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Latham & Watkins | Client Alert

Ruling on the admissibility of the claims from the various creditors of Belvédère as part of its safeguard proceedings, the Court of Appeal held that:

  • The existence and characteristics of the claim must be determined pursuant to the applicable conflict of laws rule, which in this case led to the application of the law governing the collateral sharing agreement, i.e., New York law. The Court held that the law of the state in which the insolvency proceedings have been commenced,

    • i.

      e., French law, should determine the rules governing the lodging, verification and admission of the claim, in accordance with article 4 of EC Regulation n° 1346/2000 of 29 May 2000 on insolvency proceedings, but should not determine the existence and characteristics of such claim (contrary to what had been argued by Belvédère).

  • The parallel debt mechanism provided for in the collateral sharing agreement was not incompatible with French internal or international public policy (ordre public interne ou international) rules, and in particular with the principle of equal treatment of creditors of a same class in safeguard or insolvency proceedings. The Court stressed that the New York law parallel debt mechanism was similar to the French concept of solidarité active” provided for by article 1197 of the French Civil Code, which provides that any creditor is entitled to claim the payment of the aggregate amount of the receivable, the payment being made to any such creditor releasing the debtor from such claim vis-à-vis the other creditors of the claim.

Finally, it was stressed that the parallel debt provisions included in the documentation did not create any artificial debt (“passif artificiel”), nor any risk of double payment of the claim.


Number 1128 | 24 January 2011


The Finance community should remain somewhat cautious in drawing definitive conclusions from this caselaw, since the Dijon Court of Appeal decision is being appealed by Belvédère before the French Supreme Court (Cour de Cassation). In addition, one may not infer from the decision that a parallel debt mechanism could be created under a French law governed agreement.

Nevertheless, this decision is important for the Finance community, since this is the first time that a French Court of Appeal recognizes the parallel debt mechanism in the context of security packages put in place as part of secured international financings granted to a French corporation. If this decision is confirmed by the French Supreme Court, this will bring more certainty as to the efficiency of the use of this mechanism for the management of security packages granted by French borrowers or issuers as part of international financing transactions.



Dijon Court of Appeal, 21 September 2010, RG n° 09/02080.

If you have any questions about this Client Alert, please contact one of the authors listed below or the Latham attorney with whom you normally consult:

Xavier Farde + xavier.farde@lw.com Paris

Etienne Gentil + etienne.gentil@lw.com Paris

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