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Summary MARKED UP REPS AND UNDERTAKINGS - BPP Debt Finance

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Notes on Debt Finance for the (Accelerated) LPC at BPP University. These consolidated notes have been optimised for exams in line with SGS learning outcomes. These notes are as concise as they can possibly be to make studying for exams quicker while summarising all SGS course content so you don't...

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  • June 28, 2022
  • 10
  • 2021/2022
  • Summary

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SGS 2 – REPRESENTATIONS AND UNDERTAKINGS CLAUSE COMMENTARY




REPRESENTATIONS
19 Representations

Each Obligor makes the representations and warranties set out in this Clause 19 to
each Finance Party on the date of this Agreement.

NB – global comment

This clause makes clear that the Representations in the Agreement apply to the Obligors. This
includes both the Borrower and the Guarantor.

Lenders’ perspective – will want the Loan Agreement to cover both Borrower and Guarantor as
a credit risk is taken on both parties and therefore to minimise risk of non-payment, the
representations should be given by both parties.

Borrower’s perspective – the Borrower would argue that the representations and undertakings
should only apply to it and not the Guarantor as well. However, the Lenders are unlikely to
agree to this amendment because they are taking a credit risk on both.

Compromise – Lender wins ; LA to cover Obligors

19.1 Status

19.1.1 It is a corporation, duly incorporated and validly existing under the laws of England and
Wales.

19.1.2 It and each of its Subsidiaries has the power to own its assets and carry on its business
as it is being conducted.

Lenders’ perspective – this is sufficient because it covers all of the Borrower’s subsidiaries and
therefore the Lender has maximum certainty as regards Status.

Borrower’s perspective – the Obligors (to whom this Loan Agreement applies) are likely to
argue that it isn’t appropriate for this representation to extent to all subsidiaries,
especially if both the Borrower and Guarantor have several each. The Obligors could
therefore argue that the Lenders should only be concerned with significant members of
the group i.e. ‘Material Subsidiaries’. This is defined as any subsidiary which accounts
for more than 5% of the consolidated revenues of the Borrower. This should be
acceptable to the Lenders.

Compromise – Borrower wins ; amend to ‘Material Subsidiaries’

19.2 Binding obligations

The obligations expressed to be assumed by it in each Finance Document to which it is
a party are, subject to any general principles of law limiting its obligations which are
specifically referred to in any legal opinion delivered pursuant to Clause 4 (Conditions of
Utilisation), legal, valid, binding and enforceable obligations.

19.3 Non-conflict with other obligations

The entry into and performance by it of, and the transactions contemplated by, the
Finance Documents do not and will not conflict with:

, 19.3.1 any law or regulation applicable to it;

19.3.2 its or any of its Subsidiaries’ constitutional documents; or

19.3.3 any agreement or instrument binding upon it or any member of the Group or any of its
or any member of the Group’s assets.

19.4 Power and authority

It has the power to enter into, perform and deliver, and has taken all necessary action
to authorise its entry into, performance and delivery of, the Finance Documents to
which it is a party and the transactions contemplated by those Finance Documents.

19.5 Validity and admissibility in evidence

All Authorisations required or desirable:

19.5.1 to enable it lawfully to enter into, exercise its rights and comply with its obligations in the
Finance Documents to which it is a party; and

19.5.2 to make the Finance Documents to which it is a party admissible in evidence in England
and Wales,

have been obtained or effected and are in full force and effect.

19.6 Deduction of Tax

It is not required to make any deduction for or on account of Tax from any payment it
may make under any Finance Document to which it is a party.

19.7 No filing or stamp taxes

Except for due registration of the Debenture and the Share Charge under section 859A
of the Companies Act 2006 and the Debenture under the Land Registration Act 2002, it
is not necessary that the Finance Documents be filed, recorded or enrolled with any
court or other authority in England and Wales or that any stamp, registration or similar
tax be paid on or in relation to the Finance Documents or the transactions contemplated
by the Finance Documents.

19.8 No default

19.8.1 No Default is continuing or might result from the making of any Utilisation.

19.8.2 No other event or circumstance is outstanding which constitutes a default under any
other agreement or instrument which is binding on it or any of its Subsidiaries or to
which its (or its Subsidiaries’) assets are subject which might have a Material Adverse
Effect.

Borrower’s perspective –
the Obligors are likely to argue that the representation as drafted, on repetition, would have the
effect of converting potential events of default into actual events of default for
misrepresentation. This thus deprives the Obligors of the benefit of any grace periods.
The wording ‘might result’ is very lender-friendly and therefore the Obligors are likely to argue
that an incorporation of an objective element is desirable i.e. ‘might reasonably be
expected to’. This represents the position under LMA 19.9.

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