Banking and financial law
Companies and taxation
International and European law
Banking and financial law — Companies and taxation — International and European law — Commercial law — Civil law — Family law — Family Office
Law No.1.529 of 29 July 2022 on various economic and legal provisions
Law No. 1,529 of 29 July 2022, on various economic and legal provisions (37 articles) (JDM No. 8603 of 12 August 2022) is the result of bill No. 1049 of 18 October 2021, received by the Parliament on 12 November 2021, and passed on 27 July 2022.
Law No. 1.529 is part of the Government’s will to modernize economic law, in addition to Law No. 1.515 of 23 December 2021 amending Law No. 1.338 of 7 September 2007 on financial activities, as amended (published in the JDM n° 8572 of 7 January 2022) as well as the general reform of company law already announced in order to reinforce the attractiveness of the Principality.
It is also a question of “responding favorably to the professionals of the market who have informed him of the specific difficulties they have been confronted with, as well as the lack of certain legal tools, particularly in the field of credit”. (Explanatory Memorandum to Bill No. 1049 (2021-20), p. 2)
A far-reaching modernisation of economic law had already been planned between 2012 and 2016, before being abandoned (Bill No. 907 tabled on the Bureau of the National Council on 10 December 2012, withdrawn on 6 July 2013 and split into two Bills No. 914 and No. 915 tabled on 30 July 2013, which were finally withdrawn on 5 December 2016).
The reform covers:
- free transfer tax (submission of trusts under foreign law) ;
- private international law (banking contracts and mandatory provisions of consumer law; temporal application of the DIP Code to international successions);
- securities and credit law (pledging of structured financial products; sale of financial instruments and structured financial products; bank loans; independent guarantee; pledge; assignment of business claims by way of slip);
- financial activities (provisional administration of licensed companies; professional certification; classification of customers to meet the constraints of producers of financial instruments located abroad; solicited and unsolicited approaches by unlicensed companies to offer financial services or products);
- business law (transitional management in the event of the absence, resignation, death or incapacity of the manager of a limited liability company; rules relating to the obligation to disclose accounting documents of public limited companies and limited partnerships with shares, as well as commercial companies other than joint stock companies).
The provisions relating to the assignment of professional claims, as well as the transitional provisions applicable to pledges are inserted in Law No. 1.529.
Moreover, it amends the following texts:
- Act No. 580 of 29 July 1953 on the adjustment of registration and mortgage duties, as amended (new Article 21-2);
- Code of Private International Law (new section 2.1. to Article 70);
- Law No 1.448 of 28 June 2017 on Private International Law (new Article 7-1);
- Commercial Code (first paragraph of Article 2; new second paragraph of Article 59-1; number 1 of Article 59-1, new Article 612; new paragraphs of Article 51-7; number 3 of Article 51-13);
- Civil Code (new Chapter V within Title XIV including new Article 1882-1; number 4 of Article 1251);
- Ordinance-Law No. 676 of 2 December 1959 on the pledge of motor vehicles, as amended (Articles 5 and 9);Ordinance-Law of 23 June 1907 on the pledge of businesses, as amended (Articles 5 and 8);
- Ordinance-Law No. 664 of 23 May 1959 on the pledge of capital goods, as amended (Articles 5 and 7);
- Law No 1.338 of 7 September 2007 on financial activities, as amended (new Article 42-1; new second paragraph to Article 23; new Article 23-3; Article 29; new Articles 29-1 and 29-2);
- Law No 1.144 of 26 July 1991 on the exercise of certain economic and legal activities, as amended (new second paragraph in Article 7);
- Law No. 408 of 20 January 1945 supplementing the Ordinance of 5th March, 1895 on sociétés anonymes and en commandite par actions, in particular as regards the appointment, powers and liability of commissaires [supervisory auditors], as amended (first paragraph, new second paragraph and last paragraph of article 38).
