All of French Company Law: ordinary law of companies and specific regime for different types of companies

Company Law (en cours)

The repurchase agreement or “pension livrée” is the transaction by which a legal entity, a mutual fund, a real estate investment fund, a professional real estate investment fund, a specialized financing fund, or a securitization fund transfers full ownership to another legal entity, a mutual fund, a real estate investment fund, a professional real estate investment fund, or a securitization fund, for an agreed price, of financial securities, and by which the transferor and the transferee respectively and irrevocably commit, the former to repurchase the securities, the latter to retransfer them for an agreed price and on an agreed date . The rules applicable to the repurchase agreement were established by Law No 93-1444 of 31 December 1993 .

The repurchase agreement constitutes a mechanism for the temporary transfer of financial securities, allowing the holder of the securities to obtain liquidity as quickly as possible, with a commitment to repurchase at a later date . At the set date for the retrocession, the transferor pays the agreed price to the transferee, and the latter retrocedes the financial securities to the transferor; if the transferor fails to fulfill the obligation to pay the retrocession price, the securities remain with the transferee, and if the transferee fails to fulfill the obligation to retrocede the securities, the transfer amount remains with the transferor . The remuneration of the transferee, regardless of its form, constitutes debt income . It cannot be considered a dividend . It is treated in accounting terms as interest . When the duration of the repurchase agreement covers the payment date of the income attached to the financial securities given in the agreement, the transferee returns them to the transferor, who records them among products of the same nature . Furthermore, the transferee is not taxed on any income attached to these securities, which must be returned to the transferor, especially when, due to holding other securities of the issuing company than those taken in the agreement, the parent company regime is applicable .

Pursuant to Article L. 211-32 of the Monetary and Financial Code, the repurchase agreement results in the transferor maintaining the financial securities subject to the repurchase agreement as assets on its balance sheet and recording the amount of its debt to the transferee as a liability on its balance sheet; these securities and this debt are itemized in a specific section in the transferor's accounting. Furthermore, the amount of financial securities subject to the repurchase agreement, broken down by the nature of the assets concerned, must appear in the documents annexed to the annual accounts. Article L. 211-33 specifies that the financial securities received under a repurchase agreement are not recorded on the transferee's balance sheet; the transferee records the amount of its claim against the transferor as an asset on its balance sheet. When the transferee sells financial securities it has received under a repurchase agreement, it records the amount of this sale, representing its financial securities debt, as a liability on its balance sheet, which, at the close of the fiscal year, is valued at the market price of these assets. The value differences observed are considered for determining the taxable result of that fiscal year. When the transferee gives financial securities it has received under a repurchase agreement in another repurchase agreement, it records the amount of its debt to the new transferee as a liability on its balance sheet. The amounts representing claims and debts are itemized in the transferee's accounting.

The repurchase agreement must involve financial securities that are not subject, throughout the duration of the operation, to the detachment of a dividend right that entitles the holder to the tax credit provided for in part b of part 1 of Article 220 of the General Tax Code, nor to the payment of interest subject to the withholding tax provided for in 1 of Article 119 bis or Article 1678 bis of the General Tax Code, or that entitles the holder to a tax credit provided for in b of 1 of Article 220 of the same code . The repurchase agreement becomes enforceable against third parties upon the delivery of the financial securities , the terms of which are set as follows: financial securities or instruments physically created are considered delivered if, at the time of the repurchase, they are effectively and physically delivered to the transferee or their agent; dematerialized financial securities or instruments and those physically created, kept with a central depository but circulating by account-to-account transfer, are considered delivered if they are registered, at the time of the repurchase, in an account opened in the name of the transferee with an intermediary, a central depository, or, where applicable, the issuer .

Law No 93-1444 of 31 December 1993 on various provisions relating to the Banque de France, insurance, credit, and financial markets, Art. 12, Official Journal of 5 January 1994.

Bulletin of the Banque de France, 7 July 1994, The new legal regime for repurchase agreements.

CE, 8 November 2019, LawLex202300005963JBJ

80. Principle