Personal guarantee and exercise of the right of redemption of a disputed claim following the assignment of the principal claim

Issue

The director and sole shareholder of a cosmetics company, which had been placed in compulsory liquidation, was sued personally in her capacity as guarantor by a leading French bank, in legal proceedings concerning a disputed principal debt. During the proceedings, this debt was assigned by the bank to a debt securitisation fund as part of a block sale, thereby making the fund an opposing party alongside the bank.

Challenges

The key challenge was, primarily, the personal nature of the director’s liability: as a guarantor, her personal assets remained at risk regardless of the fate of the company, which had already been wound up. The assignment of the claim to a securitisation fund, which took place during the proceedings, introduced a new element that needed to be analysed without delay. The question was whether this block assignment provided the director with a legal remedy capable of limiting her exposure vis-à-vis a purchaser specialising in the acquisition of disputed claims.

Solution

The firm invoked the disputed right of redemption mechanism on behalf of the director. This civil law provision allows the debtor of a disputed debt to purchase it back from the creditor, provided that the debt has been resold during the course of the proceedings. The debtor then settles the amount actually paid by the purchaser, rather than the amount originally claimed. The application of this provision shifted the focus of the debate to the conditions under which the fund had acquired the debt, rather than its nominal value.