Legal Practice Notes

Cash is commonly offered as security for a loan In commercial lending, cash is frequently taken as collateral in a range of scenarios: as part of a comprehensive security package covering the entirety of a company's assets where the borrower is required to ring-fence specified sums for defined purposes (eg a mandatory prepayment account in acquisition finance, a rent account in real estate finance, or a blocked collection account in receivables finance transactions) in transactions involving a special purpose company where the lender wishes to control the cash flow through the business (eg in project finance) in derivatives transactions, cash posted to central counterparties as financial collateral to cover exposures to their members and/or as cash cover for a bank guarantee or as collateral for a letter of credit This Practice Note outlines the principal issues that arise when taking security over cash deposits held in a bank account. The bank...

Such agreements are concluded between an aircraft manufacturer (the seller) and a customer (the purchaser). In the majority of situations, the customer will be an airline or an operating lessor, although the purchaser can equally be a different entity, such as a governmental body. The terms and conditions of aircraft purchase agreements are commonly kept confidential as between the aircraft manufacturer and the customer and are seldom made public. The bulk of those provisions will typically not be disclosed to any financier of the customer, even where that financier is providing the customer with funding in relation to an aircraft to be acquired pursuant to the terms of that purchase agreement. An aircraft manufacturer will generally have a standard form purchase agreement that it enters into with all of its customers. Nevertheless, particular commercial terms are negotiated between the parties, and letter...

This Practice Note considers why negative pledge clauses are adopted in commercial deals the implications of breaking negative pledge terms how negative pledges are treated within the framework of security and quasi-security principal points to address when preparing a negative pledge provision Where appropriate, it signposts relevant provisions in Precedent: Facility agreement (term loan): single company borrower—bilateral—with or without security or a guarantee and the Loan Market Association ( LMA) investment grade multicurrency term facility agreement (the LMA facility agreement), available to LMA members on the LMA website. What is a negative pledge? A negative pledge is a contractual undertaking, typically found in a facility agreement, that prevents or restricts the promisor from creating encumbrances over its assets in favour of a third party. It can also bar the borrower from entering into other arrangements that stop short of granting a full security interest but produce a similar outcome (for...

Although damages are the principal remedy for a contractual breach (see Practice Note: contractual damages—general principles and related content), there are times in contract disputes—particularly where the agreement has not, or not yet, been breached—when damages are unavailable or not the most fitting response. In those circumstances, the court has a discretionary power to grant equitable relief, which may include: specific performance of any outstanding contractual obligations declaratory relief, for example as to the construction of a particular contractual term injunctive relief (interim or final) compelling a party in breach/about to breach to act or to refrain from acting rectification of a contract or of a deed rescission of a contract or of a deed Where damages for breach are claimed they are ordinarily advanced and, if granted, assessed by reference to the accepted compensatory purpose of contractual damages, ie to place the innocent party in the position they would have...

Timing This stage often coincides with the period in loan transactions when the finance documents are being prepared and negotiated (see Practice Note: Finance documents phase in loan transactions). Once lawyers begin drafting the facility agreement, a schedule of conditions precedent that the borrower must deliver to the lender (or the facility agent in a syndicated transaction) before it can sign the facility agreement and/or draw down funds under it will start to crystallise. As part of transaction management, the lender’s lawyers will typically produce a checklist of the conditions precedent (the CP checklist) to track the status of each relevant condition precedent, circulating it to all parties for review while the finance documents are being negotiated. The borrower, or the borrower’s lawyers, will then provide the various conditions precedent documents to the lender or the lender’s lawyers for review. Depending on the nature of the...

This Practice Note outlines three common forms of loan facility and considers their advantages and disadvantages from a borrower’s perspective: overdrafts term loans revolving credit facilities ( RCFs) What is an overdraft? An overdraft is the most common type of bank lending, used to ease short‑term, everyday cash flow pressures, and is often described as a ‘working capital facility’. It is a loan that allows borrowing on a named account up to a fixed limit. An overdraft can be ‘planned’ or ‘authorised’ (expressly agreed) or ‘unplanned’ or ‘unauthorised’ (where a payment instruction would take the account beyond any agreed overdraft limit). The lender has no duty to permit the account to become overdrawn. Key features are that it: is typically uncommitted, so the lender may withdraw the facility at any time is repayable on demand, enabling the lender to require immediate repayment even without any default......

