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Covid-19 coronavirus: Legal ramifications in asset finance

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Jacovides Mario
Mario Jacovides

Partner

London

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Nelson Paul
Paul Nelson

Partner

London

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Young Kevin
Kevin Young

Partner

London

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Upcott Harry
Harry Upcott

Partner

London

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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?

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