Debt finance

No.

Yes, both principles are recognized under Australian law. Relationships based on the principles of agency and trust are commonly found in Australian financing transactions.

For example, in a syndicated financing, the syndicate will appoint an agent (usually the arranging bank) to act on behalf of the syndicate banks.

The agent will coordinate activities relating to the loan repayments, correspondence between the borrower and the syndicate banks and other matters. The syndicated loan documentation will typically contain provisions defining the nature of the agent's appointment and the scope of its authority and liabilities.

In a secured syndicated financing, the security will be granted in favor of a security trustee which will hold the security on trust for the benefit of the banks.

Borrowers are also commonly trustees, particularly in the real estate investment sector.

The principle of agency is recognized as a matter of Belgian law. It is possible to appoint an agent, who would act in the name and for the account of a single regulated undertaking (as opposed to a broker).

It also explicitly recognises the concept of a collateral agent/security agent, but only in relation to security taken over financial collateral and movable assets. This allows for the creation of security over such assets for the benefit of the agent (acting as representative of the secured parties), provided that the secured parties are determinable on the basis of the security agreement.

However, Belgian law does not recognise the concept of a security agent with respect to security over real estate. Therefore, when a mortgage is being granted to a security agent on behalf of a consortium of lenders, or in a situation where there is only one lender but the intention is to subsequently syndicate the facilities, a parallel debt structure can be considered. Although Belgian law does not recognise the concept of parallel debt as such, the use thereof has been common practice, and the concept and validity thereof has been supported by Belgian legal authors.

Belgian law does not recognize the principle of trusts. Belgian Courts would, however, recognize foreign trusts validly incorporated to the extent that they are not manifestly incompatible with Belgian mandatory laws.

Brazilian law does not recognize the concept of a trust. Although not specifically regulated, agency is not a prohibited activity in Brazil and may be structured through other Brazilian law instruments, such as the combination of a power-of-attorney and a service agreement.

Yes, both principles are recognized as a matter of Canadian law.

For instance, it is possible to appoint an agent to act on behalf of other parties and a trustee to hold rights and other assets on trust for the lenders or secured parties.

Yes, Chilean framework recognizes the appointment of a collateral agent.

Yes, both principles are recognized as a matter of Colombian law.

For instance, it is possible to appoint an agent to act on behalf of other parties and a trustee to hold rights and other assets and goods on trust for the lenders or secured parties.

Yes, both principles are recognized as a matter of Czech law. For instance, it is possible to appoint an agent to act on behalf of other parties and a trustee to hold rights and other assets on trust for the lenders or secured parties.

Trust is a relatively new issue in Czech law, but is starting to be used more frequently not just for descendants (in the context of family trusts) but also as a tool to combat conflicts of interest by transferring some property into a trust.

Trusts are generally not recognized in Finland however, under the quite recent Act on Detecting and Preventing Money Laundering and Terrorist Financing, trust, as they are defined in Article 3, Section 7 of the Directive (EU) 2015/849, are recognized as legal entities for the purposes of the said Act.

The principle of agency is recognized in Finland and in accordance with the Act on Agent of Bondholders,it is possible to appoint an agent to act on behalf of other parties and to hold rights and other assets for the lenders or secured parties.

Agent

Common agency rules (mandat)

Security interests have traditionally been granted under French law in favor of a security agent, acting in the name and on behalf of the beneficiaries. Such regime raises, however, several difficulties in practice (eg in case of court proceedings).

Specific provisions of the French Civil Code (Code civil)

As a result of the imperfection of the common agency rules (mandat), the French lawmaker created a specific set of rules for the security agent (providing that any security may be constituted, registered, maintained and enforced on behalf of its beneficiaries by an agent appointed in the agreement under which the secured obligations arise) (Art. 2488-6 and seq. of the French Civil Code). Albeit the legal regime of the security agent has been clarified pursuant to the ordonnance n°2017-748 dated 4 May 2017, it is still not widely used in practice since the market and the legal practitioners need to get used to it.

Trust in a context of security taking/similar mechanism

Parallel debt mechanism

Security interests can be granted under French law in favor of a security agent to the extent only such security agent has been appointed pursuant to 2488-6 and seq. of the French Civil Code (cf. above paragraph).

