all you wanted to know about pledges but never dared to ask aflf 2014 all you wante… · all you...
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All you wanted to know about pledges but never dared to ask
Philippe Dupont, Partner, Arendt & Medernach Matthieu Taillandier, Partner, Arendt & Medernach Grégory Minne, Senior Associate, Arendt & Medernach
Arendt Financial Law Forum – 15 October 2014
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Texts
Regulation (EC) No 593/2008 of the European Parliament and of the Council of 17 June 2008 on the law applicable to contractual obligations (“Rome I Regulation”)
Directive 2002/47/EC of the European Parliament and of the Council of 6 June 2002 on financial collateral arrangements (as amended) Law of 5 August 2005 on financial collateral arrangements (as amended) (“FCAL”)
Council regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings
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Contractual aspects Proprietary aspects
Lex contractus Contractual aspects Rome I Regulation
Lex rei sitae Proprietary aspects (eg creation, perfection, enforcement)
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Connecting factors – Claims : Law of the location of the
debtor/law of the claim?
– Bearer instruments : Law of the location of the instrument
– Registered instruments : Law of the location of the register
– Book-entry instruments : Law of the location of the relevant account
Lex rei sitae
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Debtor
Law of the location of the debtor
Pledgee
Claims
Pledgor Loan agreement
Pledge over claims
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Law of the location of the bearer instruments
Bearer instruments
Pledgee
Loan agreement
Pledgor
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Issuer of the shares
Law of the location of the register
Registrered instruments
Pledge over registered shares Pledgee
Loan agreement Pledgor
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Relevant account
Book-entry instruments
Pledgee
Loan agreement
Pledgor
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PRIMA
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Registered Units of Funds - 1
Fund
name recorded in the register
recording Luxembourg agent Abroad
Bank
Client
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Registered Units of Funds - 2
Bank Fund
Client
Bank recorded in the register Luxembourg
Abroad
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Registered Units of Funds - 3
Bank 1 Fund
Client
Luxembourg Abroad
Nominee
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Specificity of pledges granted by or over our newest vehicles types
Pledge over partnership interests of société en commandite simple (common limited partnership) and société en commandite spéciale (special limited partnership)
Legal treatment of the partnership interest Specific rules applicable to the pledge of partnership interests
Pledge granted by a société de gestion de patrimoine familiale (family wealth management company)
pledge to cover its own obligations plege to secure obligations of third parties
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Bank as third party custodian - 1
Borrower/Guarantor Lender
pledged assets
loan
pledge
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A. Cash
- notification
- perfection B. Securities
1) tripartite agreement
2) control agreement – notification
3) recording into an account of the lender
4) earmarking of the account of the borrower
Bank as third party custodian - 2
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CAUTION
tripartite agreement, recording into an account of the lender, earmarking = waiver of pledge ranking notification ≠ waiver
priority for cost
clear wording as to who can give instructions and which kind of
instructions
Bank as third party custodian - 3
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Right of use
legal nature
agreement of the counterparty
how to document the right of use ?
assets subject to the right of use
risk disclosure
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Margin call
drafting of the margin provision
form of margin call
enforcement
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Dividends & Voting rights - 1
Dividends Article 8 FCAL
Dividends are paid to the pledgee unless otherwise agreed by the parties
Voting rights Article 9 FCAL
• Right to vote is governed by the agreement of the parties • Unless agreed otherwise, the right to vote remains with the pledgor except if a right of
use has been granted
In practice in most of the cases Dividends and voting rights remain with the pledgor until the occurrence of an
event of default Following the occurrence of an event of default dividends are paid to the
pledgee and voting rights shall be exercised in accordance with the pledgees instructions or by the pledgee itself
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Dividends & Voting rights - 2
In case of an event of default the pledgee might consider exercising the voting rights as an alternative to the enforcement of the pledge Double LuxCo structures Trigger event Transfer of voting rights
Enforcement event Enforcement of the pledge
An additional tool for the management of the security
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Sponsor
Top LuxCo
LuxCo
BidCo (FR)
Target (FR)
OpCo (FR)
OpCo (FR)
OpCo (FR)
OpCo (FR)
OpCo (FR)
Dividends & Voting rights - 3
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Enforcement Event - 1
Definition: “enforcement event: means an event of default or any event as agreed between the parties on the occurrence of which, under the terms of a financial collateral arrangement or the relevant financial obligation agreement or by operation of law, the collateral taker is entitled to realise or appropriate financial collateral or a close-out netting provision comes into effect”
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1. no enforcement event defined in the pledge agreement
2. enforcement at actual or early maturity of the claim
3. enforcement where the secured claim is not due:
possible?
consequences
Enforcement Event - 2
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Most Common Enforcement methods
Enforcement is at the entire discretion of the pledgee No notice
Appropriation Nominal value vs Market value Direct appropriation vs appropriation through a SPV Valuation prior to vs after appropriation
Sale Private sale
Arm’s lenght terms Public sale
Public auction Stock exchange
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Account
Loan agreement
Alteco / Mag Import cases
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Contact us Philippe Dupont Partner, Arendt & Medernach Tel: + 352 40 78 78 205 Email: [email protected]
Matthieu Taillandier Partner, Arendt & Medernach Tel: + 352 40 78 78 309 Email: [email protected]
Grégory Minne Senior Associate, Arendt & Medernach Tel: + 352 40 78 78 355 Email: [email protected]