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FREE TRANSFER TAX
-Submission to free transfer tax of inter vivos or mortis causa transfers to a beneficiary of property, rights or capitalised proceeds located in Monaco, which are made within the framework of a trust under foreign law depending on the relationship between the settlor and the beneficiary (new Article 21-2 Law n° 580). The identity of the beneficiary and his relationship to the settlor is established in writing on the basis of official documents, according to the law governing the trust.
PRIVATE INTERNATIONAL LAW
–Banking contract and consumer protection (mandatory provisions of the law of the consumer’s domicile). Application of Article 70 of the Private International Law Code ["Code DIP"] on the law applicable to contracts concluded between a professional and a consumer set aside in relation to banking services for deposit account and securities account agreements held by an institution established in the territory of the Principality (new section 2.1. Article 70 Code DIP ).
The notion of “activity directed towards the country where the consumer is domiciled” in the second paragraph of Article 70 gave rise to difficulties of interpretation and application for the actors concerned. From now on, the applicable law in this matter is the law chosen by the parties, or in the absence of choice, the law of the State in which the party who is to provide the characteristic service is domiciled (Monegasque law).
–Temporal application of the Code DIP to international successions. Insertion of a transitional provision providing that Chapter V on successions of Title II of the IPL Code is applicable to successions opened after the entry into force of Law No 1.448 of 28 June 2017 on private international law (new Article 7-1 Law No 1.448).
The reform removes the legal uncertainty as to the question of the application of the IPL Code over time in matters of international succession, which since its entry into force has given rise to divergent answers. Recent case law has assimilated the provisions of the IPL Code relating to the determination of the applicable law in matters of succession to procedural rules that are immediately and retroactively applicable to ongoing proceedings. This amounted to modifying the rules of devolution of successions opened before the entry into force of Law No. 1.448, a solution which was not adopted by the reform.
SECURITY AND CREDIT LAW
-Extension of the pledge to structured finance products alongside the pledge of money and financial instruments (first paragraph Article 2 and new 2nd paragraph Article 59-1 Commercial Code).
“Structured finance product” is added to the list of commercial instruments, and defined as “a security created for the purpose of securitising and transferring the credit risk associated with a portfolio of financial assets, and conferring on the holder of that security the right to regular payments, which are dependent on the cash flows from the underlying assets.” The definition used is that of 28. Article 2 of Regulation (EU) No 600/2014 of 15 May 2014 on markets in financial instruments (MiFIR).
-Adaptation of the terminology of the provisions of the Commercial Code to the terms of the European regulation on financial markets (Directive No. 2014/65/EU of 15 May 2014 on markets in financial instruments (MiFID/MIF2) and MiFIR mentioned above) by referring to the “trading platform”, and supervision of the sale of financial instruments and structured financial products by the pledgee (cipher 1 Article 61-1 Commercial Code) :
- Financial instruments or structured financial products admitted to trading on a trading platform: sale on the trading platform or appropriation at the current price // Financial instruments that are not admitted to trading on a trading platform: sale by public auction, with the exception of units and shares in collective investment schemes, which are sold at their redemption value. By way of derogation, provision may be made by agreement for sale at a price sought from a number of market operators, according to the best bid, and the issuer may be a counterparty in the sale // Structured finance products that are not admitted to trading on a trading platform: early termination in return for payment of any amount calculated in accordance with the financial terms and conditions determined by the issuer, or sale on condition that they are freely transferable and assignable by a market operator at a price sought from a number of market operators, according to the best bid.
- In any event, the pledgee must : – ensure that the search for the sale price or the termination is carried out with a view to obtaining the best possible price for the benefit of the debtor (or the pledgor, where applicable); – transmit to the pledgor the steps it has taken and the offers received.
-Allow credit institutions to grant assistance to companies in difficulty (cash credit: overdraft facilities, discounting, etc.) without the risk of being accused of abusive support that would make them liable for the debtor’s liabilities in the event of default (new Article 612 of the Commercial Code, inspired by Article L650-1 of the French Commercial Code).
