This tool offers you the chance to see how jurisdictions compare for finance and investment around the world. Please select your country and legal topic area(s) of interest using the drop down menu on the left hand side of the page.

Lending and borrowing

Are there any other notable risks or issues around borrowing?

Angola

Angola

No.

Last modified 23 Jul 2020

Australia

Australia

There are limited restrictions on borrowing in Australia. However, depending on the nature of the transaction, the following issues may need to be considered:

  • foreign investment approval;
  • superannuation funds general prohibition from borrowing money;
  • financial assistance;
  • loans to directors;
  • corporate benefit rules; and
  • related party transaction provisions applying to public companies; and
  • compliance with the Australian income tax laws (such as thin capitalisation rules which limit the gearing level of inbound and outbound structures, debt/equity rules and transfer pricing rules) and the ATO’s enhanced scrutiny of cross-border related party debts.

Many of these issues are discussed elsewhere in this guide.

 

Last modified 3 Dec 2019

Belgium

Belgium

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write-down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of Belgian or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

Furthermore, when a borrower, security provider or guarantor becomes insolvent, the related claims and security rights of lenders might lose value, because the lenders need to compete with other privileged creditors or the collateral is insufficient to cover the total debt. In addition, enforcement might be delayed or no longer possible.

In the case of bankruptcy, any payments or security granted to lenders might also become subject to claw-back actions, upon the opening of insolvency proceedings.

Certain transactions may be declared ineffective vis-à-vis third parties if they are concluded or performed by the debtor during the hardening period (a period of up to a maximum of six months prior to the date of the bankruptcy judgment). There is an exhaustive list of automatic and non-discretionary claw-back events, as follows:

  • gifts and undervalued contracts;
  • payments made for amounts that are not due at the date of payment;
  • new security granted for existing debt; and
  • all other payments made to creditors.

These can be challenged by the bankruptcy receiver if the creditor that accepted payment was aware of the financial distress of the company at the time of the event.

In addition, at the request of the bankruptcy receiver, the court can declare other transactions that have been entered into or performed during the hardening period ineffective, provided the counterparty was aware of the fact that the debtor was virtually bankrupt and the court determines that this declaration would benefit the bankruptcy estate (ie, the challenged transaction was detrimental to the rights of the creditors).

Moreover, "fraudulent transactions" (ie, abnormal transactions that are detrimental to the rights of the creditors and where there is fraud on the part of both the debtor and the other party) can be declared ineffective, regardless of whether they occurred during or before the hardening period.

If the lender acts as a credit institution, it has an obligation to inquire about its client's ability to repay his debt, and must evaluate the validity of the securities granted to him. If the institution does not comply with that provision, it may be ordered to reimburse the sums resulting from the call on the guarantee or the enforcement of the securities.

Last modified 18 Dec 2019

Brazil

Brazil

Borrowers should be aware of the potential implications of the laws dealing with failing financial institutions.

In case of bankruptcy or liquidation of a financial institution, certain credits, such as credits for salaries up to 150 minimum wages (salários mínimos) per labor creditor (ie a creditor deriving from labor relationships with the employees), among others, will have preference over any other credits.

The Brazilian market has a deposit insurance system (FGC) which guarantees a maximum amount of R$250,000 of deposits and credit instruments held by an individual against a financial institution (or against financial institutions of the same financial group) and a maximum amount of R$20 million of deposits for banks with deposits, up to R$5 billion per bank. The FGC is funded principally by mandatory contributions from all Brazilian financial institutions that work with client deposits. The payment of unsecured credit and client deposits not payable under the FGC is subject to the prior payment of all secured credits and other credits to which specific laws may grant special privileges.

Last modified 4 Dec 2019 | Authored by Campos Mello Advogados

Canada

Canada

Borrowers should consider the risks associated with defaulting under the loan agreements and ancillary documents and the rights of the lender on such default.

Last modified 2 Jan 2020

Chile

Chile

Normally banks perform a sound assessment of the borrower, requiring its financial background or assets they owned that may be used as security.

Last modified 6 Dec 2019 | Authored by BAZ|DLA Piper

Colombia

Colombia

The personal information of the borrower and the information regarding the loan, payments, prepayments, accrued and due interest, and unpaid interest are sent by the financial institutions to the Risk Centrals (Centrales de Riesgo), for its custody. Such information will remain on the databases of the Risk Central, for a period determined by the applicable law.

Last modified 20 Oct 2017 | Authored by DLA Piper Martinez Beltrán

Czech Republic

Czech Republic

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to 'bail in' obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments.

