Additional details about intercompany loans

The so-called “Macron Law” dated August 6, 2015 allowed French corporations and limited liability companies whose accounts are audited to grant loans to companies with which they entertain economic relationships (section L511-6, 3bis of the French monetary and financial code).

These provisions came into force on April 25, 2016 with the publishing of Decree n°2016-501 dated April 22, 2016, which specified the terms and limits within which these loans may be granted.

Intercompany loans are now authorized where lenders and borrowers are linked by an economic relationship, which exists (Section R511-2-1-1, I of the French monetary and financial code):

1.Where both companies are members of a same economic interest grouping or a same grouping to which a government contract or a private agreement is awarded under decree n°2015-899 dated July 23, 2015 related to government contracts;

2. Where one of the two companies is currently the recipient of (or has received during the two previous fiscal years) a public subsidy in relation to a joint project involving these two companies and, as the case may be, additional companies. This joint project must meet one of the following criteria:

• It has been labeled by a competitiveness hub;
• A subvention was granted by the European Commission or a regional entity;
• A subvention was granted by the French Environment and Energy Management Agency, by the French National Research Agency or by the Public Investment Bank;

3. The borrower is a direct or indirect subcontractor of the lender or a member of its group acting as the main entrepreneur, a subcontractor or the project owner.

A company may also grant a loan to another company if the following conditions are met (Section R511-2-1-1, II of the French monetary and financial code):

• if it entered with the borrower into a trademark or patent license agreement, a franchise agreement or a leasing agreement;
• it is a client of the borrower; in which case, the total value of goods and services acquired during the tax year preceding the loan agreement must be of at least €500,000 or must represent at least 5% of the borrower’s turnover during the same tax year;
• the company is indirectly related to the borrower via a third company, with which the lender and the borrower have been in business during the tax year preceding the loan.

A company cannot grant a loan to another company unless it meets the following conditions (Section R511-2-1-2 of the French monetary and financial code):

• as of the closing dates of each of the two accounting years preceding the issue of the loan, the lender’s net equity was higher than its issued share capital and its EBITDA was positive;
• the net cash position, recorded as of the closing dates of each of the two accounting years preceding the issue of the loan, was positive;
• the principal amount of all loans granted by any given company during any financial year may not exceed a threshold equal to the lesser of the following amounts: (i) 50% of the net cash position of that company or 10% of the net cash position of the borrower’s group, computed on a consolidated basis; and (ii) 10 million euros, 50 million euros or 100 million euros for loans extended respectively to small or medium companies, intermediate size companies, or large companies;
• the principal amount of all loans granted by the same company through a financial year may not be greater than the greater of the following two amounts: 5 % of the limit defined under paragraph 3 above; 25% of the limit defined under paragraph 3 above within the limit of 10.000€.

Statutory auditors must be apprised, on an annual basis, of any loan agreements granted in accordance with Section L511-6, 3bis of the French finance and monetary code.

March 22, 2016 | Banking Law, Business Law