Thus, when collective proceedings for the settlement of liabilities are opened, creditors cannot be held liable for the damage suffered as a result of the assistance granted, except in the event of fraud, blatant interference in the management of the debtor or if the guarantees taken in return for the assistance are disproportionate to the latter. Where a creditor is found liable, the court may cancel or reduce the guarantees given in return for the assistance.
-Recognition of the autonomous guarantee in the Civil Code (alongside the surety bond), a legal tool resulting from contractual freedom allowing the creditor to be guaranteed against the risk of the debtor’s insolvency (new Article 1882-1 of the Civil Code, using the wording of Article 2321 of the French Civil Code),
- The autonomous guarantee is defined as “the undertaking by which the guarantor undertakes, in consideration of an obligation entered into by a third party, to pay a sum either on first demand or according to agreed terms”.
It is thus in principle based on a triangular relationship (like a surety bond), between the principal (debtor under the basic contract), the guarantor (usually a banker, who has granted credit by signature to the principal) and the beneficiary (creditor of the principal). The object of the autonomous guarantee is not the debt of the debtor, but the payment of a sum.
Thus, the guarantor undertakes at the request of the principal to pay the beneficiary a certain sum of money in the amount determined in advance, and may not rely on exceptions that the debtor could raise against the beneficiary, relating to the person of the debtor or to the obligation guaranteed. The guarantor is therefore obliged to respond to the guarantee call, except in the case of abuse or obvious fraud by the beneficiary or collusion of the latter with the principal.
Where payment is made on first demand, the guarantor has a claim against the principal for reimbursement of his advance.
For a concrete example, see Annex II – Model of guarantee on first demand, of Ordinance No. 3.647 of 09/09/1966 concerning town planning, construction and roads.
- As a consequence of the insertion of the autonomous guarantee in the Civil Code, it is added that it is impossible for the spouses to commit the community property by an autonomous guarantee unless it has been contracted with the consent of both spouses, as is already provided for in the case of surety bonds and loans (paragraph 4 of Article 1251 of the Civil Code).
This addition was made for the sake of legal certainty. Since Article 1415 of the French Civil Code (similar to Monegasque law) does not provide for this impossibility for an autonomous guarantee, it was left to the judge to decide on the question of the commitment of the community property of the spouses by an autonomous guarantee. The French Court of Cassation thus considered that Article 1415 of the Civil Code, although only referring to surety bonds or loans, was “applicable to the first demand guarantee which, like surety bonds, is a personal security, which consists of a commitment by which the guarantor undertakes, in consideration of an obligation entered into by a third party, to pay a specific sum, and is therefore of a nature to impoverish the community assets” (Court of Cassation, 1st Civil Court, No. 04-11.037).
-Extension from 5 to 10 years of the registration periods for pledges of motor vehicles, businesses and capital goods, and for the act of subrogation in the benefit of a pledge of capital goods, as well as the duration of the period of conservation of the privilege. (Articles 5 and 9 Ordinance-Law n° 676; Articles 5 and 8 Sovereign Order of 23 June 1907; Articles 5 and 7 Ordinance-Law n° 664).
This reform takes into account the increase in the duration of bank loans. The effect of the pledge is to create a privilege for the benefit of the creditor who has a priority of payment over other creditors.
These provisions are applicable to pledges registered on the day of entry into force of Law No 1.529 (13 August 2022). Pledges of motor vehicles, goodwill and capital goods already registered and still effective on the day of entry into force of Law No. 1.529 shall retain the privilege for a period of ten years from their registration. (Articles 35 to 37 of Law No 1.529).
-Introduction of the assignment of professional receivables (cession de créances professionnelles), the purpose of which is to meet the financing and cash flow needs of businesses (Section V, Articles 17 to 23 of Act 1.529), based on the model of the French “bordereau Dailly” (Articles L.313-23 et seq. of the Monetary and Financial Code).
Only credit institutions and finance companies can be assignees. The assignor (beneficiary of the credit) is either a legal person under private or public law, or a natural person, but acting in the course of his professional activity.
