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Developments in France

The French private equity and venture capital market has been turbulent in recent years, says SJ Berwin, with some strong activity in some sectors, and some very quiet times for others. Three regulatory changes could help to revive the fortunes of those parts of the market that have been in the doldrums.

A non-binding three-year agreement entered into in September 2004 between the Finance Ministry and representatives of the French insurance industry commits French insurers to invest substantially more money in private equity.

Under the terms of the agreement, the industry would invest approximately 2% of its total assets under management in small and medium-sized companies whose shares are not listed on a regulated market. The current ratio is around 1.4% and this should result in additional private equity investment of approximately €6 billion by the end of 2007.

The agreement does not limit investments to French or European companies; however, it suggests that such investments will be made either directly or through common French fund vehicles like the FCPR.

A law passed in June 2004 substantially revised French company and securities laws in a number of areas. Of greatest interest for the private equity industry is the introduction of "preferred shares" (actions de préférence) modelled on US and English practice. Prior to this reform, French companies faced limits on the type of specific rights attached to their capital stock.

The most difficult issues often involved the exclusion of voting rights or differences in treatment among shareholders. Under the new rules, French companies can issue different categories of preferred shares, with or without voting rights, whose rights to receive dividends are set out in the company’s articles.

And, if adopted by parliament, a draft law published in May 2004 would substantially change French law on insolvent companies. The principal innovation would be the introduction of a procedure similar to "Chapter 11" of the United States Bankruptcy Code that would allow debtors to seek protection from creditors before becoming insolvent and without losing control of their business.

The purpose of this proposed change is to increase the number of companies that survive the bankruptcy process without going into liquidation, by offering those companies a chance to restructure themselves.

These are positive developments, all of which should assist the industry. There is more to do in France, including on the regulation of public to private deals, but progress is certainly being made.

Pierre-Louis Périn

SJ Berwin is a pan-European law firm with a particular focus on private equity. It has offices in London, Frankfurt, Munich, Berlin, Madrid, Paris and Brussels. If you would like further information on its services to the private equity industry please contact Simon Witney in its London office +44 (0)20 7533 2222 or visit their website at www.sjberwin.com