FCC Proudreed Properties 2005 HSBC SG CORPORATE ...

Borrower to perform its payment obligations under the Transaction Documents, each Borrower has been
operating its respective Secured Property for a substantial time prior to the granting of the related
Commercial Mortgage Loan and, therefore, has a substantial operating history. The existence of such
prior operating history creates a risk for such Borrowers that there may exist certain claims in connection
with such prior operations that have not yet been made against such Borrower. An insolvency of any
Borrower as a result of claims in connection with prior operations could adversely affect the Issuer’s
ability to make all payments due on the Notes (see ‘‘Insolvency of the Borrowers; Enforcement of the
Obligor Security’’ below).
3. Legal and regulatory considerations relating to the transaction structure
Insolvency Considerations
The Borrowers and the other parties to the Transaction Documents which are incorporated under the
laws of France are subject to the provisions of French insolvency legislation. French insolvency legislation
generally favours the continuation of a business and protection of employment rights over payment of
creditors.
As at the date of this Offering Circular a law reforming French insolvency proceedings has been adopted
by the French parliament (Loi no. 2005-845 du 26 juillet 2005 de sauvegarde des entreprises), which will
come into force on 1 January 2006 (the ‘‘Reformed Insolvency Law’’). The description of French
insolvency law that follows is made subject to the effect of the Reformed Insolvency Law.
A company’s directors are required to petition for bankruptcy within 15 days of the company’s insolvency
(état de cessation des paiements), i.e. when the debtor is unable to meet its liabilities due and payable out
of its immediately available assets (cash available or assets which may be quickly turned into cash).
Failure to do so subjects the directors to civil liability. A company’s creditor(s) may also file a bankruptcy
petition if the company is insolvent. The date on which the debtor is deemed to be insolvent is the date
on which the bankruptcy proceedings commence (jugement d’ouverture). However, in the order
commencing judicial reorganisation or liquidation proceedings or in a subsequent order, a court may
order that the date of ‘‘cessation des paiements’’ be deemed to be an earlier date of up to 18 months prior
to the court order commencing proceedings. In the case of a judicial reorganisation, an administrator
appointed by the court investigates the affairs of the debtor during an initial observation period (période
d’observation) and makes proposals for its reorganisation, sale or liquidation. In the case of a court order
setting out a judicial liquidation, a liquidator is principally in charge of collecting all of the debtor’s assets
and satisfying its creditors to the extent of available funds.
The importance of the date of cessation des paiements is that it marks the beginning of the suspect period
(période suspecte). Certain transactions made during the suspect period may be void or voidable.
Void transactions include transactions or payments entered into during the suspect period which
constitute voluntary preferences for the benefit of certain creditors to the detriment of other creditors.
These include transfers of assets for no or nominal consideration (à titre gratuit), contracts under which
the obligations of the debtor significantly exceed those of the other party, payments of debts not due at
the time of payment, payments-in-kind, security granted for debts previously incurred and provisional
measures unless the writ of attachment or seizure predates the date of suspension of payment.
Voidable transactions include transactions or payments made when due after the date of suspension of
payments if the party dealing with the debtor knew or should have known that it had suspended payment
of its debts.
As a general rule, creditors domiciled in France whose debts arose prior to the commencement of
bankruptcy proceedings must file a claim with the creditors’ representative within two months of the
publication of the court order in the Bulletin Obligatoire des Annonces Civiles et Commerciales; this
period is extended to four months for creditors domiciled outside France. Creditors who have not
submitted their claims during this period are barred from receiving distributions made in connection with
the bankruptcy proceedings and their unasserted claims will be extinguished.
During the observation period, the debtor is prohibited from paying debts outstanding prior to the
bankruptcy proceedings, subject to certain exceptions such as set-off of closely (reciprocal) connected
debts or when the court has authorised the administrator to sue for a debt secured by a retention right on
an asset of the borrower, such asset being necessary to carry out the activity (Article L.621-24 of the
French Commercial Code). During this period, creditors may not pursue any legal action against the
debtor with respect to any claim arising prior to the commencement of the observation period if the
objective of the legal action is:
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