In the case of English or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

Last modified 20 Oct 2017

Finland

Finland

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions. It has been implemented in Finland through the Act on Resolution of Credit Institutions and Investment Firms (laki luottolaitosten ja sijoituspalveluyritysten kriisinratkaisusta) and the Act on the Financial Stability Authority (laki rahoitusvakausviranomaisesta).

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail-in‘ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail-in‘ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of English or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

Last modified 26 Nov 2019

France

France

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write-down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of French or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

In certain circumstances, the agent must be licenced as creditor or payment institution (or duly passported in France for such activities) or as loan broker (“intermédiaire en opérations de banque”) and registered as such with the French dedicated authority (ORIAS).

Last modified 4 Dec 2019

Germany

Germany

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of English or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

Last modified 20 Oct 2017

Ghana

Ghana

Credit reporting

Where a borrower’s loan is 90 days past the due dates for repayment, the details are required to be disclosed by the creditor (financial institution) to a licensed credit bureau.

Last modified 15 Jan 2020 | Authored by Reindorf Chambers

Hungary

Hungary

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail in‘ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in‘ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of Hungarian or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

Last modified 20 Oct 2017

Ireland

Ireland

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions.

The BRRD is an EU framework which came into effect on 15 July 2015. It acts as the central resolution authority with the EU Banking Union and outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities. Article 55 of the BRRD gives authorities the power to bail in obligations of failed EEA financial institutions and also to postpone the enforcement of early termination rights against the affected institution. Bail in describes a variety of write-down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of Irish or other EEA law contracts, such powers override contractual terms. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

Last modified 16 Jul 2020

Italy

Italy

Borrowers should be aware of the potential implications of the BRRD, which outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to 'bail in' obligations of failed EEA financial institutions and also postpones the enforcement of early termination rights against the affected institution. 'Bail in' describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

Last modified 22 Jan 2020

Ivory Coast

Ivory Coast

Missed payments can lead to risk defaults and collections processes which can have an impact on one’s credit history or rating.

It can also lead to difficulties in accessing to credit in the future.

There is also a possibility of loss of property in case of default as collateral pledging can be very important on the borrower’s part.

Last modified 3 Aug 2020

Japan

Japan

There are none to highlight for the summary purposes of this site.

Last modified 5 Dec 2019

Luxembourg

Luxembourg

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions, implemented in Luxembourg by the Law of 18 December 2015 on the resolution, reorganization and winding up measures of credit institutions and certain investment firms and on deposit guarantee and investor compensation schemes.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of Luxembourg or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract, corporate interest and financial assistance matters are to be considered.

Last modified 10 Dec 2019

Mauritius

Mauritius

Borrowers are afforded very little protection under Mauritius laws in the event of default.

Last modified 6 Dec 2019 | Authored by Juristconsult Chambers

Mexico

Mexico

In cross-border lending, borrowers are required to consider the identity of the beneficial owner of interest payments, given that tax gross-up clauses are a common feature in loan agreements and withholding tax rates range from 4.9% to 40%, depending on the beneficial owner of the interest. Lower withholding tax rates may be available to tax residents in countries with which Mexico has entered into a tax treaty to avoid double taxation. Interest payments carried out to export-import banks may not be subject to any withholding, provided that the conditions set out by the relevant tax treaty are complied with.

Last modified 5 Dec 2019

Morocco

Morocco

Bank Al-Maghrib regularly issues advisory circulars and directives on various subjects (prudential provisions, overall effective rate).

Financial institutions, as part of their borrowing policy, must comply with the above-mentioned texts.

Moreover, borrowing must be part of the corporate object and of the corporate interest of the borrower.

Last modified 6 Jan 2020

Netherlands

Netherlands

There are no specific Dutch law risks around borrowing.

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD, as amended), which outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of English or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

Last modified 6 Dec 2019

New Zealand

New Zealand

A range of legislative protections and standards exist in relation to consumer finance transactions, or transactions with individuals (as distinct from companies, trusts or other entities), such as those under the Credit Contracts and Consumer Finance Act 2003, Fair Trading Act 1986 and the Consumer Guarantees Act 1993.

Last modified 13 Dec 2019

Norway

Norway

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions and to postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of English or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

The BRRD is under consideration by the Ministry of Finance, but has not yet been implemented into Norwegian law and no deadline has been set as of today. However, Norway already has rules with effects similar to BRRD.