Otherwise, in practice, and to the extent valid under the law governing the loan agreement, the loan agreement may provide for a 'parallel debt' obligation due by the borrower to the security trustee, which can be secured by a French security granted in favor of the security trustee. This 'parallel debt' mechanism may, however, not be used in respect of security that is exclusively granted in favor of a lender (eg a Dailly assignment, pledge over tools and equipment or pledge over inventory).

French law trusts (fiducie-sûreté)

Under French law, it is possible to transfer the ownership of assets to a trustee (fiduciaire) in order to guarantee obligations owed to third parties. The trustee (fiduciaire) shall (i) hold such assets segregated from its own assets and (ii) following the occurrence of an enforcement event, transfer the ownership of such assets in accordance with the beneficiaries' instructions. It is, however, uncommon to use such a security structure in France.

The principle of agency is recognized under German law. For instance, it is possible to appoint an agent to act on behalf of other parties.

The English common law concept of trust is not recognized as a matter of German law. However, the same effect of a trust is achieved through the use of a similar German law legal instrument, namely a Treuhand which creates a contractual fiduciary relationship. Hence, in a finance transaction the security can be held by a security agent for the benefit of the secured parties as trustee under German law (Sicherheitentreuhänder) on similar conditions as a English common law trust. Particular provisions are required with respect to accessory security interests. (For more information, see Giving and taking guarantees and security.) Please note that, in order to minimize insolvency risks, the payment streams have to be checked on a case-by-case basis as the German Sicherungstreuhand does not, in contrast to an English common law trust, create a separate legal estate.

Ghanaian law recognizes the principles of agency and trusts.

Yes, as of 2013 both principles are recognized as a matter of Hungarian law, however, no significant court practice has been established yet regarding these legal instruments.

For instance, it is possible to appoint an agent to act on behalf of other parties and a trustee to hold rights and other assets on trust for the lenders or secured parties.

Yes, both principles are recognized as a matter of Irish law. For example, it is possible to appoint an agent to act on behalf of other parties and a trustee to hold rights and other assets on trust for the lender or secured parties.

In theory both principles are recognized as a matter of Italian law, although the trust concept is not yet commonplace in the Italian market and is seldom present in common lending structures.

From a practical perspective, in finance transactions with more than one finance party an agent is always appointed to act on behalf of the finance parties. It is extremely rare to have trustees appointed in connection with secured assets as generally trustees may encounter legitimacy issues in enforcing security interests. Parallel debt structure is not recognized/applicable in Italy.

Moreover, the agent usually is granted with reduced representation powers when such powers are granted by hedging banks which, for example, often have more flexibility in the management of the security interests assisting their claims (although subject to the restrictions of any intercreditor agreement).

Ivorian laws do, specifically, recognize the principle of agency but not the principle of trust.

However, the Uniform Act on Securities recognizes the concept of Security Agent which may be considered as a corresponding concept to the Security trustee.

The security agent is provided for under Article 5 of the Uniform Act on Securities which provides that “Any security or other guarantee to secure the discharge of an obligation may be made, registered, managed and executed by a financial institution or a national or foreign credit company acting in its own name and as surety agent appointed for that purpose by the creditor of the secured debt.”

Yes, both principles are recognized as a matter of Japanese law.

For instance, it is possible to appoint an agent (dairinin) to act on behalf of other parties or a trustee (jutakusha) to hold rights and other assets on trust for trust beneficiaries (juekisha), such as lenders or secured parties.

Agency

Agency (mandat) is recognized by the Luxembourg Civil Code as a contract under which a principal grants to an agent power to act in its name and behalf. However, powers of attorney, mandates (mandats) or appointments of agents (including appointments made for security purposes) may terminate by law and without notice upon the occurrence of insolvency proceedings and may be revoked despite being expressed to be irrevocable.

The Law of 5 August 2005, on financial collateral agreements, as amended from time to time (the Collateral Law), provides that financial collaterals may be held by a person designated by the beneficiaries (ie security agents acting for the lender(s)) without owning any secured debt (so no parallel debt mechanism is needed). Security trustee arrangements are also recognized under the Collateral Law.

Trust

The concept of a trust is unknown under Luxembourg law. However, foreign law trust arrangements are recognized in accordance with the Hague convention of 1 July 1985 on the law applicable to trusts and on their recognition (Hague Trusts Convention), ratified by a Luxembourg law dated 27 July 2003 on trusts and fiduciary contracts, as amended from time to time.

Luxembourg law has implemented the concept of fiduciary (fiducie), which, however, does not offer the same features of a trust.

