Civil law: the fiducie and the Treuhand

Wonder

1. Why do civil law countries reject the idea that one person holds legal title and another holds beneficial interest?
2. How can a company hand assets to a manager and still keep them out of reach of the manager’s own creditors?
3. What happens if the manager in these systems dies or goes bankrupt?

Explore

1. Civil-law systems, such as those of France and Germany, generally treat ownership as a single right held by one owner. They do not divide it into legal title held by a trustee and a separate beneficial interest enforced in equity, as English trust law does. Civil law does allow some rights over property to be shared out, such as usufruct, the right to use property and take its income. But the common-law split between a legal owner and an equitable owner has no direct counterpart, which is why these countries built their own devices.
2. France introduced the fiducie in 2007, adding it to the Civil Code (Articles 2011 and following). In a fiducie, one or more constituants transfer assets, rights or security interests to a fiduciaire, who holds them apart from their own property and acts for a set purpose for the benefit of named beneficiaries. It is created by statute or by contract, and it cannot be used to make a gift: a fiducie made with intent to give is void. At first only companies subject to corporate tax could create one, and only banks, insurers and investment firms could act as fiduciaire.
3. The fiducie works by creating a separate patrimony, a distinct pool of assets and debts, in the fiduciaire’s hands. Assets transferred under the fiducie are kept apart from the fiduciaire’s own property, so if the fiduciaire becomes insolvent, the fiduciaire’s personal creditors cannot reach them. In 2008 the law was widened: individuals could act as constituants, and lawyers (avocats) were added to the permitted fiduciaires. The device is still used mainly in commercial settings, such as holding assets as security for a loan.
4. Germany uses the Treuhand. No single statute defines it; it rests mainly on contract, usually treated as a mandate or management agreement under the German Civil Code (BGB). The Treugeber transfers an asset or right to the Treuhänder, who becomes its full owner as far as the outside world is concerned. Inside the relationship, the Treuhänder is bound by the agreement to hold or manage the asset for the Treugeber or a third party, or to keep it as security. It does a job similar to a trust without using English trust concepts.
5. The key difference between these civil-law devices and English trusts is that ownership never splits. The fiduciaire or Treuhänder holds full title, and the duty to act for someone else comes from statute and contract, not from an equitable interest held by the beneficiary. A beneficiary of an English trust has a property right in the trust assets; a party to a Treuhand mainly has contractual claims against the manager, although German insolvency law gives the Treugeber some protection if the manager fails.
6. These devices show that the problems trusts solve, separating management from benefit and keeping assets away from a manager’s creditors, can be handled without split ownership. They are not exact equivalents of a trust, though. Each works only within its own national law, and the French fiducie has strict formal rules: the contract must be registered with the tax authorities within one month or it is void. How common-law trusts are recognised in other countries is the subject of lesson 1.2.7 on the Hague Trusts Convention.

Key facts

Exercise nine, six, three, one

Fact check

Dates, figures and claims checked against the published sources listed below.

• Fiducie en droit français
• Treuhand
• Civil law (legal system)
• Trust (law)