ZOOM ON... The security trust

Definition of the trust

Inspired by the Anglo-Saxon "trust", the trust was introduced into French law in 2007.

The trust consists in temporarily transferring the ownership of an asset to a third party who will manage it in accordance with the missions assigned to him. It should be noted that the trust can be used for asset management purposes ("management trust") or as a guarantee(security trust). It is the latter role that will be the subject of this article.

The security trust can be constituted for all kinds of property, tangible or intangible, movable or immovable, present or future.

Within the framework of bond issues on its platform, Raizers can request trusts, in particular on shares and receivables.

The parties to the contract

3 types of people are involved in the trust agreement:

1. The grantor, which may be a natural person or a legal entity (here the borrower).
2. The trustee can only be a credit institution, an investment firm, an insurance company or a lawyer.
3. The beneficiary, who is the person for whose benefit the purpose of the trust is carried out, usually the lender.

Role & functioning

The security trust has a relatively efficient advantage in that the property subject to the trust agreement is transferred to the trustee's estate and is thus no longer in the debtor's estate.

In the event of default on the loan, the trustee holding the property may be instructed by the creditor to enforce the security trust.

Two modes of implementation exist:

1. The creditor may be definitively assigned ownership of the property concerned.
2. The trustee may arrange for a sale of the property and remit the proceeds to the creditor.

Execution

The trustee is obliged, for the entire duration of the contract, to manage the assets transferred by the settlor (lender) while respecting the missions entrusted to him in the trust contract. In return for the fulfilment of this purpose, the trustee receives a remuneration.

The trustee must also act and use all the means at his disposal, in accordance with the powers vested in him by the settlor, to achieve the purpose determined in the contract. The trustee must regularly inform the settlor of the progress made in achieving the purpose of the trust.

Example: Company A ("issuer") issues bonds in the amount of €100,000 on the Raizers platform. To guarantee the full repayment of this bond issue, a trust agreement on the company's shares is concluded. Within the framework of this operation, the issuing company is the settlor, Raizers in its capacity as Representative of the bondholders' mass is the beneficiary and the trustee is a dedicated lawyer. In case of default, the trustee will proceed to the sale of the company's property and will pay the proceeds of this sale to the bondholders. Here there is no seizure as such because the property is transferred initially at the setting up of the security trust.