Banking and Finance FAQs

The Most Frequently Asked Questions Within Banking & Finance

Business finance, regardless of the fluctuating economic situation, is a crucial component for the expansion and growth of a business. As such, most companies will require some financial backing.

Here at Tinsdills, we have a team of professional business law solicitors with the experience and expertise to match. They advise lenders and borrowers on a wide range of security and banking documentation.

Banking and Finance can seem like a daunting area of law – and it can be – but our team of experts are on-hand to provide answers to all of your burning questions.

Below, you will find all of the most frequently asked questions surrounding Banking and Finance law, along with valuable answers to all of them. Should you have a question that you can’t find here, feel free to get in touch with us and we’d be happy to help.

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    Banking & Finance Frequently Asked Questions

    Whilst you may not always need a written loan agreement, it is strongly advised that such an agreement is entered into in contemplation of any loan being made as it will document the key terms of the loan, such as payment terms, drawdown period, any interest provisions and enforceability of any security. The length and nature of the loan agreement itself will depend on (amongst other things) the size of the loan being given, the basis on which the loan is being made and whether any security is being given.

    It is quite common for intragroup company loans to be made as part of any group finance structure and these are often dealt with by way of accounting entries. On that basis, it is not always necessary for cash to physically transfer between the different entities on the loan being made. However, the directors should be mindful that any loan will still be potentially repayable, even if no cash was physically received, and this could cause issues if the lending group company later becomes insolvent. There may also be tax implications relating to the loan and how it is documented.

    The amount and nature of any security required will depend on a number of factors, including the size of the loan and length of the term over which it is given, the lender’s appetite for risk and the current economic climate. Examples of types of security lenders may require include a debenture over the business and assets of a company; a legal mortgage over property; a fixed charge over assets and intellectual property; a floating charge over bank accounts and stock; personal guarantees from directors of the company; parent company or cross guarantees and indemnities from group companies (guaranteeing the obligations of each other); and/or pledges or liens.

    A debenture is an ‘umbrella’ security document that incorporates many types of security over a broad range of company assets. Debentures are often used by lenders who are making loans with large principal amounts and who require reassurance that they will be able to recover monies owed.

    Yes, it is possible for a company to provide security to one or more lender by way of multiple debentures. These may be against different specific assets, multiple floating debentures, or a mixture of both. Usually, when the initial lender places a debenture over a company, the lender will seek to prevent any further lenders from adding another debenture over that same company without specific consent. Where there are multiple lenders with debentures over the same assets, the lenders may agree on priority of payments between themselves. This is usually documented in an agreement called a deed of priority.

    Secured charges are against a company that will be registered at Companies House and this includes debentures. Failure to register a charge with Companies House may render the charge unenforceable and so it is imperative that the documents are registered properly so if. Charges are filed at Companies House using form MR01 and the deadline for registration is 21 days from the date of the security document (except in some limited circumstances where the period for filing may be longer). If you miss the deadline, you will need to apply to the court to have the charge registered which takes time and money.

    It will depend on the wording of the guarantee itself but, generally, a personal guarantee will not automatically be released on full repayment of the outstanding balance. Instead, you will need to ask the lender to provide a deed of release, which will be signed by the lender and to formally release you from the guarantee. This is particularly important as most guarantees are “all monies” guarantees and cover future borrowing obligations.

    Personal guarantees are usually worded in such a way that they are binding on your successors, meaning that it will be for your personal representatives to deal with any personal guarantees as part of your estate. It is therefore important that you retain copies of any personal guarantee you enter into, which have not been released, and to let your personal representatives and/or family members know of their existence.

    It is unlikely that your personal guarantees will automatically be released on the sale of any shares in a company or, indeed, your resignation as a director of that company. As such, it is important to discuss any personal guarantees with one of our business law solicitors as part of any sale of shares or other merger and acquisition transaction so that we can assist you with obtaining a release from your obligations.

    The investor will often want to be in control of the terms of the investment agreement and so will usually insist that their solicitor prepares the first draft of the agreement to ensure that it is prepared in a manner that favours their interests. It is therefore essential that the management team seeks separate legal advice on the agreement to ensure that it is prepared in a reasonable and fair manner.

    Preparation of a first draft of the investment agreement can begin at any time after the key commercial terms of the transaction have been agreed and heads of terms have been signed, if they are being used. Drafting of the agreement may be delayed until any due diligence exercise is well advanced and the investor has some certainty that the business is sound and the transaction will proceed to completion.

    Within the context of a corporate investment transaction, anti-dilution provisions seek to prevent a business from obtaining further investment from third parties, without the consent of the current investor or to ensure that, where further investment is made, the investments of the first investor are not diluted.