Recent work relating to loan agreements

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Our cases span both individuals and companies whether as lenders or borrowers on both secured and unsecured loans.  Loans represent liability and our clients come to us to understand the real implications, review agreements and help them recover money lent.

To help you understand if we have the right experience for you we have set out some of our recent cases

Drafting loan documents and security agreement

We were instructed by a large portable toilet company to assist with its proposed borrowing of circa £1m from a small self administered pension scheme (SSAS). The SSAS was a pension fund of one of the directors of the company and, subject to us being satisfied that there were no conflicts of interest, we also advised the trustees of the SSAS on the documents within the transaction.

Legal charge

As part of the terms agreed between the company and the trustees, the company agreed to grant security in favour of the SSAS by way of a legal charge over certain assets it held. In order for the trustees to be comfortable that the value of the assets being used as security exceeded the value of the loan being made, the assets required valuing. Once the assets were valued and the trustees were satisfied that the value of the assets exceeded the value of the loan being made, the structure of the deal was agreed in principle.

Dealing with complications relating to the legal charge under the loan agreement

A complicating factor in this matter was that certain of the assets being charged had also previously been used as security for previous borrowings of the company. As those previous borrowings were outstanding and the assets were still charged in favour of the previous lender, the previous lender required the SSAS to enter into a deed of priority.

We were therefore required to draft a loan agreement and legal charge pursuant to which, the terms of the borrowing and the assets to be secured were documented. We were also required to advise the trustees on the terms of the deed of priority, ensuring that the trustees were comfortable with the terms of the deed of priority and, in particular, on a previous lender to the company being a preferred creditor over the SSAS.

Registering the charge at Companies House

Once all documents were in an agreed form, we were required to register the legal charge granted by the company to the SSAS at Companies House. Any charges must be registered within 21 days from the date of the charge. If the 21 day period is not adhered to, Companies House will not register the legal charge unless it is directed to do so by a court.

Review of loan agreement for a bank

We were instructed to advise a large UK bank on its proposed lend of £5m to a UK based engineering company. The company required funding in connection with its acquisition of the business and assets of a competitor.

In order for the bank to release funds to the company, the bank required us to report on the key terms of the transaction documents of the purchase, being the share purchase agreement and disclosure letter. The bank also required us to draft a legal charge, debenture and inter-creditor deed. The legal charge and debenture were relatively prescriptive but the intercreditor deed was more complex in nature.

Acquisition of shares in the event of default

Under the terms of the transaction, the company proposed to purchase the entire issued share capital of a competitor and, as part of the consideration for the shares, the sellers agreed to subscribe to loan notes (being an instrument pursuant to which, a lender agrees to lend money in return for a loan note from a borrower which is to be repaid at a later date in accordance with the terms of the loan note) issued by the company. This enabled the company to acquire the shares without having to pay for them in their entirety at completion.Pref

Preferred creditor

In order for the bank to lend on the transaction, one of the bank’s requirements before it agreed to lend funds to the company was that it required comfort that it was a preferred creditor to any loan note holders. The bank also prohibited the company from repaying the loan note holders save for under certain circumstances. In order to document this position, we were required to draft an inter creditor deed which set out, amongst other things:

  • debt ranking in connection with both junior and senior creditors;
  • permitted payments;
  • restrictions on certain creditors; and
  • enforcement.

Once all the documents were in an agreed form and executed correctly, we were required to make the relevant filings on behalf of the bank at Companies House.

Protecting investors under a facility agreement

We were instructed by investors who each proposed to lend £1m to a prestigious car dealership. The investors were unsure how the terms of the investment were to be documented or how their investment was to be secured.

Debenture as part of the loan agreement

Usually, an investment such as that contemplated by the investors is set out in a facility agreement and the loan is then secured by way of a debenture over the business and assets of the borrower. Having discussed the benefits of entry by the investors into a facility agreement and securing the loan by way of a debenture, the investors instructed us to draft and negotiate the terms of a facility agreement and debenture. A major concern for the investors was that they wanted to be able to seek repayment of the debt immediately under certain circumstances. A circumstance which allows a lender to seek repayment of the debt immediately is often referred to as an event of default.

Default provisions under the loan agreement

Typically, events of default include:

  • Non-payment of debt;
  • Failure to comply with the terms of the documents related to the loan;
  • Cessation of the business; and
  • An insolvency event

Having taken our advice, the investors were comfortable that the terms of the facility agreement and debenture provided them each with enough security in the unlikely event of a default by the borrower under the facility agreement.

Once all the documents were in an agreed form and executed correctly, we were required to make the relevant filings on behalf of the bank at Companies House.

Review of personal guarantees connected to business loan

Our clients were directors of a business taking out a business loan pursuant to which, the bank required security by way of a debenture over the business and assets of the company, and by way of a personal guarantee.

Under the terms of the personal guarantee, the directors were required to obtain independent legal advice before signing it. Our clients’ business required the lend to be made at very short notice and accordingly, we were required to review the terms of the personal guarantee and report on them quickly. Having reviewed and reported on the terms of the guarantee within our clients’ timescale, we were able to arrange for the personal guarantees to be signed so that funds could be released to our clients.

  • Really happy with the service which was informed, intelligent and priced appropriately.