The transfer to the assignee of the ownership of receivables held vis-à-vis a third party (assigned debtor) is organised in practice by a framework agreement and takes place through the mechanism of a slip (“bordereau”) containing compulsory information (defined by Sovereign Order) which materialises the assignment act.
The assignment of a claim may be made as a guarantee (to secure the repayment of claims recorded in a current account opened with the assignor) or as a discount (to secure the repayment of a loan granted in a loan account).
The assignment is enforceable against third parties from the date shown on the slip.
Contrary to the mechanism of ordinary law (Articles 1529 et seq. of the Civil Code) which only envisages the assignment of a single receivable, the system of assignment of professional receivables allows the assignment of one or more receivables in a single operation, and admits the transferability of not only present but also future receivables.
-Allowing the CCAF (Commission de contrôle des activités financières), in case of lack of management of a licensed company or when it can no longer be managed under normal conditions, to appoint a provisional administrator (ex officio or at the request of the managers) to whom all the powers of administration, management and representation of the legal person concerned will be entrusted (new Article 42-1 Law n° 1.338).
The provisional administrator disposes of the movable and immovable property of the company in the interest of the interest of good administration. His remuneration is fixed by the CCAF and paid, as well as the expenses incurred by the provisional administrator, by the authorised company to which he is appointed.
-Legal recognition of the obligation of professional certification (new 2nd paragraph of Article 23 of Act 1.338) for certain functions within authorised companies (managers, salespersons, financial analysts, trading room operators).
Professional certification for financial activities in Monaco was introduced by Ministerial Order n° 2014-168 of 19 March 2014 setting out the terms and conditions for the application of Article 7 3°) of Sovereign Order n° 1284 of 10 September 2007 setting out the minimum knowledge required to carry out certain activities within a bank or a management company.
– New provisions relating to the relationship between authorised companies and their clients in order to comply with the obligations of producers of financial instruments located abroad (new Article 23-3 of Act 1.338).
Authorised companies must ask their clients, including potential clients, for information on their investment knowledge and experience in order to assess the suitability of the financial instrument offered or requested by the client. Where appropriate, authorised firms are now required to warn their clients, including potential clients, if they consider that the activity or financial instrument concerned is not suitable for them, and to inform them of the risks involved.
The creation of these new obligations is intended to oblige authorised firms to classify their customers in order to meet the constraints specific to producers of financial instruments located abroad, which are subject to product governance and supervision rules. Authorised companies distributing the products of these producers must be able to justify that the target market of customers has characteristics and objectives that are compatible with the financial instruments distributed in Monaco.
These new provisions are similar to certain European Union rules, in particular those of Directive 2014/65/EU (MiFID/MIF2) mentioned above.
-New provisions relating to solicited and unsolicited approaches by unauthorised companies to offer financial services or products, to remove the difficulties of interpretation of Article 29, first paragraph of Act 1.338 which provided that “unsolicited or unsolicited approaches by unauthorised companies […] to offer financial services or products, regardless of the place or means used, are prohibited” (Article 29, new Articles 29-1 and 29-2 Act 1.338).
The former wording could be understood as prohibiting companies not authorised in the Principality (including companies under foreign law authorised to offer financial services and products in the country in which they are established) from offering these services to a person domiciled in Monaco, even though the person domiciled in Monaco may already be a client of the non-authorised company or may have requested this offer.
• The principle of the initial prohibition on any person or entity not authorised under the conditions provided for by Law n° 1.338 from taking any steps, whether solicited or unsolicited, on the territory of the Principality, with a view to offering financial services, instruments or products to persons domiciled in the Principality, regardless of the place or means used, is maintained.
By way of exception, this prohibition does not apply when the person domiciled in the Principality is: 1°) an institutional investor; 2°) an authorised company; 3°) a client of an authorised company when the steps are taken through its intermediary. It should be noted that the prohibition for non-authorised companies to make unsolicited and solicited approaches to a single family office in the Principality is maintained.
