Finance agreements can be extensive and difficult to understand; they are often based on English law documents and standards, even though the UK has a different legal system and contract tradition than Norway. Borrowers need to understand the terms they accept when receiving a loan from one or more lenders. Lenders need to understand the protection the finance agreements offer them and how and when they can enforce their rights. Simply Finance is not a statement that finance is simple, but a series of newsletters explaining financing concepts, terms and definitions in a simple way. It is our attempt to demystify the legal finance business and contribute to increased understanding for everyone involved in financing.
Representations and Warranties in Finance Agreements
This time we address the English law concept of representations and warranties.
Conditions Precedent in Finance Agreements
Conditions precedent are requirements for certain milestones of a financing to occur, like signing of the finance agreement, and disbursement of the loan. Conditions precedents will have to be evidenced by the borrower typically by submitting the required deliverables, like copies of certain agreements, permits, financial statements, corporate resolutions, insurance policies, etc.
A promissory note is a debt instrument that contains a promise made by a debtor to pay a creditor. Certain requirements must be satisfied for a debt instrument to be considered a promissory note under Norwegian law, i.e.: (i) being made in writing and signed by the debtor, (ii) including an unconditional obligation for the debtor to pay when due, and (iii) the obligation must be a specified cash payment obligation.
Term Sheets in Finance Agreements
A term sheet is often prepared as the basis for a financing arrangement and outlines the main terms and conditions for a financing agreement between a borrower and a lender(s). Typically, this includes the type of financing or facility (term loan, revolving credit facility, debt instruments), loan amount, tenor, interest, security, repayment and prepayment, covenants, conditions precedent, and events of default.