Brexit - LMA publishes views on documentary implications

Although the UK’s decision to leave the EU may potentially affect loan facility documents, generally speaking, there is not yet any need to amend them. However, withdrawal from the EU could require amendments to be made in due course and, on 06 September 2016, the Loan Markets Association published a statement setting out its views on the documentary implications for its facility documents. The statement covers five key areas.

Governing law

The use of English law reflects general market expectation and preference as a result of the emphasis which English law has long placed on respecting and implementing contracting parties’ commercial intentions when entering into contracts. It is unlikely that withdrawal from the EU will affect this significantly. As a result, the LMA does not plan to make any changes to governing law clauses in its facility documents.

Jurisdiction

Again, the choice of the jurisdiction of the English courts reflects market expectation because of the perceived commerciality and relative speed of the English courts and a general preference to choose the same governing law and jurisdiction. Withdrawal from the EU could affect the enforceability of English judgments in the EU but it is too early to say how. Given the uncertainty, the LMA does not currently plan to make any changes to its facility documents.

EU references

The LMA facility documents contain a number of references to the EU and to EU legislation. The LMA will be considering whether any changes are required in due course but, for now, are suggesting that users of the documents should consider whether any changes are required on a case by case basis.

Lending restrictions

General corporate lending is not, as such, regulated in the UK. However, some Member States require lenders to have licences to do so and many UK based lenders rely on “passporting” rights which could be lost on withdrawal. Some facility documents contain a so called “designated entity clause” which permits lenders to perform their obligations through affiliates. The LMA is currently working on a form of designated entity clause for its recommended facility documents.

Article 55 bail-in clauses

Although it remains the case that there is no legal requirement to include such a clause in English law documents, contracts which are still in place at the time of withdrawal may become subject to such a requirement, unless parties are able to take advantage of the disapplication under article 55 by which a Member State determines that liabilities can be subject to write down and conversion pursuant to the local law or a binding agreement with the local state. Given the uncertainty, the LMA is not recommending that English law contracts include a bail-in clause but has suggested that to do so may be helpful. If parties do wish to include such a clause, the LMA view is that the existing form of clause which the LMA has already published will be suitable for use without amendment.