Legal Practice Notes

Most projects rest on a dense network of contractual ties linking all key participants in the scheme (eg the project company, equity investors, contractors, sub-contractors, offtakers and suppliers). Taken together, these contracts are commonly termed the ‘project documents’ in practice (see: Project documents—issues for lenders—overview). In projects focused on the production or exploitation of a product (eg a power project or a mine project), offtake agreements are also generally regarded as some of the principal project documents indeed. What is an offtake contract? An offtake contract is an agreement under which a third party (the offtaker) undertakes to purchase a defined quantity of the product generated by a project at an agreed price. The product is usually a commodity such as oil, gas, minerals or power. The purpose of an offtake contract is to: secure a predictable revenue stream for the project, and ensure there is a...

Pre‑delivery payment financing ( PDP financing) has become a widely used funding tool for airlines and lessors. However, as the number of PDP transactions has risen, aircraft manufacturers have applied closer scrutiny to the industrial and commercial matters that arise when a financier participates in aircraft purchase arrangements. As a result, any PDP financing may involve significant commercial points to negotiate, together with, at times, complex legal questions, particularly in relation to security. PDP financing, and the protections open to any lender, differ substantially from other forms of aviation finance. Funding is supplied while the asset is still under construction, and security cannot be taken in the same way as for a completed aircraft. Therefore, the provisions setting out the steps to be taken on enforcement are of fundamental importance to the manufacturer, the purchaser and the lender. PDPs and purchase agreements What are...

This Practice Note considers the enforcement options available to lenders where they hold fixed security. It specifically addresses: the choices open when commencing enforcement action, and a list of key points to consider when enforcing against particular asset categories In practice, secured creditors typically seek to ensure that the greatest possible proportion of their security is fixed. However, achieving fixed security over every asset class is usually impracticable, as the level of control required to maintain a fixed charge can be inconsistent with the borrower operating its business effectively—for example, stock and cash held in current accounts. Accordingly, a lender will often take a debenture to permit both fixed and floating security across all of the company’s assets. A debenture may include legal and/or equitable mortgages over land and shares, fixed charges on assets such as cash deposits and goods and chattels, assignments of...

There are two main types of aircraft finance structure: secured lending, under which the lender advances funds to the purchaser to acquire the aircraft and takes security over the asset, and leasing, which in many cases provides greater flexibility to financiers in many instances Difficulties with secured lending Secured loan structure Under a conventional secured loan arrangement, the lender will lend money to the prospective owner of the aircraft to fund its purchase or acquisition by the borrower. In return for making the finance available, the lender will typically then take first‑priority security generally by way of a mortgage over, and in respect of, the aircraft (see Practice Note: Taking security over aircraft in aviation finance transactions). Once the loan has been paid in full, together with any other sums due under the transaction documents, the lender will release the aircraft from the mortgage, with...

Why is it necessary to perfect security? When a creditor takes security, it will be concerned with three issues: whether the security binds the security provider (ie whether it has been validly created)—see: Taking security—overview whether the security is enforceable against third parties whether the security has the intended priority over other creditors with competing interests in the same asset(s)—see: Priority of security—overview ‘ Perfecting security’ refers to the actions taken after the security is created to ensure it is enforceable against third parties such as creditors, liquidators and administrators. The expression is also used in a wider sense to cover steps that enhance or protect the creditor’s position, for example by obtaining a legal interest or ensuring the priority of its security......

Key dates for Banking & Finance lawyers to look out for: 2015 [ Archived] January 2015 1: The International Swaps and Derivatives Association ( ISDA) resolution stay protocol takes effect, developed with the FSB to facilitate cross-border resolution and limit systemic risk—see ISDA press release. 1: Member states must transpose the main elements of the Bank Recovery and Resolution Directive ( BRRD)—see Bank of England publication. 1: Changes to the bank levy announced in the 2014 Budget begin to apply—see bank levy consultation paper. 2: The Eurepo index is discontinued—see ICMA press release. 6: Closing date for responses to the ring-fencing consultation. Under the PRA’s proposals, firms may seek modifications to ring-fencing rules. Views are requested on policy matters including legal structure, governance, and arrangements for continuity of services and facilities—see LNB News 06/10/2014 55 and the...

