Loan Documentation (In-House)

Law & Jurisdiction

Common law differs substantially from Civil law. This first session addresses the operation of the law itself.

• When to use local law and when to use English or New York law (i.e. common law)
• How common law works
• Non-exclusive jurisdiction
• Enforcement of Lender rights and legal opinions
• Alternative Dispute Resolution provisions
• Conflict of laws

Pre-requisites to Contract

This second session introduces how contract law works and the circumstances where the law can declare the loan is unenforceable because there is no contract (i.e. the lender loses the money).

• Contracts don’t have to be in writing
• When is the lender bound – conditions of binding contract formation
• The concept of ostensible authority
• Inadmissibility of pre-contractual negotiations in contractual dispute resolution
• Ways in which lenders can lose money under English law
  • ultra vires
  • absence of consideration and solutions thereto
  • absence of consent
  • illegality and severance clauses
  • uncertainty

Key Clauses in Loan Agreements

• Negative pledge
• Material adverse change
• Set-off
• Market disruption
• Novations and assignments
• Law, jurisdiction and enforcement

The Loan Agreement

Walking through the agreement, including:

• The structure of a loan agreement
  • layout of the clauses
• Clauses raising important commercial issues and their implications
  • representations and warranties
  • removal of participants
  • snooze ‘n’ lose, yank the bank
  • conditions precedent
  • default, covenant breach and grace periods
  • reversing waivers of default
  • implications of a financier non-performance
  • the undertakings that are ‘missing’
  • appropriations rule
  • increased costs, carve-outs
  • FATCA
  • confidentiality
  • implications of financier non-performance
  • severance
  • know your customer
  • change of control
  • increased costs
  • intercreditor transactions

The Agency Role – Syndicated Loans

When financiers lose money there is a focus on the behaviour (and potential liability) of Agent lenders. This subject is relevant not only to the Agent lenders, but the participant lenders also. The subject of negligence and disclaimers is also relevant for legal opinions, asset valuations and other consulting reports on which reliance has been placed.

• Powers of the agent bank and the agency clause
• Implications of agent exceeding powers
• Information memorandum, ongoing information and reporting
• Disclaimers and their effectiveness
• Unfair Contract Terms Act 1977
• Negligence, gross negligence and wilful misconduct
• Vicarious liability
• Defaults and majority voting rights

Guarantees

English law guarantees are very technical documents – they are laden with words and phrases that have special legal effect – so negotiating the wording of a guarantee can have the effect of changing the legal meaning if the lender is not careful. We go through a guarantee and identify each of those issues.

• The common law position
• All-monies guarantees: potential dangers
• Post facto guarantees
• Termination of guarantees
• Multiple guarantors: implications, several vs. joint-and-several, right of contribution
• Reviewing specific clauses contained in a standard guarantee document – ruling off
  • no competition clause, rights of subrogation
  • conclusive evidence clause
  • indemnity clause
  • survivorship clause
  • variations clause
  • security held on trust clause
  • continuing security and the problem with the rule in Clayton’s Case
  • ruling off
  • no competition clause, rights of subrogation
  • conclusive evidence clause
  • indemnity clause
  • survivorship clause

Letters of Support

• Circumstances where guarantees are unavailable
• Letters of support versus letters of acknowledgement
• Ingredients for contractual enforceability
• Determining intention of the parties through forensic analysis of the language used
• A review of the case precedents
• Group discussion on several draft letters

Security Agreements

• Security types reviewed
  • mortgages – statutory, common law, equitable
  • pledges
  • liens
  • fixed and floating charge
  • hypothecations
• Circumstances, security over:
  • land and buildings
  • shares
  • insurance policies

Principles of Insolvency Law

• The primacy of statute law (insolvency) over common law (contract)
• Guiding principles of insolvency
• A framework for handling nonperforming loans
• Antecedent transactions
  • transactions at undervalue
  • voidable preferences
  • extortionate credit transactions
  • floating charges of no new value
• Voluntary Rescue Frameworks
  • the advantages of voluntary workouts over formal insolvency
  • the loan workout options available
  • factors affecting the success of workouts
  • shadow directors