Ordinance 2017-1674 of December 8 2017 introduced into French law the legal framework for the use of a blockchain in order to record the ownership and transfer of unlisted securities. This groundbreaking reform is an essential step towards the modernisation of the existing rules governing the transfer of unlisted securities. Even if for the moment such rules remain in place, blockchain technology represents an alternative transfer system.
The ordinance will enter into force following publication of an implementation decree which will provide the conditions and technical details regarding the use of blockchain technology. Such publication is scheduled to take place before July 1 2018.
Blockchain technology will considerably facilitate and secure the transfer of securities and will undoubtedly have an impact on private M&A deals.
Securities which may be transferred with blockchain
Only securities that are not listed on a regulated market fall under the scope of the reform. The list of securities that may be transferred with blockchain technology in particular include:
- debt securities (eg, bonds and short-term notes);
- the units or shares in collective investment undertakings; and
- unlisted shares issued by limited companies, such as limited liability companies (sociétés anonymes) and joint stock companies (sociétés par actions simplifiées).
Validity of transfers of securities in blockchain
At present, the ownership and transfer of title of French unlisted securities are evidenced by book entries in securities registers and individual securities accounts opened in the name of every security owner. In principle, such securities registers and accounts are kept by the issuer and book entries are in practice largely handwritten.
With this recent reform, each issuer will have the possibility to record its issued securities either through book entries in traditional securities accounts or in a blockchain which is otherwise designated by the legislature as a 'distributed ledger technology'. The blockchain will then operate as a decentralised and secure register in which any recorded information will be deemed inalterable.
The ordinance further provides that if the blockchain is selected by the issuer, the entries made in such blockchain will have the same legal effects as book entries in traditional securities and transfer registers.
The French M&A legal community is keenly interested in blockchain technology – a hot topic in general at the moment. It eagerly awaits the publication of the implementation decree. However, the decree will need to be precise enough in order to organise not only the blockchain system, but also the rules applicable to issuers and blockchain managers and more generally the necessary standards of security, failing which M&A practitioners will continue to use their pens and pencils to record transfers of securities.
This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.
For further information please contact Alain Levy, Gwenaëlle de Kerviler or Linda Erlandsson at AyacheSalama by telephone (+33 1 58 05 38 05) or email ([email protected], [email protected] or [email protected]). The AyacheSalama website can be accessed at www.ayachesalama.com.
