All you wanted to know about pledges but never dared to ask aflf 2014 all you wante… · All you wanted to know about pledges but never dared to ask ... Dividends and voting rights

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

2 Arendt Financial Law Forum – 15 October 2014

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


Contractual aspects Proprietary aspects

Lex contractus Contractual aspects Rome I Regulation

Lex rei sitae Proprietary aspects (eg creation, perfection, enforcement)


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


Debtor

Law of the location of the debtor

Pledgee

Claims

Pledgor Loan agreement

Pledge over claims


Law of the location of the bearer instruments

Bearer instruments

Pledgee

Loan agreement

Pledgor


Issuer of the shares

Law of the location of the register

Registrered instruments

Pledge over registered shares Pledgee

Loan agreement Pledgor


Relevant account

Book-entry instruments

Pledgee

Loan agreement

Pledgor


PRIMA


Registered Units of Funds - 1

Fund

name recorded in the register

recording Luxembourg agent Abroad

Bank

Client

http://www.google.lu/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=vlPR9BOwQYQ8kM&tbnid=vADrYC889u-PsM:&ved=0CAcQjRw&url=http://commons.wikimedia.org/wiki/File:Boss-icon.png&ei=IIguVL3sConKPYWegMAP&bvm=bv.76802529,d.bGQ&psig=AFQjCNE3ddEQ_4iUqZ2eL6twRnuuem2Bmg&ust=1412421878475023



Bank Fund

Client

Bank recorded in the register Luxembourg

Abroad




Bank 1 Fund

Client

Luxembourg Abroad

Nominee



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


Bank as third party custodian - 1

Borrower/Guarantor Lender

pledged assets

loan

pledge

http://www.google.lu/url?sa=i&rct=j&q=&esrc=s&frm=1&source=images&cd=&cad=rja&uact=8&docid=wklaKLklggmiTM&tbnid=f0cBlMGP8exPsM:&ved=0CAcQjRw&url=http://www.torontorealtyblog.com/archives/alt-a-lenders/10267&ei=cKUuVJGfNYmsPIX8geAF&bvm=bv.76802529,d.bGQ&psig=AFQjCNFreUZrVC1LhzOkQ3rsmQySIkZi3g&ust=1412429459920609


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



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



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


Margin call

drafting of the margin provision

form of margin call

enforcement


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



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


Sponsor

Top LuxCo

LuxCo

BidCo (FR)

Target (FR)

OpCo (FR)

OpCo (FR)

OpCo (FR)

OpCo (FR)

OpCo (FR)



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”


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


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


Account

Loan agreement

Alteco / Mag Import cases


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]

Documents

All you wanted to know about pledges but never dared to ask aflf 2014 all you wante… · All you wanted to know about pledges but never dared to ask ... Dividends and voting rights