Casino Chairman and Chief Executive Naouri in May placed the retailer's parent companies Rallye, Finatis and Fonciere Euris under protection from creditors in a bid to save the group from collapse.

Under that safeguard procedure the servicing of bank and bond debt was suspended for at least six months while the group worked to reorganise its debt and potentially reschedule it by up to 10 years.

On Monday, Fonciere Euris, which owns 59.5 % of Rallye, which in turn owns 51.7% of Casino, said in a statement that a Paris commercial court had lifted a ban preventing Societe Generale from calling in collateral it had on 1,770,000 shares in Rallye, or 3.4 percent of its capital.

Fonciere Euris had pledged the Rallye shares under a derivatives contract it entered with Societe Generale in 2014.

After the safeguard procedure was announced, Fonciere Euris tried to prevent Societe Generale from calling in the collateral and this was provisionally granted.

However, the latest court ruling dated July 4 cancels that ban.

If Societe Generale decides to use its collateral, this would thus lower Fonciere Euris' stake in Rallye.

Socgen declined to comment on the court decision and Fonciere Euris was not available for further comment.

By 1203 GMT, Rallye shares were down 6%, Fonciere Euris shares were off 5% while Casino shares were roughly stable.

"It seems some banks are no longer prepared to give time to Jean-Charles Naouri. This shows the growing defiance of some banks towards the dossier," said one analyst, who asked to remain anonymous.

"That said, it's a forward contract whose terms and legal framework are very specific. I do not think one can extrapolate this court decision to other traditional bank financings or to the safeguard procedure," he added.

French retailer Casino has been struggling to improve its profitability in a tough business climate, raising concerns of its ability to pay off the debt of Rallye through dividends.

While Casino itself was not placed under bankruptcy protection, it was hit with downgrades that left its credit rating deeper in junk territory, with Moody's and S&P both citing the company's strong connections with its overly indebted parents.

Casino has already cancelled its interim dividend and has pledged to accelerate asset sales in a bid to reduce debt.

Casino's net debt stood at 2.708 billion euros and that of Rallye at 2.899 billion euros at the end of 2018.

(Reporting by Dominique Vidalon, additional reporting by Pascale Denis; editing by David Evans)

By Dominique Vidalon