Last modified 20 Oct 2017

Peru

Peru

As mentioned before, it is advisable for borrowers to consider if the lending regimes apply to their activities in order to determine if certain benefits of protection are applicable to them.

In addition, borrowers, before entering into loan agreements, should be aware of the potential implications of the occurrence of events of default and the consequences expressly established in the loan agreement (such as prepayment of all amounts that were lent and penalties to be applied).

Last modified 5 Dec 2019 | Authored by DLA Piper Pizarro Botto Escobar

Poland

Poland

Borrowers face a number of systemic risks such as regional or national recessions, regional or national house price declines or national increases in interest rates. In response to the recent foreign currency loan crisis (the Swiss franc mortgage loans) , i.e. mortgages which are denominated or indexed in a currency other than PLN the Act on the Borrowers Support was changed in 2019  by forming a separate Restructuring Fund, which will be used for voluntary restructuring of loans in foreign currency.

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD) (implemented in Poland by the Act of 10 June 2016 on the Bank Guarantee Fund, Guaranteed Deposit Scheme and Mandatory Restructuring), which outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail in’ the obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of EEA law contracts, including Poland, such powers override what the contracts say. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into these contracts.

Last modified 6 Dec 2019

Portugal

Portugal

Borrowers should be aware of the potential implications of the Banking Act, which outlines certain measures for dealing with failing financial institutions.

The Banking Act gives the Bank of Portugal the power to ‘bail in’ obligations of failed Portuguese financial institutions. ‘Bail in’ describes a variety of write-down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of Portuguese contracts, such powers override what the parties have agreed at a contractual level.

Last modified 6 Dec 2019

Puerto Rico

Puerto Rico

Lending in Puerto Rico is subject to US federal consumer protection laws such as the Truth in Lending Act and subject to the regulations of the Consumer Financial Protection Bureau.

Last modified 11 Dec 2019

Romania

Romania

Borrowing by Romanian residents from non-residents for a period exceeding one year is subject to notification to the National Bank of Romania for statistical purposes.

Last modified 20 Oct 2017

Russia

Russia

No other notable risks.

It should be noted that there are special types of crimes in respect of borrowing stated in the Criminal Code of the Russian Federation, such as:

  • fraud in the sphere of lending;
  • unlawful receiving of a credit; and
  • malicious avoidance of credit repayment.

The type of punishment varies in respect of each crime. The maximum prison sentence is ten years.

Last modified 5 Dec 2019

Senegal

Senegal

Missed payments can lead to risk defaults and collections processes which can have an impact on one’s credit history or rating.

It can also lead to difficulties in accessing to credit in the future.

There is also a possibility of loss of property in case of default as collateral pledging can be very significant on the borrower’s side.

Last modified 29 Jul 2020

Singapore

Singapore

There are no notable risks or issues around borrowing.

Last modified 20 Oct 2017

Slovak Republic

Slovak Republic

Borrowers should be aware of the potential implications of the EU's Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions. The BRRD has been implemented mainly by the Act on Resolution in the Financial Market.

This regulative framework is applicable to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

The Act on Resolution in the Financial Market which has, among others, implemented also the Article 55 of the BRRD, gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions. Institutions to whom the resolution applies shall include a contractual term in any agreement creating a liability. The creditor or party to the agreement recognizes that the liability may be subject to write-down or conversion, and agrees to be bound by any reduction in the principal or outstanding amount due, or conversion or cancellation that is effected by the exercise of the write-down or conversion power by the resolution authority, provided that such liability is:

  • not excluded;
  • not a deposit under Slovak law;
  • governed by the law of third country; and
  • entered into or changed after the date on which the Act on Resolution in the Financial Market became effective (this does not apply to a change of obligation, including an automatic change, that does not affect the fundamental rights and responsibilities of the party of this obligation).

Last modified 6 Dec 2019

South Africa

South Africa

None.

Last modified 5 Dec 2019

Spain

Spain

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD) which outlines certain measures for dealing with failing financial institutions, and which was implemented in Spain by Law 11/2015, of 18 June, on the Restructuring and Resolution of Credit Institutions and Investment Firms.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of Spanish or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

There are some reporting requirements when a Spanish resident receives funds from a non-Spanish entity. All Spanish residents shall report to the Bank of Spain:

  • own-account transactions with non-residents, however structured and/or settled (i.e. through accounts of residents in Spain or abroad, or through cash delivery); and
  • the relevant balance of their total foreign assets and liabilities.

There is no requirement for Spanish residents to report to the Bank of Spain when the total aggregate amount of such transactions with foreign entities is less than €1,000,000 in any year, unless the Bank of Spain has specifically requested a report to be submitted.

