Legal Practice Notes

Development (or growth) capital typically means putting funds into a well-established business that generates income and profits, yet lacks adequate cash to finance expansion or restructuring. Background to development capital investment Why seek investment? A company may pursue this type of private equity to: expand its business restructure its operations fund a significant acquisition rework its balance sheet, eg by reducing debt Such businesses often cannot assume more borrowing, whether because of current leverage or prevailing market conditions. Private equity is viewed as a practical alternative. Typically, this kind of funding does not trigger a change of control, as investors acquire a minority shareholding. Moreover, unlike other private equity styles, investors do not heavily involve themselves in day-to-day management. Current shareholders are not seeking an exit and the management team remains in place. Types of investors and...

Prepared with input from Rebecca Cousin of Slaughter and May on market practice. The nature of a mandatory offer Takeover bids are most often voluntary: the offeror decides to seek control of a company (or a particular class of its shares) after careful thought and planning, and—subject to certain limits—selects the consideration to be provided and the conditions to be included (see Practice Note: Voluntary, partial and tender offers). By contrast, one of the Code’s most familiar provisions, Rule 9, obliges an individual (or persons acting in concert) to make a takeover offer for a company within the scope of the Code once that person’s holding (or their aggregate holdings) in that company pass specified thresholds. This is described as a mandatory offer, or a Rule 9 offer. Mandatory offers are relatively uncommon in practice, as they are generally regarded as something to steer clear of. For...

This Practice Note explains how the business and affairs of a partnership are handled after a solvent general dissolution (not a technical dissolution). It does not consider insolvency or how matters are managed when the firm is insolvent. For guidance on partnership insolvency, see: General partnerships and insolvency—overview. The Note addresses partnerships formed under the Partnership Act 1890 ( PA 1890) and governed by English law, excluding limited partnerships, limited liability partnerships and partnerships governed by Scottish law. A partnership may come to an end by: dissolution (see Practice Note: Ending a partnership—what is dissolution?) insolvency (see: General partnerships and insolvency—overview) For other routes to dissolution, see the Practice Notes: Ending a partnership—dissolution by the court and Ending a partnership—dissolution otherwise than by the court. Consequences of a general dissolution On a general dissolution, each partner is entitled, as against the other partners and all...

This Practice Note concentrates on the admission requirements for equity shares within the commercial companies category of the Financial Conduct Authority’s ( FCA) Official List. It sets out the core listing standards that apply to all securities, alongside the additional obligations for the commercial companies category, as provided for in the UK Listing Rules ( UKLR). Structure of the UK listing regime The UK listing regime comprises 11 distinct categories, each designed for different issuer types and the securities seeking admission. An issuer must adhere to the specific provisions of the UK Listing Rules ( UKLR) that correspond to the category under which it is seeking a listing......

Where a provision of the Companies Acts permits or requires a body corporate to send or supply documents or information (however phrased), that body corporate must follow the company communications provisions in the Companies Act 2006 ( CA 2006), namely sections 1144–1148 and Schedule 5. The Companies Acts are defined in CA 2006, s 2 and encompass CA 2006 itself, save for ss 1182–1283. For the purposes of the company communications provisions, a reference to a document covers a summons, notice, order, other legal process, or a register. The company communications provisions yield to any requirements imposed, or contrary provision made, by or under any enactment (in particular, the provisions of CA 2006, Pt 35 concerning documents or information to be sent or supplied to Companies House). Nevertheless, a provision is not to be taken as contrary to the company...

A company can be struck off under Part 31 of the Companies Act 2006 ( CA 2006) in two ways: voluntarily, initiated by the company’s directors; or by the registrar of companies using its statutory strike off powers. In brief, the registrar of companies possesses four distinct powers to strike off a company: authority to strike off a defunct company; a duty, together with power, to strike off a company that is being wound up; power to strike off a company registered on false pretences; and power to strike off a company that lacks an appropriate registered office address. This Practice Note outlines each of the registrar’s powers to commence a strike off. For guidance on how a company may apply for voluntary striking off, see Practice Note: Voluntary striking off and...

The primary appeal of private equity for investors and fellow shareholders (including management) is the prospect of realising a notable capital uplift on exit. While income streams during the holding period—dividends on shares, interest on loan notes and assorted fees—are meaningful to the investor, the true benchmark of success is the capital return. Over the longer term, this is what ultimately defines whether a venture capital or private equity firm has succeeded and its capacity to attract investment into later funds. For further information, see Practice Note: Private equity investment—firms and funds. Managing the exit Exit planning starts almost from day one of the private equity investment journey. The likelihood of achieving a successful realisation forms a central part of the investor’s assessment and decision-making. Without a workable exit, the investment will, in all likelihood, be judged a failure....