Advantages Cash flow benefits for lessee — the lessee’s operating cash flow is generally stronger than under a typical loan structure, as they can make use of the asset they need without a sizeable upfront capital outlay to purchase it. Instead, the lessee pays for the asset from the income it generates in day‑to‑day use. The overall cost is then spread more evenly across the asset’s useful economic life through smaller, regular lease payments, which in turn clearly supports and smooths the lessee’s cash position over time. Tax advantages — the lessor acquires the asset and may claim capital allowances in respect of that purchase. This relief is typically shared with the lessee, being reflected in reduced monthly rental rates, so the lessee benefits from lower ongoing charges. Improved security position for finance provider — under an asset finance arrangement, the finance provider holds legal title to the...

Company directors, and in certain circumstances shadow directors, are subject to a wide range of obligations owed to the company. Over centuries, the courts have shaped many of these obligations from broader common law doctrines and equitable standards, while others also have subsequently been codified in legislation. This Practice Note examines the director’s statutory obligations set out in sections 171 to 177 of the Companies Act 2006 ( CA 2006), commonly referred to as the general duties......

Signing Signing marks a key stage in a finance transaction. It is the point at which the parties sign the agreed forms of the documents and the deal becomes binding (although, in some cases, this is subject to conditions precedent—see Practice Note: Conditions precedent). It usually happens before, or at the same time as, completion (often called ‘closing’), which is when funds are transferred between the parties and the transaction is ‘completed’. In a straightforward corporate facility, this means money moving from the lender to the borrower. In other financing arrangements, such as acquisition or asset finance, funds will typically pass from the lender(s) to the borrower and then from the borrower (as purchaser) to the seller of the business or asset. For more on signing and completion in loan transactions, and the tasks lawyers commonly undertake during this phase, see Practice Note: Signing and...

Putting robust security in place is the initial move to strengthen a creditor’s standing. After that, it is essential to confirm the security ranks ahead of rival security interests over the same asset. The framework on how security interests take priority is covered in Practice Note: Priority between security interests. Further, if a secured creditor plans to provide further advances (that is, extra loans) under a facility, it must note extra priority pitfalls. In practice, further advances frequently arise with term loan facilities allowing multiple drawdowns and with revolving credit lines (see Practice Note: Overdrafts, term loans and revolving credit facilities). These issues are especially relevant where facilities contemplate later drawdowns and ongoing utilisation by the borrower. The Note explores them in depth to aid secured creditors considering additional lending under existing arrangements. This Practice Note explains the concept of ‘tacking’, then examines the...

Financial covenants For lenders in project finance, closely gauging a project's financial robustness is essential. In a standard project finance deal, the project typically provides the borrower’s sole revenue stream to service the debt (see Practice Note: Introduction to project finance— Concept of project finance). Undertakings (often called 'covenants') are commitments the borrower—sometimes together with members of its group—gives to the lender about doing, or refraining from, specified actions and behaviours. For further information on undertakings in general, see Practice Note: Undertakings (covenants). Financial covenants represent a distinct subset within those undertakings. They also require the borrower to meet, or comply with, specific financial thresholds. These financial covenants appear across a wide range of commercial finance arrangements (for broader guidance on financial covenants, including details of relevant provisions in Loan Market Association documentation and on accounting principles, including International Financial Reporting Standards ( IFRS), see...

This Practice Note covers: debt rescheduling—lengthening the amortisation/repayment timetable so the company can weather short-term financial strain. The purpose of rescheduling is to set a more achievable debt burden or a period within which repayment is feasible. A firm without cash to meet wages or supplier invoices will struggle to survive. Adjusting the schedule may allow the business to stabilise and frequently boosts the lenders’ overall recovery on their investment, as businesses are usually more valuable when trading successfully than when dismantled or broken up. In many cases, enabling continued trade by rescheduling supports recovery and preserves value for lenders debt waivers—the lender consents to discharge the borrower from having to repay part or all of sums owed. This typically happens where the lender accepts there is minimal or no realistic chance of full repayment to it at all in such...

What does this Practice Note cover? This Practice Note explains what each component of the 2014 ISDA Credit Derivatives Definitions addresses. The background to the 2014 ISDA Credit Derivatives Definitions In 1999, the inaugural set of credit derivatives definitions appeared, followed in 2003 by the 2003 ISDA Credit Derivative Definitions (the 2003 Definitions). ISDA then released the 'big bang protocol' in March 2009, swiftly followed in June by the 'small bang protocol'. Among other changes, these protocols hard-wired the concept of auction settlement (see Practice Note: Credit derivatives—settlement procedures— Auction settlement) into the 2003 Definitions. Market participants wishing those protocols to govern their trades were required to adhere to the big bang and/or small bang protocols, after which the new provisions contained in them applied to certain categories of credit derivative transactions (termed ' Protocol Covered Transactions' in the protocols). In October 2014, the 2014 ISDA Credit...