Last modified 5 Dec 2019

Sweden

Sweden

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which has been implemented into Swedish law and outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of Swedish or other EEA law contracts, such powers override what the contracts say. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

Last modified 22 Jan 2020

Thailand

Thailand

The laws of Thailand do not allow accrued interest to be capitalized to the principal amount unless the interest has been in default for at least one year. Compound interest is also prohibited under Thai Law.

From a borrower's perspective, if the borrower has paid to the lender interest at a rate which is not permissible under the laws of Thailand, the borrower cannot later claim or bring an action against the lender for a refund from the lender of such overpayment of interest.

From the lender's perspective, pursuant to the Excessive Interest Rate Prohibition Act B.E. 2560 (2017), excessive interest rates and the use of structured payments or arrangements to conceal the use of excessive rates of interest are prohibited and subject to both civil and criminal sanctions.

If a foreign majority owned company which is incorporated in Thailand provides a guarantee or use its assets as collateral to secure loans either in Thailand or outside Thailand, a foreign business license/certificate is additionally needed to be granted by the Ministry of Commerce for the provision of security.

Last modified 4 Apr 2020

Ukraine

Ukraine

Borrowing is generally unregulated activity under Ukrainian legislation.

Last modified 24 Jan 2020

UK - England and Wales

UK - England and Wales

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to 'bail in' obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. 'Bail in' describes a variety of write-down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of English or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

Market participants should also be aware of the on-going reform of the London Interbank Offered Rate (LIBOR) and other key interest rate benchmarks. LIBOR and other reference rates are commonly used in the calculation of interest and other payments under loans as well as various other financial products. Following the United Kingdom Financial Conduct Authority’s announcement in 2017 of its intention to stop compelling banks to submit rates required to calculate LIBOR after the end of 2021, the loan market, like other financial markets, has been in a period of transition to alternative reference rates which can be used in loan and other financial contracts going forward. The expectation is that market participants, in many cases, will transition to ‘risk free rates’ (RFRs), which are mostly backward-looking overnight rates, supplemented by a spread adjustment to account for the different bases upon which LIBOR and other existing reference rates are calculated compared to the proposed RFRs. One of the key challenge for the loan market remains how to adjust the position in existing finance documents.

Last modified 6 Dec 2019

UK - Scotland

UK - Scotland

Borrowers should be aware of the potential implications of the EU’s Bank Recovery and Resolution Directive (BRRD), which outlines certain measures for dealing with failing financial institutions.

The BRRD applies to financial institutions incorporated in the European Economic Area (EEA), but does not apply to EEA branches of non-EEA incorporated entities.

Article 55 of the BRRD gives authorities the power to ‘bail in’ obligations of failed EEA financial institutions and also postpone the enforcement of early termination rights against the affected institution. ‘Bail in’ describes a variety of write down and conversion powers, such as the power to convert certain liabilities into shares or cancel debt instruments. In the case of English or other EEA law contracts, such powers override what the contracts says. In the case of non-EEA law contracts, there are requirements to incorporate such provisions into the contract.

Last modified 20 Oct 2017

United Arab Emirates

United Arab Emirates

Borrowers may often be limited in the kinds of transactions and financings they can enter into, particularly in cases where the transaction is highly structured and involves the issuance of debt securities. In addition, restrictions arise when the relevant financiers or borrowers are Shari’a-compliant. However, most of the major international lenders have their own Islamic banking desks and many retain Shari’a advisory boards. Such institutions are growing more comfortable with the main Islamic financing mechanisms.

Last modified 23 Jan 2020

United States

United States

There are no other notable risks or issues around borrowing to be raised further to those outlined in preceding sections.

Last modified 24 Jan 2020

Are there any restrictions on lending and borrowing?

The development of professional lending activity may only be carried out by financial institutions authorized by the BNA.

Foreign investors who develop their projects by using benefits under the Private Investment Law may have recourse to credit in Angolan banks (under the Angolan applicable legislation).

What are common lending structures?

The common lending structures are Financial Banking institutions.

What are the differences between lending to institutional / professional or other borrowers?

The law does not mention special differences between lending to institutional and non-institutional debtors.

The only legal regime that is exclusive to individuals is the consumer credit regime.

Do the laws recognize the principles of agency and trusts?

No.

Are there any other notable risks or issues around lending?

No.

Are there any other notable risks or issues around borrowing?

No.

Are there any restrictions on giving and taking guarantees and security?

