Covid-19 coronavirus: Legal ramifications in asset finance
02 April 2020
Financiers, lessees, borrowers and sponsors in the asset finance sector are feeling the detrimental impact of Covid-19 on their business. This note examines some of the legal issues faced by the parties and how they might manage potential breaches of financing arrangements.
In particular this note looks at:
- how lenders might identify early warning signs of default by using their contractual rights to information to make an adequate assessment of the borrower's financial and operating condition
- how reliance on repeating representations such as MAC (material adverse change) can enable financiers to avoid continuing to lend to customers who are at an increasingly greater risk of failure
- the importance of careful interpretation of the wording of certain default triggers
- the impact of Force Majeure clauses, if and when such a clause exists, and the principles around their interpretation
- Frustration of contract under English law: how the circumstances surrounding Covid-19 might qualify to frustrate a particular contract and the relevant threshold for proving Frustration has arisen in a particular case
- important steps funding partners can take to preserve their positions if enforcement is currently being avoided
- letters of credit and dealing with the practical difficulties of submitting demands. What steps can be taken if banks are closed?