Mauritius laws recognize the principles of agency and trust.

It is common to appoint an agent to act on behalf of other parties (as in syndicated loan transactions) and a trustee to hold rights and other assets on trust for the lenders or secured parties. Thus, the common-law principles of agency and trust are recognized in the Mexican legal framework.

Agency (mandat)

Agency exists under Moroccan law.

Trust and fiducie

Neither trust agreement nor fiducie has been recognized by the Moroccan jurisdictions.

The principle of agency is recognized under Dutch law.

Although a trust cannot be created under Dutch law, foreign trusts may be recognized by the Dutch courts under certain conditions.

Yes, both principles are recognized as a matter of New Zealand law.

For instance, it is possible to appoint an agent to act on behalf of other parties and a trustee to hold rights and other assets on trust for the lenders or secured parties.

The concept of a trust is not recognized under Norwegian law. However, the agency function is widely used and generally accepted under Norwegian law.

Peruvian law does not have any specific provisions about agency. Thus, any agency undertaken with Peruvian entities is governed by the provisions of any contract entered into between the parties.

Trust principles are recognized as a matter of Peruvian law and have specific regulations. For instance, it is possible to appoint a trustee (which must be subject to the supervision of the Superintendence of Banking, Insurance and Private Pension Fund Management Companies (SBS)) to hold rights and other assets on trust for lenders or secured parties.

Trusts are not recognized under Polish law.

Polish law provides for certain types of agencies that may be used in financing transactions, eg pledge administrator (administrator zastawu) or mortgage administrator (administrator hipoteki), who will act on behalf of the secured parties.

In addition, the concept of the parallel debt is recognized by the Polish courts.

Portuguese law recognizes the principles under which one person or entity may act on behalf of another as attorney.

The Portuguese legal system does not recognize the concept of a trust.

Although generally there is no fiduciary duty between the lender and the borrower, there are certain circumstances where the lender may be subject to liability against the borrower (for example, the exercise of unreasonable control and environmental liabilities).

Agency and trust structures are recognized under Puerto Rican law and therefore can be included in lending structures. For instance, it is possible to appoint an agent to act on behalf of other parties and a trustee to hold rights and other assets on trust for the lenders or secured parties.

The Romanian Civil Code expressly recognizes the possibility to create a movable mortgage in favor of a third party (agent) designated by the secured creditor. Such agent shall exercise all rights of the secured creditor which appointed it. This concept is, however, provided by law only in case of movable mortgages (immovable mortgages are therefore excluded). In practice, however, such an agency mechanism is not that frequently used, due to its limited regulation.

Furthermore, Romanian law does not recognize the common law concepts of ‘trusts’ and ‘trustee’. However, since October 2011, the Romanian Civil Code has introduced a concept similar to a trust, namely the ‘fiducia’. However, given the legal requirements related to the creation and registration of a fiducia (including tax related requirements), the fiducia is not commonly used in practice, particularly for taking security. Thus, in syndicated facilities security agents structures are commonly used.

The principles of agency are recognized in Russia. For instance, it is possible to appoint an agent to act on behalf of other parties.

The concept of trust, on the other hand, is not recognized under the Russian law, thus alternative structures (such as a credit agent (krieditnyj upravlyayushiy)) are used in syndicated secured transactions.

Senegalese laws do, specifically, recognize the principle of agency but not the principle of trust.

However, the Uniform Act on Securities recognizes the concept of Security Agent which may be considered as a corresponding concept to the security trustee.

The security agent is provided for under Article 5 of the Uniform Act on Securities which provides that “Any security or other guarantee to secure the discharge of an obligation may be made, registered, managed and executed by a financial institution or a national or foreign credit company acting in its own name and as surety agent appointed for that purpose by the creditor of the secured debt.”

A financial institution or a national or foreign credit company can act as a security agent.

Yes, both principles are recognized as a matter of Singapore law.

For instance, it is possible to appoint an agent to act on behalf of other parties and a trustee to hold rights and other assets on trust for the lenders or secured parties.

Slovak law recognizes the principle of agency. For instance, it is possible to appoint an agent to act on behalf of other parties. Financial agents are listed in the Register of Financial Agents and Financial Advisors maintained by the National Bank of Slovakia.

Slovak law does not recognize the principle of trust, so it is not possible to appoint a trustee to hold rights and other assets on trust for the lenders or secured parties.