Liquidation Following enforcement of security by fixed charge creditors for their own benefit, the order of distributions in a winding up is: if liquidation commences within 12 weeks of a moratorium, any unpaid moratorium debts and ‘priority pre‑moratorium debts’ to which no payment holiday applied during the moratorium expenses properly incurred in the winding up (including the liquidator’s remuneration) ordinary preferential debts secondary preferential debts the prescribed part for unsecured creditors (where not disapplied) debts secured by floating charges unsecured debts statutory interest postponed debts (i.e. non‑provable liabilities) return of any surplus to members (subject to adjustment between members) For further details, see Practice Note: Waterfall of payments in liquidation......

Guarantees and third party security from individuals Guarantees (see Practice Note: Guarantees) and third party security (see Practice Note: Third party security) provided by individuals are common forms of credit support in financing transactions. For example, in deals involving a corporate borrower, a lender may require the borrower’s directors to give guarantees or offer security. Where the borrower is an individual, the lender may instead seek a guarantee or security from a related family member, such as a spouse, civil partner or a parent... When taking a guarantee or security from an individual, a number of additional considerations arise beyond the general law on guarantees and security. The principal issues are explored in the following Practice Notes: Key issues in taking a guarantee from an individual in a commercial financing context Key issues in taking security from...

Practice Note This Practice Note examines how UK tax rules apply to securitisation companies encompassed by the parameters of the permanent securitisation regime......

Introduction An offshore wind farm is a generating plant comprising all the infrastructure needed to capture and gather wind energy, convert it into electricity, and securely deliver it to the main power network or a nearby local grid as required. Offshore wind is gaining prominence as a renewable solution to address climate change, with the UK and Europe leading globally in the development of large-scale offshore wind farms today. Though the recent gas shortages and spells of low wind in Europe have revealed the fragilities of relying on offshore wind for energy security, it unquestionably remains a crucial and growing share of the global energy mix, bolstered by rapid expansion in China. In recent years, the European offshore wind industry has flourished, most notably in the UK, which ranks among the largest markets and hosts several of the biggest operational offshore wind projects...

Banking & Finance—new starter guide In this guide... You’ll find an overview of Lexis+® Banking & Finance resources designed to help trainees and newly qualified lawyers grasp what finance deals involve, how they are put together and who the principal participants are. It explores: Lending Security Guarantees and comfort letters On demand guarantees/bonds and letters of credit Set-off and netting Specialist finance areas are also included: Acquisition finance Asset finance Islamic finance Project finance Real estate finance Sustainable/green finance Trade and commodity finance Debt capital markets Derivatives and regulation of derivatives Structured products and securitisation Further topics cover Technology in banking & finance transactions, Restructuring, Regulation for banking lawyers, and Claims and remedies. You’ll also find other helpful tools within Banking & Finance, such as: Loan transaction...

To operate an aircraft across borders, the owner must register it with an aviation authority. While international conventions exist, the form of the register, the procedures for registration and deregistration, and the criteria for keeping a registration valid differ between countries, so the chosen state of registration requires careful consideration by any aircraft owner. Why do you register aircraft and where do you do it? In 1944, the Convention on International Civil Aviation took place in Chicago (the ‘ Chicago Convention’). It led to the creation of the International Civil Aviation Organisation, a specialised United Nations agency responsible for coordinating and regulating international air travel. Under Article 20 of the Chicago Convention, to which the UK is a signatory, every aircraft engaged in international air navigation must carry appropriate nationality and registration marks. Therefore, all aircraft must be registered with an aviation authority to fly...

What does this Practice Note cover? This Practice Note sets out an overview of the listing routes on The International Stock Exchange ( TISE), with emphasis on its Qualified Investor Bond Market ( QIBM), accelerated listing services, international recognitions, regulatory stance, and its sustainable finance offering. It explains the categories of debt securities eligible for admission, the advantages of listing on TISE, and the practical points for issuers, including timetable and disclosure obligations. TISE supports listings across a broad spectrum of debt, such as intragroup loan notes, high-yield bonds, asset-backed notes (covering securitisations and collateralised loan obligations), variable funding notes, convertible notes, Eurobonds and warrants. The platform includes the QIBM, which is tailored to the admission of bonds and other debt instruments marketed to institutional investors, professional investors, and other investors who are experienced and knowledgeable in bond investing (being ‘ Qualified...