A company, and its directors, carry numerous duties concerning accounts and reporting under the Companies Act 2006 ( CA 2006). This Practice Note concentrates on obligations common to every company. Further, particular duties in CA 2006 tied to accounts and reports differ depending on whether the entity is small, medium-sized, quoted, or unquoted. For guidance on those particular requirements and when they take effect, consult the following Practice Notes: The small companies regime The medium-sized companies regime The quoted companies regime The unquoted companies regime To obtain an overview of the statutory reporting regime itself, see Practice Notes: Accounts and reports—an outline of the statutory framework and Accounts and reports—individual and group accounts. Further obligations, in addition to those in CA 2006, apply to the accounts and reports of listed companies, AIM companies, and companies with securities traded on the AQSE Main...

Provision for termination When setting up a joint venture ( JV), parties will frequently have an early view on both the circumstances that might justify termination and the likely timing for that outcome. By way of illustration, a JV established to deliver a discrete project would typically be brought to an end once that project has been completed. Alternatively, the participants may agree a fixed term, at the expiry of which the JV should conclude. Another common position is that the parties intend to realise their investment within a defined period, whether by selling the entire joint venture company ( JVC) to an external buyer or by listing the JVC on a stock exchange. Exit may follow a listing or a sale of the JVC to a buyer. Nevertheless, even where no express intentions are documented at the start regarding how and when the JV...

Certain companies are barred from giving financial assistance, whether directly or indirectly, to fund the purchase of their own shares or those of their holding company. These restrictions sit in Chapter 2 of section 677 of the Companies Act 2006 ( CA 2006). This Practice Note sets out: the circumstances in which the bans on financial assistance arise, and additional legal rules that must be assessed where assistance is offered to a buyer of shares in the company providing it The regime on financial assistance under the Companies Act 1985 ( CA 1985) differed in material respects from the position now in force. This Practice Note addresses the current regime. For details of the pre‑ CA 2006 position, see Practice Note: —fundamentals— How does the CA 2006 prohibition on the giving of financial assistance differ from that which existed under CA...

Security and quasi-security are expressions commonly encountered in the context of financing arrangements and transactions. In this Practice Note, security denotes security interests (eg mortgages and charges) that are granted as collateral in support of a finance transaction. Those security interests should not be mistaken for a 'security' or 'securities' as used within the capital markets, whether equity or debt. Within capital markets transactions, the term 'securities' denotes documents or instruments which evidence either a debt obligation or an investment. Securities in the capital markets sense are outside the scope of this Practice Note. For information on the debt capital markets, see Practice Note: Key features of the debt capital markets. Under English law, four categories of security are recognised, namely mortgages, charges, pledges and liens. A much wider set of arrangements can fall under the umbrella of...

Collateral warranties rank among the key documents in real estate development finance facilities. Issued by the principal members of the project team to both lender and borrower, they forge a contractual connection that would otherwise be absent and often grant significant step-in rights to the relevant party. This Practice Note covers: what collateral warranties are how collateral warranties are used in real estate development facilities the rights conferred by collateral warranties What is a collateral warranty? A collateral warranty is a contract that is collateral to, or runs alongside, an underlying agreement. In the context of real estate development facilities, these warranties typically sit next to the key development documents (see Practice Note: Real estate development finance—introduction to the development documentation). The effect is to create a direct contractual link where one would not usually exist, enabling a third party to have a...

ARCHIVED: This Practice Note was archived and is not maintained. Enforcement is a key area governed by the intercreditor agreement. This note covers: the circumstances in which mezzanine lenders are typically able or unable to commence enforcement action matters concerning any mezzanine option to purchase provision, and when each class of creditor generally holds control over the enforcement strategy The note also flags the issues most frequently negotiated in each of these areas. For an overview of the various provisions included in intercreditor agreements, see Practice Note: Introductory guide to Intercreditor Agreements, and for an introduction focused on senior/mezzanine intercreditor arrangements, see Practice Note: Senior/mezzanine creditor intercreditor issues—introduction [ Archived]. For a simple-form intercreditor agreement with accompanying drafting notes, see Precedent: Intercreditor deed—single company borrower—single secured senior lender—single secured junior lender—single unsecured subordinated lender. Further detail on payment controls and...

