevant in practice as most trust-trust agreements impose fiduciary duties on the trustee.
“It’s the only security mechanism in French law truly bankruptcy remote”
These joint trust and management trusts reflect the trust’s other major advantage over traditional collateral.
Beyond the search for inviolable property-security, the parties benefit from the establishment of the mechanism to entrust precise and varied missions to a trusted third party and independent professional, the trustee.
An incentive tool for financing companies in difficulty
Since the beginning, the trust has been used for the most part as security for the financing of companies in difficulty, in order to remedy the imperfection of the usual securities.
The trust can be usefully constituted at all stages of amicable and collective procedures:
(i) Establishment of trust prior to the commencement of a class proceeding
Contrary to certain prejudices, the trust, like any security, can be validly constituted in suspicious period (ie period preceding the request to open a collective procedure and which concerns the companies which are in state of cessation of the supposed or proven payments ) provided that it has been granted as security for a debt incurred concomitantly and under conditions consistent with market conditions.
Of course, it is nevertheless advisable to set up the trust as part of a preventive procedure, or, ideally, to be part of an approved conciliation agreement which will prevent, in the event of opening collective proceedings, the transfer to a date prior to the date of cessation of payments and therefore remove any risk of nullity of the suspect period.
(ii) The formation of a trust after the commencement of a class action
A trust can usefully be established at all stages of the insolvency proceedings:
– during the observation period, for the benefit of a contributor of funds and/or new products participating in the financing of the continuation of the exploitation, subject to the authorization of the judge-commissioner;
– in the context of the implementation of safeguard and recovery plans, for example for the benefit of the Plan Execution Commissioner to secure the reimbursement of all or part of the admitted liabilities or for the benefit of a debtor’s client who agrees to finance the activity of the company by proceeding with the acquisition, prepaid, of a large future production of goods, a pledge of respect for the business plan presented to the Tribunal;
– as part of the implementation of a transfer plan, to come to guarantee the financing of a job protection plan in order to restore social peace or secure the third party who would have financed working capital requirements activity recovered and remaining convalescent.
The realization of the trust, unlike other collateral, is very flexible and fast because it is entirely in the hands of the trustee, the exclusive owner of the assets assigned in trust.
It is the only security mechanism in French law truly ” bankruptcy remote “.
Thus, the commencement of a settlor proceeding does not affect the designated beneficiary’s exclusive right over the fiduciary assets in the amount of the secured debt.
“It is for example possible to provide for a gradual takeover by the beneficiary of the fiduciary assets, in case of non-compliance with certain milestones provided for in the trust agreement”
The position of the beneficiary is also particularly privileged since it can not be imposed a reduction of its claim in the framework of creditor committees, unlike the holders of all other existing securities, which may suffer the law of majority said committees.
There are two possible assumptions regarding the ultimate outcome of the trust:
– the debtor, the settlor of the trust, fully refunds the secured debt and the fiduciary assets are returned by the trustee;
– the debtor does not repay the secured debt, and the ownership of the assets or, more commonly, the transfer price of the fiduciary assets, is then definitively transferred, from the trustee to the beneficiary, within the limit of the amount of the secured debt, after valuation of the fiduciary assets through an appraisal, in order to avoid any undue enrichment of the beneficiary by the mere fact of the trust.
The tool is also praised for its extreme flexibility, perfectly adapted to the legal and financial inventiveness required for complex restructuring.
For example, it is possible to provide for a gradual takeover by the beneficiary of the fiduciary assets, in the event of non-compliance with certain milestones provided for in the trust agreement.
This type of arrangement is highly appreciated by the restructuring actors, in that it allows for a gradation in the realization of the trust, with steps prior to the asset allocation process (or the price of the asset). transfer of such assets) to the beneficiary.
One example is the widespread securities security trust where the owner-trustee exercises the voting rights on the grantor’s instructions until an event of default occurs (for example, if a financial ratio is not respected). ), from which date the beneficiary will instruct the trustee.
The main point here is to force the debtor-settlor to implement as soon as possible the measures identified as conducive to the recovery of the company in order to maintain the value of the target company rather than realizing the cost of the trust at all costs. potentially unfavorable.
There is also the future receivables securitization trust in which certain cases of default, instead of triggering the forfeiture of the term of the loan, simply result in the fiduciary’s obligation to redirect certain flows, previously received by the debtor to finance its activity, to the banking pool, in repayment of the loan, according to the waterfall provided for in the credit agreement.
Thanks to the level of security and versatility, the trust has already demonstrated its ability to unlock critical situations and encourage investors to provide funds to the company when all conventional financing channels were closing in front of her.
This tool does not require any asset mobilization, which could paralyze the activity of the debtor-constituent while offering the creditor-beneficiary the necessary comfort in the face of a generally significant risk of default.
It is therefore advantageous for both the creditor and the debtor in difficulty, who can thus be granted financing that he could not have hoped without offering his creditor the benefit of this solid security.
The candidate provider of funds, well protected against the future risks of the company, can continue to finance and support the company in its turnaround, in a win-win logic.
Focus on the key feature of the fiduciary contract: the provision agreement
The legal transfer of ownership does not in any way prevent the debtor-settlor from keeping contractually, by means of a disposal clause inserted in the fiduciary contract or an ad hoc agreement, the use and enjoyment of the assets or assets assigned in trust and thus, in a sense, their “economic property”.
This provision is most often translated into a sui generis contract in order to avoid being subject to the binding regime of special contracts, such as the lease or the lease management.
The trust-trust, thus backed by a loan agreement, perfectly reconciles the interests of the creditors, who wish to be granted effective security without assuming all the risks inherent in the right of ownership, with those of the debtor, who must to preserve the possibility of sheltering from the execution of the trust in a bankruptcy proceeding, with a view to presenting a plan.
In such a case, the realization of the fiduciary guarantee, said without delivery, will be paralyzed during the period of observation of the collective procedure and, in case of adoption of a plan of safe