Key dates for Banking & Finance lawyers to look out for: 2014 [ Archived] January 2014 1 Latvia moves to the euro as its national currency—see LNB News 09/07/2013 101. Equator Principles III now cover all fresh transactions—refer to Practice Note: The Equator Principles and the Equator Principles website for details. Bank levy rises as flagged in the 2013 Budget. An additional rise to the levy was set out in the Autumn Statement 2013. The full-rate levy is 0.156% on ‘short term’ liabilities, with a lower rate of 0.078% on ‘long term’ liabilities and equity—see News Analysis: Autumn Statement 2013 and HM Revenue & Customs notice. Functions previously undertaken by the African Loan Market Association are folded into the Loan Market Association—see news analysis: The Loan Market Association—2013 in review and LMA press release. The Capital...

Commissions Commissions amount to offering a financial benefit to another. They are not invariably bribes. Typically, a commission arises when a seller or buyer provides a benefit to a third party or fiduciary for arranging or mediating the supply of goods or services, or otherwise assisting with a transaction for goods or services. While normal in many industries and accepted practice, an anticipated advantage can create a tangible risk that functions are performed improperly. A commission can also be a facilitation payment, paid to secure the performance (or swifter performance) of an obligation already owed (see Practice Note: Facilitation payments under the Bribery Act 2010). Where a commission is a facilitation payment, it is unlawful. The Serious Fraud Office ( SFO) has indicated it will bring proceedings where the Code for Crown Prosecutors, Full Code Test is satisfied; namely, there is a...

A 10b-5 letter, often termed a ‘negative assurance letter’, is provided to the underwriters by the issuer’s and the underwriters’ counsel in connection with a United States securities offering, whether via an SEC-registered transaction or a private placement under Rule 144A of the United States Securities Act of 1933 (the ‘ Securities Act’). Underwriters rely on this letter as corroboration of their due diligence investigations into the issuer when assembling a defence to potential liability under US federal securities laws. The document’s central focus is the prospectus used to market the securities to investors. It states that, based on counsel’s work on the offering, nothing has come to their attention that would cause them to believe the prospectus either: contains an untrue statement of a material fact; or omits a material fact necessary to ensure that, in light of the...

What is unjust enrichment and when is it used? A claim in unjust enrichment aims to strip from a recipient the benefits derived at another’s expense and return them to the blameless party. It is sometimes labelled ‘restitution’ or a ‘restitutionary claim’, although, strictly, restitution describes the remedy, while unjust enrichment is the underlying cause of action. The overlap in terminology stems from the fact that the unified concept of unjust enrichment emerged from claims that had long been treated as restitutionary. Contemporary unjust enrichment doctrine has evolved through centuries of jurisprudence; its core tenets were articulated by scholars and later endorsed by the highest courts. That historical lineage explains much of the present confusion about labels and categories. In this respect the subject is unusual, because instead of the principles being exhaustively set out in legislation and/or case law, a...

This Practice Note sets out practical guidance on how unincorporated charities execute documents. For details on execution by incorporated charities, refer to Practice Note: Execution formalities—incorporated charities. We offer a comprehensive, interactive collection that helps users identify and navigate the concepts and common issues in document execution, including deeds. Each stage includes practical guidance, precedent clauses and Q& As tailored to that stage. For further detail, see the Execution collection. Capacity Unincorporated charities lack a separate legal personality; consequently, the entity itself has no rights or duties and cannot own property in its own name. Property that appears to ‘belong’ to an unincorporated charity is vested in the organisation’s leading members, who act as trustees and hold it on trust for the remaining members. Accordingly, the individuals with authority to enter into arrangements and to execute documents are the trustees or members of the...

What does this Practice Note cover? This Practice Note explains how institutions serving as underwriters or managers operate within capital markets debt issuances. It sets out an overview of underwriting and managerial duties, describes the principal deal documents they ordinarily sign up to, and summarises particular risks managers encounter in a debt securities offering. It notes the documents to which they are party and the risks they face. What is underwriting and why are securities issuances typically underwritten? The expression ‘underwriting’ denotes a commitment to subscribe for, or to buy, securities that cannot be placed with investors or funded by them in an offering. By giving that commitment, the underwriter transfers from the issuer the risk that investors will not take up the securities being offered. Accordingly, subject to specified conditions, the underwriter in effect guarantees the issuer both the volume of securities that will be sold and the...

The table below summarises the steps which must be taken in respect of security granted by a UK company over certain types of assets in order to perfect the security. Type of secured asset concerned here File the charge at Companies House? Register at a relevant specialist registry? Is notice to third parties needed? Are there any further actions needed? ......

