In cross-border transactions, the provision of legal advice is often a condition that must be met before an advance is granted. Legal advice will attempt to assure the lender that the transaction documents: (i) bind the parties to the transaction; and (ii) be enforceable against such parties. The City of London Law Society has recently published an updated guide on the issues and issues to consider and address when law firms provide lenders with legal advice on banking and financial transactions (the CLLS Guide). Legal advice may, for example: include the valid existence of the Company, the valid issuance of shares to investors under applicable corporate law, compliance with certain laws relating to the Transaction, the enforceability of the Transaction Agreements and, in some cases, the existing capitalization of the Company. Legal opinions do not express opinions on all aspects of the company and its operations, but focus on a specific range of corporate and securities elements. A legal opinion expresses legal conclusions and/or legal analyses of a financial transaction. Most opinions given to lenders on financing agreements: A letter from a legal advisor that facilitates a lender`s due diligence process on a transaction Legal advice should always be considered when a transaction involves a foreign element that UK lawyers cannot advise on. Legal advice is often sought in cross-border transactions, particularly transactions involving the acquisition of companies, lending and securities transactions, and real estate purchase transactions. For example, if a transaction involves a Luxembourg entity, the lender may seek legal advice from a Luxembourg law firm to confirm (among other things) that the Luxembourg company is validly incorporated and registered and that the documents it receives have been duly signed and are binding and enforceable. The evaluation will then generally conclude that the loan documents are enforceable according to the terms of the loan. This is very important because the legal advisor must ensure that the documents are properly prepared so that the transaction can proceed. Finally, the legal counsel will also indicate his qualifications in the opinion.
Appraisals provide lenders with valuable assurance that the legal counsel providing the advice has properly questioned the transaction and formed the opinions expressed in the opinions, but they should not be considered as a guarantee or compensation for losses that may arise if the financing transaction becomes sour. Jonathan Porteous, Head of Banking and Finance at Stevens & Bolton, comments: «The CLLS Guide is a very useful source of knowledge and wisdom on legal advice. When lawyers involved in a financial transaction have read and digested it, it can really help reduce the friction and misunderstandings that often arise about the scope and trust of others in legal advice. For those of you who haven`t watched it, it`s definitely worth reading. Legal counsel plays an important role in protecting the interests of both the lender and the borrower. They review all collateral documents and determine the enforceability of all legal agreements from the lender`s perspective. The alarm bell should ring for the creditor if a legal opinion does not identify the usual risks and/or specific problems specific to the type of financial instrument or counterparty. Such an omission could indicate that the lawyers who wrote the opinion may not have fully applied their opinion and identified and understood the significant risks and issues. According to Anton Barnes-Webb, a partner at pan-African law firm Bowmans, experience has shown that there are «better and worse» approaches to using legal advice when negotiating deals. Whether an opinion should be required is sometimes controversial.
Parties should always weigh the costs and benefits of an expert opinion when making this decision. For the recipient of the opinion, it is better to get an opinion than not to get an opinion, because of the added certainty, but opinions are often laborious and expensive. Since these costs are usually borne by the borrower, this threshold decision is often the result of discussion and negotiation. Transactions involving large amounts, unusual collateral, or borrowers with complicated organizational structures are the best candidates for required legal advice. In some transactions, such as syndicated loan transactions, opinions are always expected in accordance with market practice. In the case of debt financing transactions, the main objective of legal advice is to provide assurance to beneficiaries that the agreements have been properly and properly executed; counterparties have the capacity, authority and authority to enter into and perform their contractual obligations; and that the agreements are legal, valid, binding and enforceable. «Because legal issues that the lender needs to know about can be hidden, it`s best to identify them early — rather than the day before financial close — so they can be properly resolved. An opinion is not a last-minute document that can be cobbled together. A management consultant`s opinion is intended to provide investors with additional comfort with respect to the legal issues covered by the opinion, but does not replace the «due diligence» that must be performed by investors and their legal counsel. The four main elements of a standard notice are: A legal opinion confirms a party`s ability to contract and fulfill its obligations under the settlement documents.
Late obtaining expertise, which requires the borrower`s lawyer to do additional work, is often problematic due to time constraints. In addition, due diligence can sometimes uncover issues related to corporate or loan documents that need to be resolved before the notice can be issued and the transaction can be completed. For these reasons, it is preferable to agree on the scope of an opinion and complete the diligence of the opinion as early as possible in the transaction process. As with other transaction documents, legal opinions are generally «negotiated»; That is, drafted by one party (the opinion-giver) subject to the review and opinion of the other party (the lawyer representing the addressee of the opinion). Most companies start with their own standard form. Significant deviations from the standard usually require further discussion and additional internal approvals. The assumptions and qualifications used in opinions have evolved according to industry standards and, although they are generally quite long (several pages are not uncommon), are generally not controversial. Most commonly, questions arise about the scope of the notice, including which documents should be covered and what comments should be requested from the recipient. The «golden rule» is that lawyers should not ask others for opinions that they would not give themselves. When this rule is followed, the valuation work usually proceeds smoothly, although there are sometimes genuine disagreements about the appropriate opinions in a particular transaction.
Problems are likely to arise if the lawyer asks the appraiser to comment on factual rather than legal issues, as legal advice should not be used as a substitute for a borrower`s factual statements in transaction documents. The purpose of legal advice in a transaction is to provide an additional layer of assurance to the party receiving the notice. In U.S. lending transactions, it is common for the borrower`s advisor to give notice to the lender (but not vice versa). The borrower`s legal advice usually includes (among other things) statements that, in the opinion of the borrower`s lawyer, the loan documents are enforceable, the liens are enhanced, the loan documents do not conflict with other specified documents, and the borrower is authorized by the borrower`s board of directors to complete the transaction. The borrower himself usually makes similar assurances and guarantees in the loan documents, but the legal opinion offers confirmation from an additional source – the borrower`s lawyer. If the borrower`s lawyer gives legal advice to the lender, the lender has the right to rely on it even if the borrower`s lawyer does not represent the lender.