Fried Frank has won a decisive victory in the long-running Belvedere dispute, successfully defending an appeal by Belvedere in front of the Cour de Cassation, France's Supreme Court. The decision is of great importance to the practice of international financing, particularly high-yield bonds issues, and adds to a number of significant results by Fried Frank on behalf of client Bank of New York Mellon, the trustee of the floating rate notes issued by Belvedere S.A. (the "FRNs"). This latest litigation centered on the legal status of a New York trustee under French law and puts an end to legal uncertainty on the reception of the trust and the parallel debt in French law, thus promoting the establishment of international loans for French companies.
The judgment recognized the trust and the mechanism of the parallel debt. The Bank of New York Mellon, acting as trustee for the benefit of a number of noteholders pursuant to an indenture governed by New York law, had been admitted as a direct creditor, and not simply as agent ad litem, of Belvedere and its seven European subsidiaries in connection with the sauvegarde procedure opened in France in their favor. The question was whether the trustee had the quality of legal owner of the claims, according to New York law, or that of an agent, according to French law applicable to the sauvegarde procedure.
The Cour de Cassation has held that it is the law of the claim which is designed to determine the quality of the creditor, not the law applicable to the sauvegarde procedure. Therefore, it is as the owner of the debt, and not only as agent, that the trustee could file proofs of claims in any French insolvency procedure. The Cour de Cassation has thus recognized the trust itself, without assimilation to a mandate. This direct recognition of the trust facilitates the management of bond issues, especially high-yield bonds, centralized in the hands of the trustee, legal owner, for the benefit of noteholders, beneficial owners. The Cour de Cassation also ruled that the parallel debt mechanism, essential in this context and in LBO transactions in France to improve enforceability of the security package, was consistent with French international public order, provided that clauses organizing this system provide a system of allocation of payments avoiding any risk of double payment by the borrower.
The team was led by corporate partner David Chijner (Paris) and corporate European counsel Noam Ankri (Paris) and included corporate partners Robert Mollen (London) and Sian Withey (London) and litigation partner David Morris (NY).