Furthermore, an exemption is provided for events organised in the Principality which bring together professionals from the banking and financial sector, subject to prior notification of the CCAF and unless the CCAF gives an unfavourable opinion (removal of the prohibition on making approaches in public places, and replacement of the CCAF’s authorisation by its prior notification).
• It is also prohibited for any person or entity not authorised under the conditions provided for by Law n° 1.338, to take any unsolicited steps, carried out remotely, with a view to offering, whatever the means of communication used, financial services, instruments or products, to persons domiciled in the Principality.
By way of exception, this prohibition does not apply when the person domiciled in Monaco is a client of the non-authorised person or entity. It is thus permitted to maintain a business relationship previously established with non-authorised persons or entities.
• Steps requested by a person domiciled in the Principality from a person or company based abroad are now authorised, provided that these steps are carried out exclusively remotely.
-Remedy for the case of vacancy of the foreign national manager (gérant) of the SARL (LLC) in case of death, deficiency or departure that may cause difficulties in the management of the company. One of the authorised partners of the company is therefore allowed to act as manager for a transitional period of 3 months, after which administrative authorisation as manager must be sought (Article 7 Law no. 1.144). Partners and managers are required, if they are of foreign nationality, to obtain an administrative authorisation issued by decision of the Minister of State.
–Reinforcement of the effectiveness of the measures applicable in case of failure to comply with the obligation to communicate the accounting documents of sociétés anonymes (PLC) and sociétés en commandite par actions (partnerships limited by shares) to the Minister of State (Articles 38 and 39 Law n° 408).
• Modification of the purpose of the formal notice: the fact of having to provide “all useful justifications” to the Minister of State is replaced by an injunction to the directors “to communicate to him, within fifteen days at the most, the said documents, under penalty of the sanctions provided for in the first paragraph of Article 37″ (fine of 200 to 600 euros, provided for in paragraph 3 of Article 29 Penal Code). The directors then have the possibility, within fifteen days of the formal notice, to request an additional period of time (which may not exceed three months from the receipt of the formal notice) by providing all useful justification.
•The purpose of the report that the Minister of State may commission from a chartered accountant in the event of an unsuccessful formal notice is specified: “to obtain accurate information on its economic and financial situation”.
• Depending on the conclusions of the report, the Minister of State may invite the company to comply with the law within a period of three months. If the directors fail to do so or if the company can no longer be managed under normal conditions, the Minister of State may refer the matter to the President of the Court of First Instance by way of a request for the appointment of an ad-hoc representative (mandataire ad hoc). Finally, reference is made to the Commission referred to in Article 2 of Law n° 767 of 8th July 1964 relating to the revocation of authorisations for the formation of sociétés anonymes and sociétés en commandite par actions.
–Introduction of similar rules relating to the communication of accounting documents for commercial companies other than joint stock companies to the department in charge of the RCI (Répertoire du commerce et de l’Industrie) (Articles 51-7 and 51-13 Commercial Code).
• In the event of failure to communicate the balance sheet, the profit and loss account and the certificate signed by the manager within nine months after the end of the previous financial year, the department in charge of the RCI may give notice to the managers “to transmit the documents within fifteen days at the most, under penalty of the sanctions provided for in paragraph 3) of Article 51-13 of this Code” (fine of 600 to 1.000 euros provided for in paragraph 4 of Article 29 of the Criminal Code). The managers may request an extension of the deadline (which may not exceed three months) by providing all the necessary justification.
• If the formal notice has not been served or if the evidence submitted appears insufficient, the department in charge of the RCI may appoint a member of the Ordre des experts-comptables to draw up a report “providing accurate information on the economic and financial situation”.
• Depending on the conclusions of the report (sent to the Government Councillor-Minister of Finance and Economy), the Minister of State may invite the company to comply with the regulations within a period of three months. If the directors fail to do so, the Minister of State may refer the matter to the President of the Court of First Instance by way of a request for the appointment of an ad-hoc representative. Finally, reference is made to the Commission referred to in the second paragraph of Article 10 of Law n° 1.144 of 26 July 1991 concerning the exercise of certain economic and legal activities.
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