Instructing and managing local counsel On financing transactions, it is typical for group entities in another jurisdiction, or owning assets situated abroad, to provide security in support of the funding arrangements. In these circumstances, local counsel will usually be retained to advise on the applicable local legal requirements. See Practice Note: Instructing and managing local counsel for guidance on appointing local counsel. Security documents (other than those governed by English law) are commonly prepared by local counsel for the lenders and then reviewed by the lenders’ lead counsel before lawyers for the borrower group consider them. Guarantees from a group company based in another jurisdiction are often incorporated within the facilities agreement itself, though they can also be delivered as stand-alone documents. In both scenarios, local lawyers should be instructed to examine the drafting and advise on any legal issues arising......

It is usual for parties to a facility agreement to seek changes to its provisions, often more than once, over the term of the facilities. They might, for instance, look to push back the repayment date or raise the amounts available so the borrower can finance another scheme or acquisition. The lender may take the opportunity of an increase to the facilities to implement other amendments to the papers, such as a higher interest rate or further undertakings. These adjustments can be recorded by an amendment letter, an amendment and restatement agreement, or at times by issuing a fresh facility letter or agreement intended to supersede the earlier version. For guidance on the process of amending a facility agreement, see Practice Note: Amending a facility agreement. Where the lender is to benefit from guarantees or third party security (see Practice Note: Third party...

Guarantees Guarantees are contractual arrangements under which one party (the guarantor) undertakes responsibility for the liabilities of another (the principal) to a further party (the guaranteed party). Guarantors hold rights in equity against the principal, the guaranteed party and any co‑guarantors. Those rights may disadvantage a lender’s position in practice, and it is standard practice for lenders to require their postponement within the guarantee terms. This Practice Note sets out the principal rights of guarantors that arise as a matter of law and how they are commonly managed in guarantee documentation. In most typical finance transactions: the guaranteed party will be the lender or the security agent, and the principal will be: the borrower, or another company within the borrower’s group—for example, in a group borrowing structure or a...

What is a derivative? A derivative is a financial contract whose value is linked to an underlying asset, index, rate, or other reference measure. Settlement may involve the physical delivery of the underlying from one party to another, or a cash amount computed by reference to the relevant asset, index, rate, or benchmark. Derivatives can be used either to curb exposure to a chosen variable or to obtain exposure to that variable. Put simply, a derivative has its own legal form and price, yet that price is separate from, and derived from, the value of the applicable underlying asset, index, rate, or reference point. Participants commonly include: Banks and investment firms Corporates Governments and local authorities Supranational authorities High net worth individuals and retail investors These instruments are mainly traded in wholesale markets, although certain derivative products are also entered into by high net...

Financing arrangements commonly require guarantees from more than one guarantor. For example, a group may provide guarantees from several companies to back group borrowings, or each director may guarantee loans advanced to their company. In these situations, it is essential to consider: the lender’s rights against the guarantors and when those rights might be reduced, and the rights of each guarantor against co‑guarantors How multiple guarantor guarantees are documented in a single guarantee signed by all co‑guarantors—this may be a standalone guarantee executed by every co‑guarantor (see, for example, Precedent: Guarantee and indemnity: cross guarantee from group companies—bilateral—all monies) or bespoke provisions in the facility agreement to which all the co‑guarantors would be parties, or in multiple separate guarantee documents, one for each co‑guarantor See also, Practice Note: Guarantees— How guarantees are used in finance...

ARCHIVED: This Practice Note has been archived and is not maintained In brief, a market disruption clause explains how loan interest is determined when a lender’s funding costs exceed the London Interbank Offered Rate ( LIBOR) or another nominated benchmark—often arising when the financial system is under strain, causing markets to seize up, or when the particular lender faces solvency issues. Either scenario is liable to increase the lender’s cost of funds. These clauses are typically found in facility agreements where interest is set by reference to a floating rate such as LIBOR or the Euro Interbank Offered Rate ( EURIBOR). This Practice Note considers market disruption provisions in the setting of LIBOR-based syndicated facilities. Similar considerations apply to syndicated facilities that calculate interest by reference to EURIBOR and other benchmark rates. The ongoing move away from LIBOR to risk‑free rates, including SONIA, will have an...

Practice Note on governing law and jurisdiction in finance transactions This Practice Note examines governing law and jurisdiction within finance transactions. It covers: the meaning of governing law and jurisdiction governing law in depth, including how the chosen law is identified jurisdiction in depth, including rules used to decide jurisdiction governing law clauses in finance deals and instances where English law may not suit jurisdiction clauses in finance deals, and factors when choosing exclusive, non-exclusive or asymmetric jurisdiction service of process and process agents arbitration clauses Further guidance appears in these Practice Notes: Applicable law—a guide for dispute resolution practitioners Jurisdiction—a guide for dispute resolution practitioners What is meant by governing law and jurisdiction? Governing law and jurisdiction are distinct concepts. Governing law The governing law (also called the applicable law) is the body of law a court applies to...