Under South African law, an agent does not have locus standi (the right to bring an action) in litigious proceedings before South African courts. South African law therefore does not recognize the provision of security in favor of an agent (on behalf of other parties) or in favor of a trust (other than a trust which has been properly established in accordance with South African law). Further, the Deeds Registries Act does not permit registerable security (mortgage bonds, special notarial bonds and general notarial bonds) to be registered in favor of an agent. Security, under South African law, should be provided to the finance parties directly or to a special purpose vehicle (Security SPV) as described below.

For syndicated lending transactions, the most common security structure in the South African markets, involves the creation of a guarantee and indemnity structure and the interposition of a Security SPV (which is owned by an independent orphan trust). Pursuant to the structure, the special purpose vehicle issues an on demand guarantee in favor of the finance parties, in terms of which the Security SPV undertakes to guarantee the obligations of the borrower in favor of the finance parties. The security providers then enter into an indemnity agreement in terms of which the security providers indemnify the Security SPV against any claims made against it under the guarantee. All security provided by the security providers is provided in favor of the Security SPV as security for the security providers' obligations under the indemnity agreement.

No, the concept of a trust or a split between legal ownership and beneficial ownership is not generally recognized under Spanish law. Therefore, for instance, if security is granted in favor of a security agent or security trustee instead of each of the creditors, there is a risk that the Spanish courts may consider that the security agent or security trustee may only enforce the security in respect of the amounts owed individually to such security agent or security trustee under the secured obligations, but not in respect of the amounts owed to the other secured creditors. Therefore, it is highly advisable that, if possible, the security is granted in favor of all the relevant creditors.

Regarding the agency role, it is possible to appoint an agent to act on behalf of other lenders. This appointment will be principally for administrative purposes however, for example for the purposes of receipt of notices on behalf of each of the lenders.

Sweden has its own, complex principle of agency which is subject to rules under both statutory law and case law.

Sweden does not recognize the principle of trusts.

Only the agency concept is recognized under Thai law. 

For a long time, Ukraine as a civil law jurisdiction did not recognize trust structures. The Law of Ukraine ‘On Amendments to Certain Legislative Acts in relation to Stimulation of Investment Activity in Ukraine’ dated 20 September 2019 introduced the concept of security trust in Ukrainian law. The fulfilment of debtor’s obligations may be secured by way of transferring to the creditor, acting as a trustee, of the property owned by a debtor or a third party. A trustee receives an ownership right to the secured property, however, cannot alienate it, except for the enforcement purposes.

A trust shall be documented by a trust agreement in writing. A trust over immovable property must be notarised and becomes legally binding upon its state registration with the State Register of Proprietary Rights to Immovable Property. It is important that the trust property shall not be included into the liquidation estate neither of a trustee, nor a trustor. Furthermore, there is a carve-out for the trust property ringfencing it from moratorium under the insolvency law.

Yes, both principles are recognized as a matter of English law.

For instance, it is possible to appoint an agent to act on behalf of other parties and a trustee to hold rights and other assets on trust for the lenders or secured parties.

Yes, both principles are recognized as a matter of Scots law.

For instance, it is possible to appoint an agent to act on behalf of other parties and a trustee to hold rights and other assets on trust for the lenders or secured parties.

The concept of ‘trusts' and ‘trustees' are more regularly referred to in the UAE as ‘agent' or ‘security agent' or due to concerns around trusts not being recognised onshore in the UAE. By contrast, agency is a largely recognized concept and often utilized in onshore, offshore (including the Dubai International Finance Centre) and Islamic finance structures. In Islamic transactions, if the transaction is structured in compliance with Shari’a, the addition of an agent is not uncommon, in order for them to represent a group of lenders and guard their interests.

Further, onshore and offshore entities in the UAE may require a security agent to be employed, particularly in the context of security over certaim type of assets (such as shares) which is granted in the region and can only be enforced by local institutions or entities that have specific licenses. Typically, this only becomes an issue upon enforcement; however, lenders should be mindful of this as it may affect the value they place on such types of security.

It is also worth noting that parallel debt language is often used to support a security agent's rights to claim against a security provider in the UAE.

Yes, both principles are recognized as a matter of US law.

For instance, it is common to appoint an agent in connection with a loan or a trustee in connection with a bond. The agent or trustee, as applicable, may act on behalf of the lenders or secured parties or hold rights and other assets on for such lenders or secured parties.