A company can grant a security interest aiming to secure its obligations as a borrower on a credit facility and as a guarantor of the obligations of other borrowers and guarantors’ obligations under a credit facility.

For that reason, the general rule set forth under Angolan legal framework is that a company’s corporate power is restricted to rights and duties considered adequate in order to proceed with the exercise of the company’s corporate object.

Hence, it is assumed that the granting of guarantees regarding other entities’ duties is opposed to the purpose of companies, except in situations where the companies’ own interest is legitimate in providing the guarantee or the company being considered is in a group or control relationship with other companies (Article 6(3) Angolan Companies Law).

The company’s own legitimate interest is visible when providing the downstream guarantees. However, it is less visible when providing upstream and cross-stream guarantees, being advisable for the necessary resolutions to be given with the intention to justify the own interest of the company, which in certain circumstances might be an indirect one, when providing the guarantee.

In regard to governmental or other consents or filings (or other formalities) required when granting/taking a guarantee, with exception of when there are state-owned and other public sector companies, the general rule is that no governmental consent or filings is required under the law, in order for a guarantee being provided by an Angolan company to be enforceable.

Notwithstanding, a guarantee provided by an Angolan company becomes enforceable when either a shareholder or border consent is given in accordance with the Angolan Companies Law. Commonly, such consent will detail expressly the benefit expected to be acquired from the provision of the guarantee.

Moreover, a security can be taken over inventory when executing a written agreement. Whenever there is a situation of non-payment or the occurrence of other circumstances presumed to be described in the pledge agreement, the pledgee or security agent can provide an enforcement notice to the pledgor. As an alternative, parties may prefer the provision of ordinary notices containing details of the stock.

Additionally, a company cannot guarantee and/or give a security to support borrowing arising from the financing of direct or indirect acquisition of shares of the company, being expressly forbidden (Article 344 of the Angolan Companies Law). Exceptions are available. Criminal liability of the directors/managers of such company may be considered when violating this prohibition, as well as the declaration of voidance and nullity of the agreement, guarantee or security interest.

Contrary to that, no express prohibition exists when the subject is the direct or indirect financing of shares of any company which directly or indirectly owns shares in the company or shares in a sister subsidiary, even though it is generally understood as applicable. Again, as previously mentioned, the corporate powers of the company may be restricted in respect of granting of guarantees or security.

What are common types of guarantees and security?

The Angolan Civil Code in Book II, Chapter VI, establishes the following types of secure lending obligations:

I. Provision of Bonds;

II. Bail;

III. Consignation of income;

IV. Pledge;

V. Mortgage, and

VI. Right of Retention.

Angolan law establishes that the possibility to provide general security over the assets of a given entity through a general security agreement is treated as null and void since there is a lack of determination of the specific assets subject to the security.

Thus, a security agreement must identify the assets that are subject to the security created by the agreement. It must have a certain criterion that as a result gives the possibility to identify the secured assets at a given time.

As mortgages and consignation of income must be granted by public deed, whereas pledged may be granted by the celebration of private agreements, the adoption of one single agreement or separate agreements varies in accordance with the type of security being granted.

Moreover, in companies incorporated in Angola, security can be taken over shares by pledges of shares (quotas or shares).

The shares on a Joint Stock limited liability companies (Sociedades Anónimas) are carried out through means of registration in the securities holder's account, with an indication of the number of shares pledged, the guaranteed obligation and identification of the beneficiary. If the voting right is granted to the pledge creditor, the pledge may be constituted by registration in their account. In the other hand, on Private limited liability companies (Sociedades por Quotas), the pledge must be done through means of a public deed.

The said pledges of shares may be either in book-entry form or in a certified form. The procedure to be followed varies according to the type of company in question, since such security can be granted by a document governed by the laws of other jurisdiction (e.g. English law) upon the compliance of the formalities set out by Angolan Law.

Are there any other notable risks or issues around giving and taking guarantees and security?

In circumstances where only a small benefit to the guaranteeing/securing company can be shown, it is likely that there is no legitimate interest to the company in providing the guarantee/security.

Consequently, unless the company is part of a group or it is in a control relationship with the entity whose obligations it guarantees/secures, the granting of the guarantee/security may be declared null and void.

The Civil Procedure Code, article 1175, determines that the declaration of bankruptcy may be filed within two years of the occurrence of the facts established by law, even if the trader has ceased trading or died.

Luís Filipe Carvalho

Luís Filipe Carvalho

Partner
DLA Piper Africa, Angola (ADCA)
[email protected]
T +244 926 612 525
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