Introduction This Practice Note is one of a pair setting out the processes, law and regulation that govern the clearing and settlement of securities in the UK. This Note concentrates on the settlement limb of the workflow. For guidance on the clearing limb, see Practice Note: Clearing and settlement of securities—clearing. Background to clearing and settlement ‘ Clearing and settlement’ is the usual term for the sequence that follows agreement of a trade in a financial instrument, during which the parties’ obligations are first confirmed and then carried out. A securities transaction typically progresses through: confirmation of the trade clearing settlement The first two stages are addressed in Practice Note: Clearing and settlement of securities—clearing. The third is explained in greater detail below. Settlement Settlement is the point at which the buyer and seller discharge their respective obligations. It entails delivering the agreed quantity of...

Scope of this Practice Note This Practice Note sets out what counts as regulated activities within the UK regulatory framework. In particular, it focuses on the specified activities and specified investments listed in the Financial Services and Markets Act 2000 ( Regulated Activities) Order 2001, SI 2001/544 ( RAO). An authorised person may only undertake regulated activities for which they hold explicit permission from either the Financial Conduct Authority ( FCA) or the Prudential Regulation Authority ( PRA) (as relevant to the activities conducted) under each regulator’s respective authorisation process. This Practice Note also addresses the Designated activities regime introduced by the Financial Services and Markets Act 2023 ( FSMA 2023). The general prohibition and the authorisation regime Under the general prohibition and the authorisation regime, a person must not carry on, or claim to carry on, a regulated activity in the UK unless they are...

This Practice Note provides a straightforward overview of project finance, concentrating on: due diligence and ‘bankability’ sources of finance for projects project risks and their allocation types of project the principal project parties the finance parties core finance documents key finance terms key project documents security and quasi-security in project finance transactions renewable energy PFI/ PPP projects and procurement the Equator Principles, and green bonds Key features of project finance The term ‘project finance’ usually describes the debt portion of the capital raised to fund a project......

Legalisation Most papers that a notary public or a scrivener notary attest are intended to have effect in a country or jurisdiction outside England and Wales. Legalisation is the method by which one state, eg England and Wales, confirms to another state, ie the receiving jurisdiction, that the signature and seal of a public official, such as a notary, are genuine, following checks against its register. As the receiving jurisdiction has no independent means of knowing whether the notary’s seal and signature are authentic, the notary’s signature and seal may need to be legalised by the Foreign, Commonwealth and Development Office ( FCDO) and, on occasion, a foreign Embassy, Consulate or High Commission, to evidence the notary’s status. The process is complex and varies with the receiving jurisdiction’s requirements, so specialist advice should always be...

This Practice Note outlines information on Assimilated Regulation ( EU) 909/2014 ( UK CSDR). It also explains the repeal, under the Financial Services and Markets Act 2023 ( FSMA 2023), of the direct regulatory obligations on CSDs contained in the UK CSDR, enabling the Bank of England ( Bo E) to substitute those provisions with its own rules. Scope of the UK CSDR The UK CSDR applies to the settlement of all financial instruments in the UK and to the activities of central securities depositories ( CSDs), unless stated otherwise. Authorisation, reporting, and most other obligations under the UK CSDR do not extend to the Bank of England ( Bo E) or to other public bodies engaged in managing public debt in the UK, where the relevant CSD is directly administered by those bodies, has access to their funds, and is not a distinct...

The general rule As outlined in Practice Note: Taxation of derivatives—the main rules, a company’s profits and losses from derivative contracts are, in the same way as the profits and losses on its loan relationships, ordinarily brought into account as income for corporation tax purposes. The legislative code for derivative contracts is set out in Part 7 of the Corporation Tax Act 2009 ( CTA 2009), which this Practice Note refers to simply as Part 7. This Practice Note examines the particular situations where that general rule is disapplied, and where the profits and losses on a company’s derivative contracts are instead taken into account for corporation tax on a chargeable gains basis. Where derivative profits and losses are taxed on a chargeable gains basis, this does not of itself mean that: the usual rules for computing corporation tax on chargeable gains apply, or there is an...

There are several avenues for reshaping a company’s debt. The best route will hinge on how severe the company’s financial issues are, the complexity of its funding structures, and whether any creditors are dissenting... What are the key stages in a debt restructuring process? The principal stages are to: stabilise the company (identify key parties and agree a standstill with creditors) prepare for the restructuring (carry out due diligence, develop a business plan and secure a valuation) implement the restructuring A consensual restructuring is generally preferable for cost and speed, though formal procedures (eg company voluntary arrangements ( CVAs), restructuring plans, schemes of arrangement or pre-pack administrations) can address dissenting creditors. For details of the key requirements, the core stages, and the stabilising, preparation and implementation phases in the restructuring journey, see Practice Note: Restructuring process......